THE LABOR LAWYER CONTENTS. Volume 17 Number 1 Summer 2001

THE LABOR LAWYER Volume 17 • Number 1 Summer 2001 CONTENTS EDITORIAL POLICY AND INFORMATION FOR AUTHORS ........................ ii THE EDITOR’S P...
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THE LABOR LAWYER

Volume 17 • Number 1 Summer 2001

CONTENTS EDITORIAL POLICY AND INFORMATION FOR AUTHORS ........................

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THE EDITOR’S PAGE ..................................................................... Robert J. Rabin

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THE PRACTICE OF INTERNATIONAL LABOR & EMPLOYMENT LAW: ESCORT YOUR LABOR/EMPLOYMENT CLIENTS INTO THE GLOBAL MILLENNIUM ............................................................................... Donald C. Dowling Jr. JUMPING SHIP: LEGAL ISSUES RELATING TO EMPLOYEE MOBILITY IN HIGH TECHNOLOGY INDUSTRIES ................................................

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William Lynch Schaller HOW THE AMERICANS WITH DISABILITIES ACT’S PROHIBITION ON PRE-EMPLOYMENT-OFFER DISABILITY-RELATED QUESTIONS VIOLATES THE FIRST AMENDMENT ................................................................ 107 Tung Yin ACCOMMODATING THE EMPLOYMENT DISABLED ............................... 143 Douglas L. Leslie RETAIL INDUSTRY PICKETING AND HANDBILLING: ACCESS RIGHTS OF NON-EMPLOYEE UNION REPRESENTATIVES, STRIKING, AND OFF-DUTY EMPLOYEES TO SHOPPING MALLS, PARKING FIELDS, STORES, AND OTHER PRIVATE PROPERTY ........................................................... 153 Laurie Nicole Robinson and Evan J. Spelfogel ORGANIZING CONTINGENCY WORKERS: COMMUNITY OF INTEREST V. CONSENT .................................................................................... 167 Nancy Schiffer WHEN IS A MULTIEMPLOYER BARGAINING UNIT A “MULTIEMPLOYER BARGAINING UNIT”? ..................................................................... 183 Robert W. Tollen EPILEPSY FOUNDATION OF NORTHEAST OHIO AND THE RECOGNITION OF WEINGARTEN RIGHTS IN THE NON-ORGANIZED WORKPLACE: A MANIFESTLY CORRECT DECISION AND A SEED FOR FURTHER PROGRESS ................................................................................... 201 Sam Heldman, Hilary E. Ball, and Frederick T. Kuykendall III EPILEPSY FOUNDATION OF NORTHEAST OHIO: A CASE OF QUESTIONABLE REASONING AND CONSEQUENCES ........................ 221 M. Jefferson Starling III Section of Labor and Employment Law Copyright 2001 American Bar AssociationBar Association http://www.bna.com/bnabooks/ababna/laborlawyer/17.1.pdf American

EDITORIAL STATEMENT: The Labor Lawyer is a journal of ideas and developments in the field of labor and employment law. Its objectives are to provide practitioners, judges, administrators, and the interested public with balanced discussions of developments in all areas of labor and employment law. The Labor Lawyer is geared to the practical needs of those who work in this area and seek to share their insights and viewpoints. The Editor encourages discussion of the broader policy issues that underlie these developments. The Labor Lawyer may be cited as follows, by volume and page: 17 LAB. LAW. (2001). EDITORIAL GUIDELINES FOR AUTHORS: The Labor Lawyer welcomes contributions from all interested persons. Articles should be submitted to Professor Robert J. Rabin, Editor, The Labor Lawyer, Syracuse University College of Law, E.I. White Hall, Syracuse, NY 13244-1030; phone: 315/443-3681; fax: 315/443-4141. In general, articles should be informal and direct. Endnotes should be confined to useful documentation. Only one copy, double-spaced, should be submitted. Endnotes must be double-spaced and placed at the end of the article. In preparing both text and endnotes, authors should refer to the following works for style: The Bluebook: A Uniform System of Citation (16th ed.) (Harvard Law Review Association, Cambridge, Mass.), and for matters of literary style not covered by this manual, The Chicago Manual of Style (14th ed.) (The University of Chicago Press, Chicago, Ill.), or The Elements of Style by William Strunk, Jr., and E.B. White (3rd ed.). Absent appropriate disclosure in connection with the article submission, The Labor Lawyer will rely on the author’s belief that the article’s subject matter has not been preempted. PERMISSIONS: Request to reproduce portions of this publication should be addressed to Director, Copyrights and Contracts, American Bar Association, 750 N. Lake Shore Drive, Chicago, IL 60611; phone: 312/988-6101; fax: 312/988-6030; e-mail: [email protected] DISCLAIMER: The material contained herein represents the opinions of the authors and does not express the views or the positions of the American Bar Association or the Section of Labor and Employment Law, unless adopted pursuant to the bylaws of the Association and the Section are so indicated. 娀 2001 American Bar Association. All rights reserved. Printed in the United States of America. Produced by ABA Publishing. SUBSCRIPTION PRICES: Any member of the American Bar Association may join the Section upon payment of its annual dues of $40.00, $10.00 of which is for a subscription to The Labor Lawyer. Law Student Division members of the American Bar Association may join the Section for $8.00 annual dues. Institutions and individuals not eligible for Association membership may subscribe to The Labor Lawyer for $45.00 ($51.00 for Alaska, Hawaii, U.S. possessions, and foreign countries). Membership dues in the American Bar Association are not deductible as charitable contributions for federal income tax purposes. However, such dues may be deductible as a business expense. ORDER INFORMATION: Current issues of The Labor Lawyer may be obtained for $16.95 per copy, plus $3.95 for handling from the ABA Service Center, American Bar Association, 541 N. Fairbanks Ct., Chicago, IL 60611, phone: 800/285-2221, fax: 312/988-5528, e-mail: [email protected] Back issues published two years ago and earlier may be purchased from William S. Hein & Co., Inc., 1285 Main Street, Buffalo, NY 14209, phone: 800/8287571. FREQUENCY, POSTAGE: The Labor Lawyer (ISSN: 8756-2995) is published three times per year by the American Bar Association, Section of Labor and Employment Law. Thirdclass postage is paid at Chicago, Illinois, and additional mailing offices. ADDRESS CHANGES: Send all address changes to The Labor Lawyer, ABA Service Center, American Bar Association, 541 N. Fairbanks Ct., Chicago, IL 60611; phone: 312/988-5522; fax: 312/988-5528, e-mail: [email protected] INTERNET ACCESS: Visit The Labor Lawyer homepage at Syracuse University: www.law.syr.edu/labor_law; and our ABA Web site: www.abanet.org. on acid-free paper.

Copyright 2001 American Bar Association

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The Labor Lawyer A Journal of Ideas and Developments in Labor and Employment Law EDITOR

Professor Robert J. Rabin Syracuse University College of Law Syracuse, New York 13244-1030 EDITORIAL BOARD

William L. Keller, Chair Laurence E. Baccini Michael H. Beck Allan L. Bioff Robert M. Dohrmann

Howard Lesnick David M. Silberman Evan J. Spelfogel Marley S. Weiss

STUDENT EDITORIAL BOARD

2000–2001 Syracuse University College of Law EDITOR-IN-CHIEF

Dana F. Proyect ARTICLES EDITORS

Shelly Mui Kathleen M. O’Brien SENIOR ASSOCIATE EDITORS

Luke T. Cooper James C. De Francisco

Courtland D. Rae James A. Tacci ASSOCIATE EDITORS

Nicolle M. Allen Elizabeth Kazarinoff

Copyright 2001 American Bar Association

Mirlen A. Martinez Marissa Ross Benjamin A. Scales

Ruchi Thaker Kevin Whittaker

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Editor’s Page Worker Participation in the Nonunion Workplace The issue that comes out around this time of the year usually includes one or two sets of articles that were presented at the midwinter meeting of our Section’s Committee on the Development of Law under the NLRA. This is an opportunity to present strongly held positions from opposite sides of the spectrum. Two of the articles included in this issue set the stage for this Editor’s Page. Sam Heldman, Hilary E. Ball, and Frederick T. Kuykendall III, on the union side, and M. Jefferson Starling III, on the employer side, discuss the applicability of Weingarten rights to workers in a nonunion workplace under the National Labor Relations Board’s recent Epilepsy Foundation decision. Weingarten, you might recall, is a Supreme Court decision holding that under section 7 of the National Labor Relations Act, a worker has the right to have her union representative present if she is called for an interview in which she is the subject of possible disciplinary action. Weingarten makes clear that the company does not have to accede to the worker’s request but may choose instead to forego the interview altogether. What the company may not do is discipline an employee for her refusal to be interviewed without her union representative. This doctrine appears to work well in a unionized workplace. As a practical matter, its acceptance may stem from the reality that in the unionized workplace the worker can challenge her discipline through arbitration. One of the elements of just cause may be the opportunity of the worker to tell her side of the story in the presence of a union representative. Some collective bargaining agreements expressly provide for such representation in the investigative stage. Toward the end of its tenure, the Clinton NLRB applied Weingarten to the nonunion workplace in Epilepsy Foundation. The case marked a return to a position the board had held several decades ago but later rejected for an intervening period. The Heldman et al. piece argues that Epilepsy Foundation is an unexceptional application of a worker’s section 7 rights. The Supreme Court’s Washington Aluminum case (in which workers walked off the job to protest an unreasonably cold work area) held that section 7 rights applied to workers in a nonunion workplace. On the other hand, the Starling piece suggests that the key statutory provision is section 9, which requires an employer to deal with the designated representative of its employees. If the employer deals with a worker and the person who represents her in the investigation of the disciplinary matter in a nonunion setting, this may violate secCopyright 2001 American Bar Association

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tion 8(a)(2) of the NLRA. The management position also stresses the more practical consideration that the acquisition of Weingarten rights may be a pyrrhic victory for the employee because the employer will simply choose to conduct the investigation without talking to the target at all, and in an at-will situation, this lessens the targeted employee’s chances of prevailing. What I find most interesting about Epilepsy Foundation is its acknowledgment that the NLRA has some application to the nonunion workplace. When academics teach and prepare materials for a traditional labor law course, which concentrates on the unionized workplace, they often wonder whether there are any useful doctrines that apply to the nearly ninety percent of American workers who are not represented. The recent and very short-lived OSHA standard on ergonomics raises a similar question. You might recall that, during the Clinton years, OSHA tried to put together a standard that would address the problems of repetitive motion injuries—a syndrome that was taking a great toll in the workplace. For a few years, as part of Congress’s appropriations process for the agency, it had forbidden OSHA to even think about such a standard. OSHA ultimately succeeded in promulgating an ergonomics standard, but Congress killed it under a fast track procedure for review of administrative regulations. Many in Congress were undoubtedly opposed to any form of regulation in this area, while others were critical of the specifics of the regulation. On the assumption that the new ergonomics standard would hold up, I put together a symposium on ergonomics at the College of Law, which was held this spring. It was unique in that it had only one lawyer as a speaker. The others, including two doctors, were specialists in occupational safety and medicine. I invited OSHA representatives as well as a union representative who specialized in health and safety. There was a surprising consensus that with a little bit of thought and usually without too much money, a company will reduce the incidence and costs of excessive absenteeism, turnover and workers’ compensation claims that result from employee injury due to repetitive motion. Most of the speakers thought the OSHA regulations were a positive contribution toward fixing this problem. The standard relied heavily on worker participation. Workers were supposed to report injuries and were to be consulted about proposed improvements in ergonomics. In the flurry of litigation challenges (all rendered moot by Congress’s action) were claims that the OSHA provisions for worker participation violate section 8(a)(2) of the NLRA. Workers report and have input, which may result in dialogue. If the employer effectuates the recommended changes, this could be dealing with an employee representative in violation of section 8(a)(2). The union movement and many academics contend that section 8(a)(2) is a good thing, for it prevents an employer from hoodwinking Copyright 2001 American Bar Association

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its employees into thinking that they have an effective form of representation through informal worker participation, when in reality they have nothing. Nevertheless, I continue to wonder about that other ninety percent and whether they really are not better off having some form of worker participation than nothing at all. It seems to me that far from chilling vigorous unionism, the experience of dealing with management in the ergonomics setting could teach workers a big lesson about the value of the right to bargain and could serve as a platform for union organizing. Epilepsy Foundation and the failed ergonomics standard combine to question whether it is not a good idea to afford some participatory rights under the NLRA to workers who do not enjoy the benefit of union representation. A second pair of excellent articles presented at the midwinter meeting address the timely issue of the organizing of contingent workers in light of the NLRB’s recent Sturgis decision. I thank the Chairs of this committee for allowing the use of these excellent papers. Space does not permit a summary of the remaining articles in this issue, but a glance at the table of contents reveals that they raise a wide variety of important issues. The Student Editors I had the pleasure of working with another marvelous group of student editors during this past year. Shelly Mui and Kathleen M. O’Brien were superb as they took on a large share of the work as articles editors. Our wonderful editor-in-chief, Dana F. Proyect, was probably the most timely editor in our history. We met all our deadlines handily, and just as I would heave a sigh of relief when one issue was done, Dana would be at my door or in my e-mail, asking the whereabouts of the copy for an upcoming issue. Our other senior editors, Luke T. Cooper, James C. De Francisco, Courtland Rae, and Dr. Jim Tacci go back with me to our first-year classes or other collaborative situations, and I enjoyed working with all of them during their law school careers. Robert J. Rabin, Editor

Copyright 2001 American Bar Association

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The Labor Lawyer 2002 Student Writing Competition The annual student writing competition is open to students at all ABA-accredited law schools. Papers may be written on any topic in the field of labor and employment law and will be reviewed by The Labor Lawyer staff and a committee of the editorial board. One prize, $500, will be awarded to the finest writing sample received, and the paper will be published in The Labor Lawyer. Runner-up papers might also be published. Papers must be postmarked by the submission deadline: August 31, 2002. Send all papers to Professor Robert J. Rabin, Editor, The Labor Lawyer, Syracuse University College of Law, E.I. White Hall, Syracuse, NY 13244–1030. Note: Papers must not exceed forty double-spaced pages (including double-spaced endnotes). Papers must follow the format detailed in the Editorial Guidelines on page ii.

Copyright 2001 American Bar Association

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The Practice of International Labor & Employment Law: Escort Your Labor/Employment Clients into the Global Millennium* Donald C. Dowling Jr.** I. Introduction International labor and employment law, as a practice area, is still just a tiny corner of labor and employment law practice, but its importance in the new millennium is exploding. Traditionally, international employment practice barely even existed because every individual job is based out of some one single place of employment and because human resources policies never spanned borders. Of course, lawyers who specialize in international business transactions have always run into plenty of employment issues in their deals, and domestic labor-andemployment lawyers, every once in a while, have brushed up against the odd international issue. Lawyers who concentrate their practices on international labor and employment law traditionally have been very few. Yet now, in the new millennium, international labor and employment law, as a discrete law-practice concentration, is mushrooming because of enormous pent-up demand. The demand chiefly comes from multinationals scrambling to become (and claiming to be) global. Going global—as opposed to remaining a mere multinational—is a hot business trend, akin to what total quality was years ago. Of course, the globalization trend has a profound effect on labor unions and many individual employees. * This article is derived from the author’s chapter titled International Labor & Employment Law in the INTERNATIONAL LAWYER’S DESKBOOK, 2d ed. (L. Low, P. Norton, and D. Drory, eds., American Bar Association, 2001). Consistent with the format of that book, the article does not contain footnotes, but a bibliography follows at the end. ** Global legal consultant at Hewitt Associates LLC, Lincolnshire, Illinois; officer and council member of the ABA Section of International Law and Practice [SILP]; past chair of SILP International Employment Law Committee. Chair of the Chicago Bar Association’s International & Foreign Law Committee; past chair of Cincinnati Bar Association’s International Law Committee. Adjunct faculty law professor teaching European Union Law (formerly at the University of Cincinnati College of Law and now at Hamline University School of Law’s summer abroad program in Modena, Italy). University of Chicago (A.B. 1982); University of Florida College of Law (J.D. 1985). Member of the Ohio and Illinois bars. Mr. Dowling thanks the Hewitt Associates’ research practice for assistance in compiling the bibliography.

Copyright 2001 American Bar Association

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Regardless of which definition of going global a multinational chooses, globalization necessarily has to include the idea that a business’s own people—the employees who make it up—get organized according to some system other than geography. Ignore multinationals’ claims and puffery: No company is global until its people are. However, globally structuring a multinational workforce is impossible without plenty of guidance on the many legal issues involved. So as long as going global remains a top priority among multinational employers, the outlook will be rosy for international employment-law practitioners—whether they represent employers, labor unions, or individual employees. Back in the protectionist trade era, even giant international companies structured their personnel functions as mere collections of silos, granting independence and autonomy in human resources to each local operation where they did business. Now, WTO-fueled free trade compels multinationals to integrate their manufacturing, distribution, and sales—and, therefore, their talent operations—worldwide. Technology accelerates the trend: Look at any multinational and you will see that e-mail, cell phones, computers, and transportation now thrust into daily contact co-workers who happen to live in different countries. Not surprisingly, it makes less and less practical sense for a multinational to discriminate among its own co-workers, as to their employment terms, based only on the nation each happens to hail from. Add to the mix the fact that in the high-tech age, talent is being touted as businesses’ chief asset and competitive advantage (taking the place that capital held in the industrial age), and it is no wonder that multinationals are coming to demand sophisticated expertise in international employment matters and in the legal issues involved. This just looks at the employer side. Simultaneously, globalization reaches employees—and their lawyers. International used to be little more than a word in the names of U.S.-based labor unions. Today, however, the AFL-CIO staffs twenty-six offices outside the United States, foreign trade unions increasingly enlist the help of U.S. organized labor, and U.S. labor has a loud voice in America’s international trade policy, from NAFTA to the WTO to China relations. Meanwhile, with the rise of expatriate assignments and immigration, lawyers who represent individual employees and executives increasingly run into problems that span borders. Outshining both the globalization of multinational employers and union/employee matters is the meteoric rise of international labor law in public consciousness. Before December 1999, international labor law was an obscure topic that interested almost nobody outside Geneva, Switzerland—the seat of the International Labour Organization (ILO). In December 1999, international labor law rights (along with international environmental concerns) ignited riots at the now-infamous Seattle WTO meeting. Seattle police declared a week-long state of martial Copyright 2001 American Bar Association

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law; the rioters’ destruction cost $3 million and spooked the WTO into scheduling its next meeting (November 2001) in remote and authoritarian Qatar. The Seattle riots were no one-time fluke; they were the dawn of an era. International-labor-law issues touched off looting just a month after Seattle’s riots at a World Economic Forum (WEF) meeting in Davos, Switzerland (January 2000). These issues ignited mass demonstrations at a World Bank/IMF meeting in Washington, DC (April 2000); they led to Molotov-cocktail-throwing at the subsequent World Bank/IMF meeting in Prague (September 2000), and they caused mass demonstrations at the subsequent Swiss WEF conference (January 2001). So coming out of nowhere, international labor law has grabbed the attention of globalizing multinationals, the international labor movement, activists, newspapers, governments, and non-governmental diplomatic organizations (NGOs) the world over. In the process, international employment law morphed from an arcane backwater into a tinderbox that (quite literally) ignites violence in the world’s streets. Today, it is little wonder that the outlook is indeed rosy for international employment-law practitioners. II. What International Labor and Employment Law Practice Is Not Appreciating that international labor and employment law practice is at last coming into its own means nothing until one understands what international labor and employment practice actually is. Because international issues have not traditionally been on labor and employment lawyers’ radar screens, many labor/employment specialists do not understand the international field, and they make wrong assumptions about what it must be. Indeed, plenty of labor/employment practitioners out there still insist that international labor and employment practice does not even exist. These practitioners point out that every country has its own discrete employment law system and that any lawyer who advises on foreign labor/employment law is merely practicing overseas law without a license. Alas, while this analysis perhaps used to make sense, in the new global millennium it is no longer quite so simple. This article demonstrates why international labor and employment law practice is an increasingly viable—indeed, vital—concentration within labor and employment law practice. Because international labor/employment law practice is so poorly understood, I have to start by clearing up the misconceptions. I begin by discussing what the practice of international labor and employment law is not. A. Single Foreign-Country Employment-Law Practice A scenario that happens all the time is as follows: A U.S. labor/employment lawyer sitting in an office in Cleveland or Sacramento or wherever receives a call from a frantic client, a U.S.-based Copyright 2001 American Bar Association

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multinational. Breathlessly the client announces, “We need to fire a guy in our Paris office immediately,” or “We’ve just announced we’re shutting down our Sa˜o Paulo factory and we don’t know what we need to do,” or “Our Tokyo people just made a job offer to a sales manager who is demanding a written employment contract,” or “Our plant manager in Sydney says we might be getting a union. What can we do?” These are all urgent and important questions, but none involves international labor or employment law: Each involves merely a single country’s foreign employment laws. When any one single country is the site of employment, the residence of the employees in question, and the place of controlling law, there is no cross-border or international issue—even if the employer’s parent company is a multinational based elsewhere (for example, in the United States). Indeed, in these situations the only international issue is that the U.S. lawyer being asked the question is trained and licensed in the wrong country’s legal system. No lawyer in any one country will ever master (or be licensed to practice in) all the local domestic employment laws of every nation on the planet. There is no such thing as a global practitioner of foreign employment laws. The quick way to tell whether a client’s question is merely one of a single foreign country’s law is to determine whether a local employment lawyer in the foreign country at issue would see the whole problem as arising under local domestic law. If the answer is yes, then what is needed is an employment lawyer in the right country. Single foreigncountry employment law questions come up all the time in international employment practice, so international employment lawyers do indeed need to be able to help field them. Develop a network of overseas employment lawyers, and to understand the issues, get access to upto-date research materials on foreign employment laws (such as those listed in the bibliography for this article). Note, though, that I am confining my discussion to single foreigncountry issues, not multiple foreign-country problems. International employment-law practitioners have to be intimately familiar with the wildly different issues that arise under foreign (local) employment laws because international employment practice constantly involves questions of multiple countries’ foreign laws simultaneously. Multiple foreign-country-law problems are, by definition, cross-border and hence international. Cross-border projects that simultaneously raise issues under a cluster of foreign countries’ domestic employment laws require the oversight of a single international employment expert collecting answers or opinions from local practitioners in each country involved and molding them together into a global solution for the client. Examples of these projects include the following: a multinational that wants to roll out a stock-option plan to its employees in, say, sixteen countries; a multinational that demands an employment-law comCopyright 2001 American Bar Association

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pliance audit in, say, the five countries where it has factories; a company doing due diligence for the acquisition of a multinational that employs talent in, say, three countries; and a U.S.-based multinational that needs to ensure its human resources information system or PeopleSoft program, e-HR system, and internal Web site all comply with foreign data protection laws everywhere it operates. B. Public International (Diplomatic) Employment-Law Practice Because international employment-law practice does not involve single-country foreign practice, many labor/employment lawyers assume it must involve public-international or diplomatic employment law (such as treaty-drafting for the ILO, government dispute resolution under NAFTA’s North American Agreement on Labor Cooperation (NAALC), and international employment-standards projects for the UN and the WTO). Public international employment law is, of course, a cutting-edge topic that is constantly in the news, so perhaps it is unfortunate that public law issues rarely come up in the private practice of international employment law. Yes, there are plenty of lawyers who wrestle daily with public law employment issues, but these lawyers tend to hold policy positions with governments or NGOs and are not practicing law in the usual sense of the term. However, public international employment law kicks up plenty of issues that land in private practitioners’ laps. A good example is the diplomatic focus on labor standards in international trade treaties, which leads to lots of international employment-law work, drafting multinationals’ codes of conduct. Another example is the dispute-resolution body of the NAFTA labor side agreement, the NAALC. Although open only to nations as parties, most NAALC disputes implicate individual companies’ employment practices (NAALC cases, though, are rare). C. Inbound-Employer Law Practice Often American employment lawyers who represent foreign-based multinationals in matters involving U.S. operations think of these matters as involving international employment law, but really they do not. Local employment-law practice representing an overseasbased client is more likely to raise cross-cultural problems than crossborder legal ones. Think of a German auto maker opening a plant in the Carolinas: Carolina employment lawyers would need to educate German expatriates on how things get done in stateside workplaces, but the laws that govern a German-owned Carolina factory’s relationships with its workers are local U.S. laws. The same is true for lawyers who represent individual employees; even when clients are immigrants, cases arising within the United States under U.S. employment laws (including nationality discrimination issues) are usually always domestic law matters. Copyright 2001 American Bar Association

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There are some exceptions, but they are few (and frankly, literature makes too much of them). In the 1980s, for example, in U.S. courts, there was a discrete line of cases involving Japanese-based companies that were alleged to have discriminated against American-born managers in favor of Japanese expatriates. These cases implicated a socalled Friendship, Commerce, and Navigation Treaty, and to this extent, they genuinely were international employment law matters. But cases like these are rare and come up only randomly; no one bases a law practice around them. D. Immigration Law Practice Immigration is relevant to international labor and employment law practice chiefly to dismiss it: The practice of immigration law is a discrete area unto itself. Immigration is not a branch of international employment law. Why? First, immigration law is not strictly international law because it involves whether an alien is entitled to a visa under local domestic laws of a host country: An immigrant may have crossed borders, but the legal issues have not. (Indeed, many immigration lawyers’ employer clients are not multinationals; they are domestic businesses without any international employment operations.) Second, immigration law is not really employment law because immigration law looks to whether a government will award an alien permission to reside inside its borders. Yes, lots of visas are linked to employment, but many aliens, even aliens with good jobs in a host country, get visas unconnected to employment status. Yet immigration laws—particularly foreign countries’ immigration laws—often play a role in international employment-law projects. For example, international employment lawyers have to keep aware of immigration law issues as they design a multinational employer’s expatriate policy and as they integrate human resources operations after a global merger or acquisition. III. Practice for Multinational Companies Having disposed of what international employment law practice is not, now I can drill down to what the practice actually is. The best way to understand international employment as a law-practice field is to look at the contexts in which international employment lawyers actually work. Labor and employment lawyers define their practice contexts according to who their clients are: employers, labor unions, or individual employees. These three groupings define international employment-law practice. I begin with the biggest of these three practice contexts: practice for multinational-company clients. The recent rise of the importance of talent in business operations and the fact that free trade and technology push multinationals to integrate human resources operations across borders mean that, these Copyright 2001 American Bar Association

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days, multinational clients ask all kinds of international employmentlaw questions. Indeed, it is impossible to spell out every type of international employment-law problem that multinationals run into, but I can summarize the main areas where these issues arise. A. Global Legal-Compliance Audits A multinational that globalizes its talent operations quickly realizes how little headquarters knows about the human resources policies and practices the company offers around the world—and whether its own overseas human resources programs comply with local laws. So multinationals embarking on talent-globalization projects often start with a worldwide employment-law compliance audit. International employment law practitioners (in liaison with local employment experts, of course) are the ideal candidates to quarterback these projects. B. Global Policies and Handbooks When multinationals think about globalizing human resources procedures, the common knee-jerk reaction is to try to propagate a single set of employment policies, a single global handbook, or a single form employment contract (countries from Mexico to Chile to China to all of the European Union (EU) require employers to give each employee a written employment contract or statement). Unfortunately, the radically different employment laws of the world make these projects, in many respects, impossible. But it is possible—and desirable—for a globalizing multinational to articulate overall employment philosophies and objectives and implement them locally. International employment lawyers often help lead these projects, translating global talent aspirations into collections of local employment policies that mesh with one another. Some multinationals that think about globalizing work policies assume they need a global employee handbook or collection of HR policies. Many U.S.-based companies long for a single handbook they can apply around the world. Global handbooks, though, are impossible to draft with any specificity due to huge differences among local employment laws and customs. Regardless of the wording of a disclaimer, legal systems outside the United States tend to enforce handbooks as contracts (something American companies fear). Global-handbook projects are, therefore, best directed to a global employment-law professional. However, workplace policies on many specific topics—from employee communications to workplace harassment to workplace diversity to performance management to employee recognition and motivation—are increasingly susceptible to globalization, and multinationals are increasingly issuing global (or globally coordinated) policies in these and other areas. One specific employment policy that merits special attention—because it is inherently global by its nature—is a multinational’s expatriate policy. Expensive, old-fashioned, and U.S.-centered Copyright 2001 American Bar Association

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expatriate policies built on the old model of overseas postings as hardship duty no longer make sense in this era of mobile, globally pluggedin talent. International employment lawyers play a key role in crafting affordable expatriate policies that account for today’s global workforce. C. Global Labor Relations Related to globalizing employment policies is the issue of globalizing labor relations. Plenty of U.S.-based employers actually forget about unions, because only nine percent of the U.S. non-government workforce is unionized. Abroad, though, unions are statistically far more likely to represent a company’s workers. Actual union representations and collective bargaining will always be inherently local (except in Europe, where there is talk of elevating labor relations to the European level). As free trade pushes multinationals to restructure production and distribution globally, multinationals see that they now need to globalize collective bargaining strategies. On-the-ground labor negotiators in a company’s overseas facilities need to get a heads-up as to what changes headquarters will impose down the road, and they need to know what their counterparts in other countries are telling their unions. Unions compare notes and forge formal alliances with other unions abroad. International labor lawyers are uniquely positioned to integrate multinationals’ laborrelations practices. D. Human Rights, Civil Rights, and Codes of Conduct The highly charged politics after the 1999 WTO riots in Seattle catapulted onto international employment-law agendas a range of issues involving multinationals’ human rights, civil rights, codes of conduct, and minimum employment guarantees around the world. Just ask McDonald’s or Nike. The ethical investor movement fuels the flames; billions of dollars are now invested in funds that push companies to do double bottom-line assessments, auditing not only a financial bottom line, but a social one as well. It is little wonder that the Ethics Officer Association now reports that every single one of the Fortune 500 boasts a code of conduct. Industry-wide and NGO-produced codes also get pushed on multinationals. Codes of conduct are corporate pledges of minimum employment standards ensured around the world—not only in a multinational’s own employment operations, but, often, even in suppliers’ workplaces. Consulting firms like PricewaterhouseCoopers and Deloitte & Touche employ hundreds of people who draft and monitor these codes; specialty consulting/monitoring firms like Verite´ dedicate themselves to the field. America’s code-of-conduct industry offers enormous opportunity to international employment law counselors because—believe it or not— the entire movement is built on the fallacy that America’s minimum labor standards are superior to those in poor countries. The underlying Copyright 2001 American Bar Association

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idea that U.S. companies should extend American-style employment protections to help third-world workers makes no sense at all because poor countries actually offer their workers better protections than the employment-at-will, laissez-faire U.S. does. (For details on what the third world’s tough employment laws say, see the summaries of foreign employment laws in the bibliography and my article, The Multinational’s Manifesto on Sweatshops, Trade/Labor Linkage, and Codes of Conduct.) Poor-countries’ employment protection laws not only require all the basics (no child labor, a minimum wage, adherence to safety standards, and the right to unionize), but—unbelievable as it is to Americans—they go a lot farther, well beyond the U.S. counterparts. Typical examples are as follows: Mexico requires mandatory annual profit sharing, mandatory year-end bonuses, and paid vacations—at premium pay. Peru and Venezuela require employers to provide onsite childcare. Chile requires an hour a day paid leave for mothers to feed babies. India requires six weeks’ paid leave when a woman has a miscarriage. China requires employers to pay for worker housing. Nigeria’s worker compensation system compensates for non-job-related illnesses. Malawi allows a twenty-percent minority of a workforce to vote-in a union (overruling an eighty-percent majority). The Philippines requires an annual government safety inspection of every work site (even where there are no reported problems). South Africa mandates affirmative action even for private non-government-contractor employers, and South Korea statutorily mandates sexual harassment training. Almost every third-world country imposes rest periods, absolute caps on hours worked, and severance pay for firings. Yet U.S. law does none of this. The irony here makes international employment lawyers critical players in drafting and enforcing codes of conduct: Only an international expert in comparative employment laws can ground a code of conduct in compliance with other country’s sophisticated and tough employee protections. Going beyond codes of conduct, still other workplace civil-rights issues arise in multinationals’ cross-border operations. America’s unique bundle of anti-discrimination laws has, of course, spawned detailed domestic employment policies that ban harassment and ensure workplace diversity (and sometimes affirmative action). In sharp contrast to a few decades ago, all American employers now claim to be committed to eradicating workplace harassment and promoting workplace diversity. So sooner or later, it occurs to every globalizing American company that, just maybe, a real commitment to fighting harassment and ensuring diversity cannot stop at the U.S. border. Abroad, most countries’ employment laws and cultures all but ignore these issues (although this is changing: South Africa recently mandated affirmative action, South Korea recently mandated harassment training, and the EU recently passed broad anti-discrimination directives). The Copyright 2001 American Bar Association

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upshot is that, for the most part, overseas workplaces are not yet ready for America’s harassment and diversity polices—at least in their current, American-style form. International employment lawyers are ideally situated to guide multinationals toward a workable middle ground. Another human-rights-in-the-foreign-workplace issue affecting international employment-law practice is the new but huge trend among foreign workers to bring bet-the-company employment class-action lawsuits in U.S. courts. For example, Unocal Oil is defending itself against a billion-dollar California class action over work conditions in Burma. The New York-based maker of Perry Ellis clothes paid $30 million to settle a Texas lawsuit over an employee benefit it offers in Mexico. Chiquita and Dole are being sued in Texas by thousands of sterile banana pickers from Africa, Asia, and Latin America. Decades after the fact, Ford and Bayer were sued in the U.S. for profiting from slave labor in Germany during World War II, and Mitsubishi was sued in California over labor relations practices in World War II-era China. The Gap, J.C. Penney, and The Limited were sued in California for $1 billion by a class of 50,000 workers from Asia. Nike and other apparel makers and retailers constantly fend off threatened U.S. class actions arising out of alleged overseas sweatshops. Only an international employment lawyer should be entrusted with the defense of these class actions because they raise tricky and specialized issues ranging from sovereign immunity to international treaties to the workers’-compensation-bar defense. Anyway, waiting for a class action to get filed takes too long: Multinationals need international employment lawyers on the front end, ensuring overseas employment operations do not expose them to too much risk. E. Global Employee Benefits, Compensation, and Stock Options In 2000, Ford Motor Company took a simple but masterful step in globalizing its workforce when it announced that every Ford employee, the world over, would get the use of a home computer and printer for $5 a month. From the point of view of employee benefits structure, Ford’s subsidized computer was a very rudimentary offering, but Ford’s gesture garnered glowing praise on the front page of The New York Times. Ford’s simple benefit was lauded as a huge step toward globalizing its workforce. The lesson is that globalizing benefits is a key piece to globalizing a company. Right now, most multinationals are taking huge steps toward globalizing compensation and benefits, starting by articulating a global rewards philosophy and implementing it through global rewards programs—although huge differences among the world’s health care, social security, and mandatory benefit-law systems make full uniformity impossible. (Indeed, it is still impossible to design a single penCopyright 2001 American Bar Association

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sion plan just for Europe.) While complete global uniformity of benefits and compensation systems is still a far-off goal, plenty of work exists right now for international employee-benefits and compensation practitioners. One huge piece of international benefits and compensation is stock options (i.e., employee ownership). U.S. companies tend to embrace the business justifications for giving their employees options, so (not surprisingly) American multinationals like to extend employee option/ownership programs abroad. After all, the same reasons for offering options stateside apply to foreign employees—especially now that options are better understood and appreciated abroad. Global option/ownership plans mean a lot of work for lawyers. Securities and employee benefits are regulated heavily everywhere; indeed, just owning stock can be illegal (in places like China and Russia), and even countries like France and England offer a special tax-favored status for stock options that requires a lot of t-crossing and i-dotting. F. Data Privacy and Global Human Resources Information Systems Another big problem is starting to send multinationals scrambling to international employment law practitioners: data privacy. Multinationals employing people worldwide need to ensure foreign data privacy laws accommodate their global personnel information systems—systems like human resources information systems (HRISs), global performance management, and global benefits/stock options. Back in October 1998, the EU had implemented sweeping data protection laws, and these laws have since been cloned by governments around the globe, from Eastern Europe to Canada to Asia to South America’s southern cone. Data protection laws protect personal—including personnel—information (even basic stuff like addresses and phone numbers) as if it were private property that could not be used without its owner’s permission. The philosophy underlying these data laws is tough for Americans to grasp. The First Amendment affirmatively grants the right to traffic information about others. Besides, Americans actually like the benefits that flow from readily available data about themselves. Yes, telemarketing and spam e-mails can be annoying, but Americans accept them because they love the trade-off that ready access to personal data allows: fast and easy credit. (What American is ready to give up the joy of buying a car, signing for a loan, and driving off the dealer’s lot the same day?) A multinational’s overseas employees think very differently. Workers abroad can be surprisingly circumspect to HR data about themselves that their employer—especially if it is a faceless American giant—inputs into its computers and transmits to God knows where. Data privacy laws are designed to quell concerns like these. The probCopyright 2001 American Bar Association

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lem is that in globalizing a personnel system in this era of e-HR, HRISs, and PeopleSoft, the data laws’ effect can be downright Luddite-like. American multinationals aiming to globalize HRISs hit a wall when some lawyer explains that they cannot use their own databases for otherwise legitimate business purposes. Unfortunately, U.S.-based multinationals face even bigger dataprivacy problems than their locally based competitors abroad because data-protection countries erect huge barriers to transmitting personal data offshore. (The countries fear that scofflaws will send personal data about local citizens abroad to do what would be—in the data’s country of origin—illegal.) These barriers frustrate U.S. multinationals whenever headquarters decide to roll out global performance management, stock options, or HRISs. In 2000, the EU and the United States hammered out a safe harbor agreement setting out a complex system by which, in theory, compliant U.S. companies could repatriate data about Europeans without fear of prosecution. One job of international employment lawyers is to ensure that global HRISs and employment data systems comply with this safe harbor’s principles or with foreign countries’ domestic data-protection laws. G. Global Mergers and Acquisitions I constantly hear how global mergers and acquisitions (M&A) are critical events in the life of any aggressive multinational (for example, apparel giant Warnaco Group, in a recent six-year period, made fourteen acquisitions and eight divestitures, many of them global in scope). In 2000, according to a widely reported statistic, M&A worldwide totaled $3.48 trillion. It is rare to hear about the fact that most merger-andacquisition deals fail. The occasional transaction actually ends up unraveling; more frequently, a deal fails by draining profits from the merged company and inflicting a blow to the stock price. Research shows that seventy-five percent of M&A never realize expected results; more tellingly, a full eighty-three percent of global deals (i.e., transactions between multinationals or companies in different countries) fail to bring any benefit to shareholders. Why do so many global deals end up being losers? According to the research, a huge reason is people—employees. Look at the granddaddy of failed deals, the now-unraveled AT&T and NCR merger. The reasons AT&T’s marriage to NCR ended in divorce clustered around incompatible corporate cultures and other human resources problems. A more recent, if less extreme, example is the people problem that is dogging DaimlerChrysler. Any global merger-and-acquisition deal starts with due diligence. And in global due diligence, employment needs to play a starring role— even though in U.S. transactions, employment, at best, gets relegated to the supporting cast. In domestic deals, particularly where no labor union is involved, employment due diligence can afford to be light Copyright 2001 American Bar Association

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because America’s employment-at-will rule empowers buyers—even in stock-purchase transactions—to perform layoffs and change employment terms after the closing. Abroad, things differ. Almost all workers overseas enjoy vested rights in their jobs and terms of employment. Even if a deal is structured as an asset-purchase, a buyer abroad steps into the seller’s shoes and acquires a duty to respect the seller’s seniority system, pay rates, benefits, employment policies, and other vested rights. (This is called the acquired rights, transfer-ofundertakings, or—in Australia—transmission rule.) What this all means to international employment lawyers should be obvious: U.S. companies are not accustomed to ceding employment issues more than a sliver of their M&A radar screens, but neglecting to include an employment expert on a team doing a global deal invites disaster. Besides piloting global human-resources due diligence before a closing, international employment practitioners need to guide the back end of any global deal in post-merger integration, ensuring the transaction succeeds and brings the intended synergies. A more mundane but equally important employment law aspect to international M&A (and to international business law practice generally) is accounting for the employment ramifications of corporate form. Abroad, how a company is structured can determine many of its employment obligations. In Europe, for example, certain labor law obligations (ranging from the duty to recognize local country and European works councils to the need to appoint labor representatives on a company’s board) can turn on what corporate form a business chooses. In Mexico and other Latin countries, computations under employee profitsharing laws turn on whether a business employs its workers directly or through a separately incorporated services company subsidiary. Lawyers who structure corporations abroad simply must account for labor law in a merger-and-acquisition deal. H. Global Layoffs and Plant Shutdowns (Collective Redundancies) Talking about the synergies in a global merger-and-acquisition deal sounds good, but in real life, synergies often mean overlap; thus, synergies often lead to laying off unneeded workers whose jobs duplicate positions in the acquiring company. Even outside the M&A context, market pressures and global restructuring projects push multinationals to have global layoffs and shut down factories. U.S. multinationals, unfortunately, tend to be bad at global layoffs. American businesses are steeped in their unique and peculiar employment-at-will doctrine, which even other Anglo-system countries like England, Canada, and Australia rejected years ago. U.S. employment lawyers say that America’s employment at will has eroded away, but theirs is a historical, not an international, perspective. By comparCopyright 2001 American Bar Association

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ison to other countries, employment at will is alive and well in the U.S. and explains why America’s employers are the world’s most triggerhappy when it comes to layoffs, downsizing, and plant shutdowns. As recently as 1997, North Carolina’s Supreme Court noted that American employment at will “remains an incentive to economic development, and any significant erosion of it could serve as a disincentive.” Not surprisingly, American employers suffer from a bad reputation abroad: Announce to a foreign company’s workers that their boss is selling out to a U.S. multinational and watch them justifiably quake with fear. (Economists, by the way, have an interesting take on the dichotomy here: Alan Greenspan sees America’s world-beating economic performance in the 1990s as a result of our business-friendly “freedom to hire and fire” trumping other countries’ “relatively inflexible, hence more costly, labor markets.”) The point for international employment lawyers is that when a U.S. multinational’s headquarters decides to shed workers overseas, sparks fly. Abroad, collective redundancies are so expensive and socially unacceptable that locally based employers shy away from them. The duties that foreign laws impose on employers doing layoffs include mandatory severance-pay requirements, obligations to consult with (and sometimes get approval from) labor bureaucrats and worker representatives, and advance notification similar to—but a lot stricter than—America’s anemic Worker Adjustment Retraining & Notification (WARN) Act. None of this factors in public relations: Layoffs and plant shutdowns abroad quickly become causes ce´le`bre, sometimes leading to street protests that damage a corporate reputation for years. It is therefore little wonder that at least one big-name American multinational has decreed it will never again lay off anyone in Europe (in Europe, downsizing is more expensive and troublesome than anywhere). Simply put, anyone who neglects to calculate and minimize international layoff costs ends up paying a lot more than anticipated. Cross-border downsizing and plant closings need close oversight from international experts. This all addresses large-scale, cross-border reductions in force. Just as multinationals run into these international employment law issues when they have simultaneous layoffs in a number of countries, multinationals also encounter significant international employment law problems whenever they fire individual expatriate employees who are posted overseas. These issues are discussed later. IV. Practice for Labor Unions Having run through the areas that international employment practitioners cover when they represent multinationals, I now turn to unionside international practice. The range of issues here is every bit as broad. Copyright 2001 American Bar Association

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A. International Employment and Local Organizing/Collective Bargaining A basic role for union-side international practitioners is supplying international information for local organizing campaigns and collective bargaining. Union-side practitioners who are familiar with foreign laws and collective bargaining agreements feed union organizers data on overseas work practices (especially data about a target multinational’s superior offerings abroad). For years, U.S. unions have exploited, as an organizing tool, the fact that foreign employers offer better worker protections and broader benefits. Flyers that circulate in U.S. organizing campaigns say things such as “Organize for lower hours— French unions won thirty-five hours per week!” or “Organize for more vacations—German unions won six weeks per year!” These data can be even more useful in local collective bargaining with a multinational employer. Knowing the specific terms and conditions that a multinational offers abroad sharpens a union’s local bargaining demands. (“What do you mean ‘company policy won’t permit profit-sharing accounts and free lunches’? You share profits with everybody in Guadalajara—and that plant has a free cafeteria! And why can’t you open an onsite day care center here, like the one in Caracas?”) B. Cross-Border Union Initiatives against Multinational Employers Union-side international lawyers do a lot more than summarize foreign laws and collective agreements. They also structure initiatives among the unions in different countries that represent a single multinational’s workers. Cross-border union alliances compare notes in collective bargaining and apply cross-border pressure (such as through global boycotts) to win concessions. In 1999, for example, the U.S. steelworkers union signed a formal alliance—drafted by international labor lawyers—with a Uruguayan labor organization, coordinating their efforts against multinational Titan International. Indeed, cross-border union alliances have picked up a lot in recent years. Not long ago stories were still being told about unions unable (or unwilling) to communicate with overseas counterparts because of simple language difficulties. At one union’s offices, for example, foreignlanguage faxes from overseas union brothers were routinely going unread. Now the union world has gone global. As an example, when the Wisconsin subsidiary of a Japan-based multinational fired a member of the electrical workers union, the electrical workers phoned their Japanese-union counterpart (the labor federation Zenroren), which pressured the company’s Japanese headquarters and got the Wisconsinite reinstated. Copyright 2001 American Bar Association

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C. International Politics and Public Relations Union-side international lawyers also play a key role in politics and public relations. One piece of this is advising on international boycotts and initiatives regarding international work issues. For example, in 1998 union lawyers advised the AFL-CIO’s national labor committee in its international boycott against Wal-Mart, protesting Wal-Mart’s contracts with overseas suppliers that allegedly paid low wages and exploited child labor. Union international lawyers also petition governments to enforce labor treaties like NAFTA’s NAALC labor-side agreement. For example, in the late 1990s, U.S. union lawyers filed charges with NAFTA’s U.S. National Administrative Office (NAO), alleging unionization-law violations at the Mexican plant of Echlin, Inc. (a Connecticut-based auto-parts maker) and at the Mexican plant of Han Young (a South Korea-based Hyundai supplier). Meanwhile, Mexican international labor lawyers brought charges before Mexico’s NAO, alleging U.S. labor law violations at a factory in California (Solec, Inc.) and within the Washington state apple industry. A big piece of international union lawyers’ political and public relations work goes into lobbying to ratify ILO conventions and to inject labor standards into international trade treaties. For example, in mid2000, U.S. unions loudly opposed the U.S. African Growth and Opportunity Act because it failed to include tough labor provisions. Simultaneously, however, African labor leaders begged the U.S. Congress to pass the law. New York Times commentator Thomas Friedman condemned American unions’ “phony-baloney assertions” that they “just want to improve worker rights around the world,” championing “more worker standards” in poor countries but not supporting “more work.” D. International Labor Practice in Europe Union-side international lawyers in the EU play a special role— along with their management counterparts—in Europe-wide employment practice because they actually get to help write employment laws that bind the fifteen EU countries. Under a law-making procedure that is unique in the world, the EU requires that any proposed instrument (law) regulating social (employment) matters be vetted by the social partners (union and management representatives) over a nine-month period—lawmakers in Brussels have an active duty to take social partners proposals into account. Separately, the EU has a directive setting up a unique form of international labor organization called the European Works Council (EWC), a worker-representative body consulting with management on trans-European workplace problems. EWC keeps European international labor practitioners busy on both sides of the bargaining table. Indeed, in the EU there has even been a move underfoot to elevate Copyright 2001 American Bar Association

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sector (industry-wide) collective bargaining up to the European level. If that ever happens, almost all labor relations in Europe could be inherently cross-border. V. Practice for Individual Employees and Executives Law practice representing individual employees—including executives—differs substantially from union-side practice, even though both pit talent against employers. Most employment lawyers who represent individuals have largely domestic practices and do not concentrate internationally. But as more and more employees work as immigrants and expatriates, cross-border employment issues increasingly pop up, such as when executives’ lawyers are asked to negotiate expatriate agreements and to resolve disputes after expatriate postings sour. The legal issues here, not for novices, include such arcana as international taxation; offshore pension accruals; cross-border social security equalization; and friendship, commerce, and navigation treaties. The threshold issue, often dispositive, in representing individual employees internationally—be it contract drafting or dispute resolution—is the question of whose law applies. Answering this question is tough, so I need to drill down. Imagine, for example, a U.S. citizen working for a U.S.-based multinational airline; he is stationed out of Milan and says he was unfairly fired. Which employment laws and courts—U.S. or Italian—have jurisdiction over a termination case involving a Yankee expatriate based in Italy? Does it make a difference if the airline had the American to sign an expatriate agreement with a choice-of-law/choice-of-forum clause calling for U.S. law and U.S. courts to control? Keep in mind that the United States is the only country on the planet that presumes to extend abroad its anti-discrimination laws (Title VII, the Age Discrimination in Employment Act, and the Americans with Disabilities Act). Also keep in mind that Italy—unlike America but like most every other country—has laws requiring severance pay and wrongful termination damages for fired employees. Foreign employment laws, in rich and poor countries alike, offer plenty of money that is unavailable in the employment-at-will United States. The answer to this choice-of-law question is both. Both U.S. antidiscrimination laws and the employment protection laws of a host country (here, Italy) simultaneously protect a U.S. citizen working abroad for a U.S.-controlled employer. This answer does not turn on any choiceof-law clause in an expatriate’s agreement because—believe it or not— there is nothing anyone can write into an expatriate agreement to change this! To understand how two countries’ laws can apply simultaneously, regardless of what an expatriate contract says, one has to understand that employment-protection laws apply by force of public policy: One cannot opt out of or waive them. Frequently, American lawyers talk Copyright 2001 American Bar Association

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about how foreign countries impose their employment laws by force of public policy, but the truth is that all countries—including the United States—work this way. To explain this, I must tweak the airline hypothetical. Now imagine that a Mexican airline assigns a Mexican citizen expatriate (with a work visa) to a reservation office in Houston. Imagine also that the airline has the Mexican sign an expatriate agreement calling for Mexican employment law to apply and for Mexican courts to adjudicate any employment dispute. Because both parties to the expatriate agreement are Mexican, under contract-law principles the Mexican law clause is reasonable. But what if, after working in Houston for a few weeks, the Mexican expatriate learns that she is earning less than U.S. minimum wage, that she is being sexually harassed in violation of Title VII, and that her work conditions violate OSHA regulations? The Mexican expatriate, of course, can pursue complaints with, respectively, the U.S. Department of Labor Wage/Hour Administrator, the EEOC, and the OSHA, and her cases can proceed to a lawsuit in a U.S. court under U.S. law. What happens when the Mexican airline asserts a defense that the expatriate’s own agreement called for Mexican law and Mexican courts? The U.S. legal system will flatly reject it: U.S. public policy prohibits workers on American soil from waiving their rights under American employment protection laws—even where the waiver takes the form of a reasonable choice-of-law clause. It works exactly the same way in reverse. An American working overseas—even one whose expatriate agreement contains a U.S. choice-of-law and-courts clause—enjoys the protection of local foreign employment protection laws, such as mandatory caps on hours, mandatory paid vacation, mandatory profit-sharing, and severance or notice pay. How does this square with the fact that America extends its anti-discrimination laws abroad? Simple: An expatriate who is an American citizen (or dual citizen or, maybe, green-card-holding U.S. resident alien) working for a U.S.-controlled employer enjoys the protection of both American anti-discrimination laws and the local country’s employment protection laws—simultaneously. If there is a direct conflict between the laws, America’s discrimination rules lose out, but this almost never happens because although foreign countries often tolerate discrimination, they almost never require it: Overseas, even in the Arab world, statutes almost never force employers to discriminate. This means that Americans (not locals) working overseas for U.S.controlled multinationals (not foreign companies) enjoy protections of local laws and simultaneously have a U.S. law right to work overseas free from harassment and discrimination because of gender, ethnicity, race, age, or disability. The corresponding legal doctrines also protect Americans overseas: no “hostile environments,” no mandatory retirement, and a right to “reasonable accommodation.” The result, not surCopyright 2001 American Bar Association

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prisingly, is that the extraterritorial reach of U.S. discrimination laws is a hot potato in international human resources. Problems pop up when workplace cultures abroad conflict with Americans’ hypersensitive, politically correct workplace philosophies. Because two sets of employment laws cover Americans working abroad, when U.S. expatriates get fired, demoted, or harassed, they can—and increasingly do—retain one lawyer abroad and one in the United States. They sue in both countries, seeking severance pay abroad and discrimination damages stateside. (Damages awards might be offset, but the independent causes of action legitimately give rise to separate lawsuits.) Lawyers representing executive expatriates need to be ready to coordinate strategy with counsel overseas, ensuring clients take advantage of all that two countries’ laws offer. VI. Conclusion As multinationals globalize their human resources operations in response to free trade and technology, international employment-law problems keep popping onto the radar screen. International employment-law practice is standing by, ready for take-off, but so far, at the start of the new millennium, surprisingly few practitioners are focusing on international employment law. Indeed, there is a chicken-and-egg scenario here: So few international employment law specialists exist that lots of clients assume labor and employment lawyers are the wrong people to help resolve employment law problems that cross borders. (Clients see employment lawyers as experienced only domestically; they also often see international lawyers as ignorant of human resources.) Many clients—particularly multinationals—reflexively assume that no lawyer can possibly help with employment matters that straddle different legal systems. So when employment law problems jump borders, clients often turn to nonlawyers, or—worse—they allow the problems to fester unresolved. Of course, un-addressed legal problems grow, get a lot more expensive, and become crises. The fact that few clients yet demand international employment law practitioners explains why, for example, so many multinationals do global M&A that end up failing because of unexpected foreign employment liabilities and cross-border HR problems. This fact also explains why, for example, so many multinationals suffer turnover problems related to the radically different employment terms they impose on their co-workers, based only on their home countries. This fact explains why so many U.S. multinationals face bet-the-company classaction lawsuits in U.S. courts over foreign workplace problems—problems that would have been averted had someone overseen a foreign-workplace legal-compliance check. Simultaneously, the lack of international lawyers representing employees explains why many Copyright 2001 American Bar Association

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expatriate executives fail to assert legal claims that they do not even know they have. As soon as lawyers’ clients realize how many huge problems can be solved—and how much money can be saved—by retaining an international labor and employment lawyer, international labor and employment law will thrive as a critical sub-concentration within labor and employment law practice. VII. Bibliography A. Cross-Border Labor and Employment Law • Canada—Mexico—United States: North American Agreement on Labor Cooperation, Pub. L. No. 103–182, 107 Stat. 2057, 32 Int’l Legal Materials 1499, 1502 (1993) (labor-side agreement to NAFTA) • ADVANCING THEORY IN LABOUR LAW AND INDUSTRIAL RELATIONS IN A GLOBAL CONTEXT (T. Wilthagen ed., 1998) • INTERNATIONAL EMPLOYMENT LAW: THE MULTINATIONAL EMPLOYER & THE GLOBAL WORKFORCE (Christian T. Campbell & Donald C. Dowling Jr. eds., 1999) (Transnational Publishers) • COMPARATIVE LABOR LAW JOURNAL (quarterly journal of the University of Pennsylvania) • COMPARATIVE LABOR LAW & POLICY JOURNAL (quarterly journal of the University of Illinois) • INTERNATIONAL LABOUR REVIEW (bi-monthly journal of the International Labour Organization) • Matthew Finkin, International Governance and Domestic Convergence in Labor Law, 76 IND. L.J. 143 (2001) • Stephen A. Mazurak, Comparative Labor and Employment Law and the American Labor Lawyer, 70 U. DET. MERCY L. REV. 531 (1993) • www.llrx.com (links to global research guides, primary sources, and official documents and reports) • Institutional Assistance: ➤ International Labour Organization Washington Branch Office, 1828 L St. N.W. suite 600, Washington DC 20036; tel. (202) 653–7652; fax (202) 653–7687; U.S. Web site, at www.us.ilo.org; Geneva Web site, at www.ilo.org ➤ U.S. National Administrative Office for NAFTA/NAALC, Bureau of International Labor Affairs, U.S. Department of Labor, 200 Constitution Ave. N.W. room C-4327, Washington DC 20210; tel. (202) 501–6653; fax (202) 501–6615 B. Cross-Border Human Resources Administration • CAROLYN GOULD & BARBARA SCHMIDT-KEMP, INTERNATIONAL HUMAN RESOURCES GUIDE (Warren, Gorham & Lamont/West Copyright 2001 American Bar Association

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2000) (chapters on “Global Strategy,” “Expatriate Policies,” “Local National Workforce,” and similar topics) THE INTERNATIONAL HR MANAGER’S “DUE DILIGENCE” CHECKLIST (Income Data Services 1997) INTERNATIONAL HR JOURNAL (quarterly journal of West Group) INTERNATIONAL JOURNAL OF HR MANAGEMENT (bi-monthly journal of Routledge, U.K.) Donald C. Dowling Jr., U.S.-Based Employers and Europe’s Data Privacy Law, 2 J. Alternative Dispute Resolution in Employment (CCH) 1, at 31 (2000) Donald C. Dowling Jr., Top Ten Tips for Tacking Talent Trauma in Trans-Border Transactions (or, How to Ensure Employment Problems Don’t Torpedo Global Mergers and Acquisitions), 13 DEPAUL BUS. L.J. 2 (2001)

C. Foreign Labor and Employment Laws (Outside the United States) • INTERNATIONAL EMPLOYMENT LAW (Dennis Campbell ed., Matthew Bender, 1996 & supp.) (chapters summarizing national employment laws) • INTERNATIONAL HANDBOOK ON CONTRACTS OF EMPLOYMENT (1988 & supp.) (two-volume summary of various countries’ employment laws prepared by the International Bar Association) • INTERNATIONAL LABOR & EMPLOYMENT LAWS (William Keller, et al., eds. 1997 & supps.) (ABA/BNA pub.; chapters summarize national employment laws in major countries, and address crossborder topics like the ILO and union participation in international affairs) • INTERNATIONAL ENCYCLOPAEDIA FOR LABOUR LAW AND INDUSTRIAL RELATIONS (Roger Blanpain ed., Kluwer 1977 & supp.) (chapters summarize national employment laws of the world) • CANADIAN EMPLOYMENT LAW FOR U.S. COMPANIES (monthly, Lee Smith Publishers, Nashville) • EUROPEAN INDUSTRIAL RELATIONS REVIEW (monthly journal of IRS/Reed Elsevier, U.K.) • IDS EMPLOYMENT EUROPE (monthly journal of Incomes Data Services, U.K.) • Donald C. Dowling Jr., European Union Employment Law Comes Alive, 29 CORNELL INT’L L.J. 43 (1996) • http://europa.eu.int (European Union portal; link to Eur-Lex, database of EU legal texts) • www.incomesdata.co.uk (Incomes Data Service; research institute with subscription databases and news on human resources and employment conditions in Europe) • www.natlaw.com (employment and other laws in Latin America) Copyright 2001 American Bar Association

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17 THE LABOR LAWYER 1 (2001) • www.privacyexchange.org (national laws relating to data protection and privacy) • www.eiro.eurofound.ie (European Industrial Relations Observatory) • www.findlaw.com (finding international laws) • Institutional Assistance: Delegation of the European Commission in Washington, 2300 M St. N.W. suite 300, Washington, DC; tel. (202) 862–9500; fax: (202) 429–1766; at www.eurorg.com.

D. International Labor Standards, Free Trade, and Corporate Codes of Conduct • JAROL B. MANHEIM, CORPORATE CONDUCT UNBECOMING: CODES OF CONDUCT AND ANTI-CORPORATE STRATEGY (Tred Avon Press 2000) • JAROL B. MANHEIM, THE DEATH OF A THOUSAND CUTS: CORPORATE CAMPAIGNS AND THE ATTACK ON THE CORPORATION (Lawrence Erlbaum Assoc., Inc. 2001) • TRADE & LABOR STANDARDS: A REVIEW OF THE ISSUES (OECD 1995) (summarizes role of labor issues in free trade agreements) • BY THE SWEAT AND TOIL OF CHILDREN (5 vols. 1994–1998); THE APPAREL INDUSTRY AND CODES OF CONDUCT: A SOLUTION TO THE INTERNATIONAL CHILD LABOR PROBLEM? (1996) (publications of the U.S. Department of Labor, Bureau of International Affairs, at www.dol.gov/dol/ilab/public/programs/iclp/) • Donald C. Dowling Jr., The Multinational’s Manifesto on Sweatshops, Trade/Labor Linkage, and Codes of Conduct, 8 TULSA J. COMP. & INT’L J. 1 (2001) • Jay Mazur, Labor’s New Internationalism, FOREIGN AFFAIRS, at 79 (Jan./Feb. 2000) • www.CodesofConduct.org (sample codes of conduct) • www.iso.ch (International Organization for Standardization; international standards on country codes) • www.gilc.org (Global Internet Liberty Campaign; privacy, human rights agreements) • Institutional Assistance: Bureau of International Labor Affairs, U.S. Department of Labor, 200 Constitution Ave. N.W. rm. S-5006, Washington DC 20210; tel. (202) 219–7616; fax (202) 219–5613 E. International Benefits and Compensation • GUIDE TO GLOBAL COMPENSATION AND BENEFITS (Calvin Reynolds ed., Harcourt Professional Publishing 2000) • BENEFITS & COMPENSATION INTERNATIONAL (Pension Publications Ltd., U.K. 1999) (monthly journal) • www.ibfd.nl (International Bureau of Fiscal Documentation; subscription service on tax law worldwide) Copyright 2001 American Bar Association

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• www.issa.int (International Social Security Association; database of social security law) • www.ssa.gov (text of U.S. social security totalization agreements and summaries of social security programs around the world; includes links to ministries and departments of social security) • www.ibisnews.org (International Benefit Information Service; subscription news service on worldwide benefits, pensions, employment terms) F. Extraterritorial Reach of U.S. Employment Laws and U.S. Court Lawsuits Involving the Overseas Workplace • 29 U.S.C. §§ 623(h), 630(f) (ADEA abroad); 42 U.S.C. §§ 2000e1(a),(c), 2000e-5(f)(3) (Title VII abroad); 42 U.S.C. §§ 12111(4), 12112(c) (ADA abroad). • EEOC Policy N-915.002, “Enforcement Guidance on Application of Title VII and the ADA to American Firms Overseas and to Foreign Employers Discriminating in the U.S.” (20 Oct. 1993, reprinted in EEOC Compliance Manual (CCH) ¶ 2169); EEOC Policy N-915.039, “Application of ADEA and the Equal Pay Act to American Firms Overseas and Foreign Firms” (3 Mar. 1989, reprinted in EEOC Compliance Manual (CCH) ¶ 2165) • JAMES M. ZIMMERMAN, EXTRATERRITORIAL EMPLOYMENT STANDARDS OF THE U.S. (1992) • Donald C. Dowling Jr., Mutiny for a Bounty: Overseas Workers’ U.S.-Court Class Actions Against U.S. Multinationals, 29 INT’L L. NEWS 4 at 1 (2000) (newsletter of ABA Section of International Law & Practice) • Jordan W. Cowman & Kimberly Rich, Are Your [Employment] Operations Abroad Exposing You to Multimillion Dollar Liability under U.S. Law? A Texas Court Recently Answered “Yes” (2001) (19-page, 58-footnote unpublished article by lawyers at Baker & McKenzie’s Dallas office) • Institutional Assistance: U.S. Equal Employment Opportunity Commission New York District Office, 7 World Trade Center, 18th fl., New York, NY 10048–0948, tel. (212)748–8500; fax (212)748–8464 (New York office has initial jurisdiction for overseas-based claims)

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Jumping Ship: Legal Issues Relating to Employee Mobility in High Technology Industries William Lynch Schaller* I. Introduction By world standards, employee mobility has always been extraordinarily high in the United States,1 and nowhere is it higher than in high tech industries in places like Silicon Valley and Seattle. Even with the recent dot-com downturn, industry estimates suggest an approximate shortfall of 425,000 skilled information technology workers.2 Indeed, with the implosion of high tech stocks in recent months, leaving employee stock options under water, high tech employee job hopping has actually accelerated in some sectors.3 By definition, corporate * Mr. Schaller is a partner in the Compensation and Employment Law Practice Group of Baker & McKenzie in Chicago, Illinois. He is chairman of the Trade Secret Inevitable Disclosure Sub-Committee of the American Bar Association’s Intellectual Property Law Section. The author thanks Baker & McKenzie associate Jack Simms, University of Notre Dame law student and former Baker & McKenzie summer associate Ryan Constantini, and Lake Forest College student Natacha von Will for their research assistance on parts of this paper. This article is dedicated to John Iacono, who had the courage to jump ship. 1. See Avinash Persaud, The Knowledge Gap, 80 FOREIGN AFFAIRS 107, 109 (March/April 2001) (noting that Silicon Valley has benefited significantly by a “brain drain” from the developing world to the developed world, as United States laws encourage immigration of highly skilled workers from developing countries); G. Pascal Zachary, People Who Need People: With Skilled Workers in High Demand, Employers are Hunting Them Down—No Matter Where They Live, WALL ST. J., Sept. 25, 2000, at R8 (noting that “talented people are jumping countries at a record rate,” as illustrated by the fact that “roughly a third of Silicon Valley’s engineers are foreign-born”). 2. See T. Shawn Taylor, Work Buzz: Down but Not Out, CHI. TRIB., April 11, 2001, Sec. 6, at 1 (citing recent report by the Information Technology Association of America stating that demand for Internet technology workers has declined 44% from a year ago, but noting the 425,000 worker shortfall and stressing that demand has actually increased in the areas of enterprise systems by 62% and network design/administration by 13%). 3. See Scott Thurm, No-Exit Strategies: Their Outlook Bright, Fiber-Optics Firms Put Job-Hoppers on Notice, WALL ST. J., Feb. 6, 2001, at A1 (describing litigation by Ciena Corp. against former employees to keep them from joining competitors); Jayson Blair, West’s Investors Cool to Silicon Alley, N.Y. TIMES, Mar. 16, 2001, at A17 (describing difficulties New York Silicon Alley firms now face in raising venture capital investments); Susan Pulliam & Scott Thurm, What Goes Up: For Some Executives, the Internet Dream Has a Deep Downside; An Unhappy Upper Echelon of Ex-Centimillionaires Sees Stakes Plunge 90%, WALL ST. J., Oct. 20, 2000, at A1 (noting stock value declines of 90% and more for leading Internet firms such as InterWorld, eToys, Webvan, Internet Capital Group, Ask Jeeves, Priceline.com, ICG Communications, Razorfish, iVillage, and Intraware); Kevin McCoy, Tech Workers Seek Jobs, Network at Pink Slip Parties, CHI. SUNTIMES, Nov. 7, 2000, at 44 (discussing downsizing by many dot-com firms); Pui-Wing Tam

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downsizing will force many employees to change jobs whether they want to or not, perhaps in a minor replay of the early 1990s.4 Needless to say, given the amount of time and money employers invest in recruiting and training their employees, watching them depart to competitors is an unhappy experience. Appointing chief talent officers, awarding notification bonuses to employees who disclose job offers, docking managers’ pay for excessive employee turnover, granting stock options, searching at home and abroad for talent, and other business solutions may not be enough to stem the tide of employee defections.5 As a result, legal avenues frequently must be examined, and many firms and employees are surprised to learn that courts can and will check employee mobility in the right circumstances, even in employee-friendly California.6 This article begins with a brief history of U.S. employee mobility laws to show their odd origin in restrictive English rules. Although it & Mylene Mangalindan, Pet.com’s Demise: Too Much Litter, Too Few Funds, WALL ST. J., Nov. 8, 2000, at B1 (reporting closing of Pet.com and layoff of 255 out of 320 employees); Julia Angwin & Karen Lundegaard, Priceline Auto-Services Executive Quits, WALL ST. J., Nov. 8, 2000, at B6 (reporting resignations of top Priceline executives Maryann Keller and Heidi Miller along with layoffs of other employees); Shawn Young, Lucent Launches Series of Measures to Cut Work Force, WALL ST. J., Nov. 8, 2000, at B6 (reporting pending reduction of 10,000 jobs at Lucent). 4. See Adams v. Ameritech Servs., 231 F.3d 414 (7th Cir. 2000) (noting that corporate downsizing was a popular strategy in the 1990s); Alvin & Heidi Toffler, New Economy? You Ain’t Seen Nothin’ Yet, WALL ST. J., March 29, 2001, at A22 (arguing that the entire digital revolution is only the first phase of an even larger, longer process remaking economies, where mind-work will be at a premium); Jon Swartz, Net Companies’ Losses Are E-recruiters’ Gain, CHI. SUN-TIMES, Feb. 20, 2001, at 54 (noting frenzied market for job switches being handled by Monster.com, CareerBuilder, HotJobs.com, Headhunter.net and ELance electronic recruiting firms); Kathy Chen, Weak Economy Puts the Brakes On Job-Hopping, WALL ST. J., March 27, 2001, at B1 (noting that uncertain economic outlook has put a damper on many employees’ desire to change jobs); TRUMAN F. BEWLEY, WHY WAGES DON’T FALL DURING A RECESSION 303 (1999) (noting that voluntary turnover normally decreases during recessions, in part because of fewer jobs and in part because newly hired employees are often laid off first). 5. See Joann S. Lublin, In Hot Demand, Retention Czars Face Tough Job, WALL ST. J., Sept. 12, 2000, at B1 (describing internal turmoil at Agilent Technologies in San Jose, California, when the company’s chief talent officer tried to revolutionize employee retention practices); Rachel Emma Silverman, Raiding Talent Via the Web: Personal Pages, Firms’ Sites Are Troves of Information for Shrewd Headhunters, WALL ST. J., Oct. 3, 2000, at B1 (relating Internet search techniques used to locate and steal talent based upon companies’ own Websites); Employee Retention: A Costly Revolving Door, CFO MAGAZINE, at 28 (Oct. 2000) (reporting new study claiming earnings and stock prices were depressed an average 38% as a result of employee turnover costs in industries such as specialty retail, call-center services and high tech). 6. Cross-border employee mobility claims are beyond the scope of this paper, but they certainly exist. See Todd Harrold & Michael Michalyshyn, Confidential Information and Technical “Know How”: What Leaves with Your Employees?, 13 INTELL. PROP. J. 1 (1998) (summarizing Canadian employee non-compete and trade secret policies); Gabriella Stern & Brandon Mitchener, VW Agrees to Give GM $100 Million to Settle Lopez Trade-Secret Lawsuit—U.S. Automaker Will Get $1 Billion in Parts Sales; Pact Less Than Sought, WALL ST. J., Jan 10, 1997, at A3 (reporting settlement of cross-border litigation between General Motors and Volkswagen over Jose Lopez’ defection and alleged trade secret misappropriation).

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may seem hard to believe, for centuries English law not only sanctioned compulsory labor, but even made it a crime for an employee to quit or for one employer to hire away another’s workers. These rules faded during the 1800s in the United States due in part to the rise of the free labor movement and the resulting abolition of slavery and involuntary servitude. They were eventually replaced by the termination at-will rule, which brought employee mobility full circle by relieving at-will employees of even civil liability for quitting without cause. Yet, noncompetes survived this transformation and remain an important part of modern U.S. employee mobility laws. Following the historical background, this article turns to liability theories, remedies, and defenses relating to jumping-ship claims involving high tech employees, including common law actions arising out of term agreements, non-compete theories, trade secret litigation, employee intellectual property ownership disputes, and suits against third parties for inducing employee job-switching. As demonstrated later, two general legal observations can be made: (1) there is nothing special about high tech employees that exempts them from ordinary employee mobility restrictions—if anything, they sometimes are subject to greater restraints in the form of intellectual property assignment agreements, especially those with holdover or trailer clauses; and (2) there is nothing special about high tech employee mobility cases—like all other employee mobility cases, they almost always present fact-intense questions that do not lend themselves to simple answers. What does set high tech employee cases apart are, instead, two common factual patterns: (1) rapid technological obsolescence sometimes causes courts to limit relief against high tech employees to short periods or to deny it outright, and (2) many high tech employees live or work in California, bringing into play California’s general prohibition against employee non-competes. This article ends with some practical tips for former employers, new employers, and employees caught between them, in an effort to show some counter-intuitive aspects of commonly used tactics such as notice letters and indemnity agreements. Common sense does not necessarily track common law; thus, caution is important in investigating and litigating these complex, high-speed cases. Complexity and speed present an explosive mix, making it imperative that inside and outside counsel map their strategy as thoroughly and as soon as possible. This is easier said than done when one considers the intense pressure departing employees and management on both sides of these disputes place upon a favorable outcome to their respective positions, often in the glare of intense publicity. II. Employee Mobility: A Brief Legal History Laws governing employee mobility have a long and interesting history in the United States, but only a short discussion is relevant here. Copyright 2001 American Bar Association

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State law, rather than federal law, usually supplies the rule of decision, and virtually all state laws relating to employee mobility descended from English law. Although now long-forgotten, English law from 1349 to 1875 made it a crime for many employees to quit before the end of their term,7 and many were convicted—according to Professor Morriss, more than 100,000 between 1860 and 1875 alone.8 Certain classes of employees could also be compelled to work under English law.9 Indeed, they were not even called employees back then; lawyers generally referred to them as servants, with reciprocal rights and duties imposed on the master and the servant through a melange of legal concepts that eventually took the predominate form of contractual rules by the 1800s.10 The United States generally adopted English law by custom and through reception statutes, but restraints on employee mobility began to fade after the American Revolution because such restrictions increasingly came to be viewed as inconsistent with the free status of Americans.11 The free-labor movement eventually took hold in various forms and rose to the level of a dominant political theme by the Civil War,12 as partly captured in an Abraham Lincoln aphorism: “The man who labored for another last year, this year labors for himself and next year . . . will hire others to labor for him.”13 Of course, the Civil War resulted in the abolition of slavery and involuntary servitude, through 7. See CHARLES G. BAKALY JR. & JOEL M. GROSSMAN, THE MODERN LAW OF EMRELATIONSHIPS § 1.1 (PRENTICE HALL LAW & BUSINESS 1991) (noting that the earliest Statute of Laborers, enacted in 1349, sought to restrict labor mobility in response to the Black Plague, which created a shortage of workers and hence increased demand for them), citing 2 W.S. HOLDSWORTH, A HISTORY OF ENGLISH LAW, 460–61 (3d ed. 1927); ROBERT J. STEINFELD, THE INVENTION OF FREE LABOR: THE EMPLOYMENT RELATION IN ENGLISH AND AMERICAN LAW AND CULTURE, 1350–1870, at 169 (1991) (noting English employers attempted to limit labor mobility in light of increased demand for labor following the Black Death). 8. See Andrew P. Morriss, Exploding Myths: An Empirical and Economic Reassessment of the Rise of Employment-At-Will, 59 MO. L. REV. 679, 761 (1994) (supplying figures); STEINFELD, supra note 7, at 204 n.39 (noting it was not until 1875 that the final sections of laws criminalizing employee departures were removed from English statute books); Jay M. Feinman, The Development of the Employment At Will Rule, 20 AM. J. LEGAL HIST. 118, 120 n.8 (1976) (noting repeal of criminal sanctions under English law in 1875). 9. STEINFELD, supra note 7, at 22–24. 10. See id. 11. See In re Clark, 1 Blackf. 122 (Ind. 1821) (holding that indentured servitude contract was unenforceable); Phoebe v. Jay, 1 Ill. 268 (1828) (voiding indentured servitude contract where the master used “a little force and beating” to compel the servant to attend to and perform her duties). These cases are discussed and compared by Professor Steinfeld, supra note 7, at 142–46. 12. See generally ERIC FONER, FREE SOIL, FREE LABOR, FREE MEN: THE IDEOLOGY OF THE REPUBLICAN PARTY BEFORE THE CIVIL WAR (1995); William E. Forbath, The Ambiguities of Free Labor: Labor and the Law in the Gilded Age, 1985 WIS. L. REV. 767 (1985); Daniel R. Ernst, Free Labor, the Consumer Interest, and the Law of Industrial Disputes, 1885–1900, 36 AM. J. LEGAL HIST. 19 (1992). 13. GUNTHER PECK, REINVENTING FREE LABOR: PADRONES AND IMMIGRANT WORKERS IN THE NORTH AMERICAN WEST, 1880 – 1930, at 9 (2000). PLOYMENT

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the Thirteenth Amendment, as well as the abolition of related legal institutions like peonage through the Anti-Peonage Act of 1867.14 As Professor Steinfeld notes, the Anti-Peonage Act “marked the triumph in law of free labor ideas, denying to states the authority to enact legislation that might criminally punish breaches of labor contracts or specifically compel their performance.”15 Still, the last vestiges of these laws did not disappear until the Supreme Court’s 1944 decision in Pollock v. Williams,16 which struck down labor contract statutes that criminalized employee fraud in failing to start work or in quitting before an agreed term’s end. This history is occasionally alluded to in cases refusing injunctive relief for employee non-competes, often accompanied by free labor rhetoric.17 In addition to abandoning over time criminal liability for workers departing early, American courts promoted employee mobility by gradually adopting the termination at-will rule, which freed most employees from civil liability for quitting without cause or notice. The origin and history of the employee mobility rule have been explored in detail, and the reasons for its emergence have been intensely debated for over thirty years, starting with Professor Blades’s 1967 article.18 Professor Morriss, however, appears to be the only scholar who has bothered to carefully map the course of such cases, and his 1994 article shows that they followed a relatively random path and offered differing rationales—if they gave any rationale at all. It is hard to say whether courts that adopted the at-will rule were really trying to help employees, were really trying to protect emerging industrial capitalism in the United States, or were simply clinging to a fading classical economic view;19 14. See Slaughter-House Cases, 83 U.S. 36, 72 (1872) (noting Thirteenth Amendment was intended to abolish all forms of slavery, including Mexican peonage and Chinese coolie labor). 15. STEINFELD, supra note 7, at 184. See also RESTATEMENT OF CONTRACTS § 379 (1932) (personal service contracts cannot be the subject of specific performance orders). 16. 322 U.S. 4 (1944). 17. See Heartland Sec. Corp. v. Gerstenblatt, Nos. 99 CIV. 3694, 3858, 2000 WL 303274, at *7 (S.D.N.Y. March 22, 2000) (day trader’s training repayment/non-compete, requiring him to repay up to $200,000, “approache[d] indentured servitude”); North Am. Paper Co. v. Unterberger, 526 N.E.2d 621, 625 (Ill. App. Ct. 1988) (non-compete was “redolent of the historical past when involuntary servitude was an accepted practice”); Oak Cliff Ice Delivery Co. v. Peterson, 300 S.W. 107, 111 (Tex. Civ. App. 1927) (employee restrictive covenants must be carefully scrutinized to avoid “industrial servitude”); Kaumagraph Co. v. Stampagraph Co., 138 N.E. 485, 487 (N.Y. 1923) (employee non-competes “savored of servitude”). 18. See Lawrence E. Blades, Employment at Will vs. Individual Freedom: On Limiting the Abusive Exercise of Employer Power, 67 COLUM. L. REV. 1404 (1967). 19. See Feinman, supra note 8 (tracing the historical evolution of the at-will rule and tying its relation to the development of advanced capitalism, from an admittedly Marxist perspective); Charles W. McCurdy, The Roots of Liberty of Contract Reconsidered: Major Premises in the Law of Employment, 1984 S. CT. HIST. SOC. YRBK. 20 (1984) (describing “free labor” ideology’s role in the rise of constitutional decisions that blocked employment law reforms under the “liberty of contract” theory); HERBERT HOVENKAMP, ENTERPRISE AND AMERICAN LAW, 1836–1937, at 177 (1991) (observing that during the

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perhaps these courts were just trying to maintain their institutional integrity by avoiding a flood of cases through a rule easy to understand and apply, as Professor Morriss suggests.20 Alternatively, perhaps all of these and other influences were at work because free labor meant different things to different people, particularly in the aftermath of the Civil War.21 Whatever the reason or reasons, at-will employment became so embedded that it remains the general rule in the United States even to this day.22 While significant modern limitations have emerged on employer termination power in cases involving discrimination, civil service, whistle-blowing, handbooks, and collective bargaining agreements, virtually no restrictions have arisen with respect to at-will employee termination power—a questionable asymmetry in some sectors, most notably in high tech, where employee mobility and concomitant employee bargaining power could hardly be greater.23 By contrast, despite (or perhaps because of) free-labor sentiments, state and federal courts in the United States have been fairly willing to restrict employee mobility pursuant to non-compete agreements. On this issue, courts in the United States have generally followed the historical English perspective, which is that non-compete agreements should be enforceable so long as they are designed to protect legitimate proprietary interests through reasonable time, geographic, and subject matter restrictions.24 In a bizarre historical twist, however, California, heyday of substantive due process, from 1885 to 1937, “the Supreme Court continued to rely on classical economic theories developed in the late eighteenth and early nineteenth centuries”); Adair v. United States, 208 U.S. 161 (1908) (elevating at-will employment to constitutional stature under the “liberty of contract” doctrine in vogue until 1937). 20. See Morriss, supra note 8, at 679 (attacking Jay Feinman’s theory, referenced in supra note 8, and dispelling many other myths and misstatements about the at-will rule’s origin and development). 21. See Forbath, supra note 12, at 782–94 (arguing abolitionist free labor branch evolved into anti-majoritarian liberalism reflected in “liberty of contract” philosophy, while traditional entrepreneurism/artisan/farmer free labor branch evolved into radical Northern labor movement opposed to “wage slavery”); LEE J. ALSTON & JOSEPH P. FERRIE, SOUTHERN PATERNALISM AND THE AMERICAN WELFARE STATE: ECONOMICS, POLITICS, AND INSTITUTIONS IN THE SOUTH, 1865–1965 at 27 (1999) (describing how Southern paternalism discouraged job mobility of tenant laborers by raising the cost of leaving a specific patron-client relationship). 22. See Guz v. Bechtel Nat’l, Inc., 8 P.3d 1089 (Cal. 2000) (twenty-two years of employment did not give rise to implied good faith termination rights under California law in light of explicit at-will employment provision); Hartlein v. Ill. Power Co., 601 N.E.2d 720 (Ill. 1992) (employment at-will remains the rule in Illinois, and exceptions should remain narrow); Barr v. Kelso-Burnett Co., 478 N.E.2d 1354 (Ill. 1985) (Illinois common law does not favor expansion of exceptions to at-will employment). 23. See Richard A. Epstein, In Defense of the Contract at Will, 51 U. CHI. L. REV. 947, 947–49 (1984) (arguing commentators are wrong in their broad assertion that atwill employment is an archaic relic that should be jettisoned along with other vestiges of nineteenth-century laissez-faire economics). 24. See generally Harlan M. Blake, Employee Agreements Not to Compete, 73 HARV. L. REV. 625, 626 (1960) (noting that employee non-compete disputes of one form or another have been litigated for over 500 years, starting with the English decision in Dyer’s in 1414); Maureen B. Callahan, Comment, Post-Employment Restraint Agreements: A

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in an 1872 effort to end confusion flowing from Spanish, Mexican, and American law influences over California law, 25 passed the so-called Field Code.26 The Field Code included what is now known as section 16600 of the California Business and Professions Code, barring noncompete agreements by employees, with limited exceptions for business sales. This dramatic departure from traditional English non-compete law apparently went unnoticed at the time. Professor Gilson believes this bit of serendipity, resulting in section 16600, has played a key role in the rapid and continuing rise of Silicon Valley. In his view, the absence of employee non-compete restrictions in California enables employees to move more freely from firm to firm and thus enhances the likelihood of “spill over” knowledge being transmitted from firm to firm, with an overall net benefit to high tech industries in the region.27 Other basic limitations on employee mobility also claim lengthy lineage. The duty of loyalty, which includes an obligation not to compete during the term of employment, has been a fixture of U.S. law almost from the country’s beginning. It derives from the basic duty of faithful service found in English master and servant law.28 Sections 387 and 393 of the RESTATEMENT (SECOND) OF AGENCY capture this concept,

Reassessment, 52 U. CHI. L. REV. 703, 707–12 (1985) (reviewing early English noncompete cases); Herbert Morris, Ltd. v. Saxelby, 1 A.C. 688 (1916) (protection of trade secrets and customer relations justifies employee non-competes; a desire to avoid competition by ex-employees does not); Mitchel v. Reynolds, 1 P. Wms. 181, 24 ENG. REP. 347 (Q.B. 1711) (seminal English case establishing common law reasonableness test for noncompete agreements); RESTATEMENT (SECOND) OF CONTRACTS § 188 (1979) (restraint is reasonable only if it is (1) no greater than is required to protect employer’s legitimate interests; (2) does not impose undue hardship on employee; and (3) is not injurious to the public); STEINFELD, supra note 7, at 73–74 (noting that the term “covenant” in midfourteenth century England meant an agreement to do something in the future). 25. See Ronald J. Gilson, The Legal Infrastructure of High Technology Industrial Districts: Silicon Valley, Route 128, and Covenants Not to Compete, 74 N.Y.U. L. REV. 575, 579, 614–18 (1999); Morriss, supra note 8, at 708 n.81. 26. The Field Code is named after David Dudley Field, a New York lawyer and law reformer who sought to simplify American common law by organizing legal rules into straightforward codes. See PAUL KENS, JUSTICE STEPHEN FIELD: SHAPING LIBERTY FROM THE GOLD RUSH TO THE GILDED AGE 172 (1997). 27. See Gilson, supra note 25, at 585– 86. Of course, culture plays an important role as well. See Clayton Christensen, Thomas Craig & Stuart Hart, The Great Disruption, 80 FOREIGN AFFAIRS 80, 88 (March/April 2001) (comparing lack of venture capital and employee mobility in Japan with Silicon Valley’s fluid labor and capital markets); G. Pascal Zachary, Location, Location: A Leading Urbanist Argues That When It Comes to Innovation, Place Really Does Matter, WALL ST. J., Sept. 25, 2000, at R11 (reporting University College London Professor Peter Hall’s observation that Silicon Valley’s wide-spread education and artisan craft-type tradition helped spur its growth in the 1970s, 1980s and 1990s); Hanna Bui-Eve, Note, To Hire or Not to Hire: What Silicon Valley Companies Should Know about Hiring Competitors’ Employees, 48 HAST. L. J. 981, 982 (1997) (noting Silicon Valley’s regional network-based industrial system promotes collective learning and flexible adjustment among specialized producers of related technology). 28. See STEINFELD, supra note 7, at 16 (quoting English law treatise in the 1700s that referred to a servant’s duty of “allegiance”).

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which is the universal rule throughout the United States.29 Patent and copyright protection emerged by statute in England in 1623 and 1709, respectively, and were included in the original U.S. Constitution.30 Trade secret law is somewhat newer, having appeared in various forms in English and American judicial opinions in the early to mid-1800s.31 Today, all states extend protection to trade secrets, and forty-three jurisdictions have adopted some version of the Uniform Trade Secrets Act (UTSA).32 Although a twentieth century development, modern tortious interference claims for poaching employees can be traced back at least 500 years, when it was a crime under English law to hire away another’s employee. 33 While no longer a crime, employee raiding can give rise to tortious interference with contract charges when an employee is under a term contract or subject to a non-compete agreement.34 At-will em29. See Mullaney, Wells & Co. v. Savage, 402 N.E.2d 574 (Ill. 1980) (citing sections 387 and 393 in connection with a fiduciary duty of loyalty claim against an employee). Section 387 provides, “Unless otherwise agreed an agent is subject to a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency.” Section 393 provides, in relevant part, “Unless otherwise agreed, an agent is subject to a duty not to compete with the principal concerning the subject matter of his agency.” 30. See Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970 (4th Cir. 1990) (reviewing history of patent and copyright laws in England and the United States). 31. See Newbery v. James, 2 Mer. 446, 35 ENG. REP. 1011 (Eng. Ch. 1817) (first English trade secret case, concerning contract-based trade secret injunction claim over patent medicine formula); Vickey v. Welch, 36 Mass. 523 (1837) (first United States trade secret case, concerning chocolate making arising out of mill sale); Peabody v. Norfolk, 98 Mass. 452 (1868) (famous early case, concerning contract-based trade secret injunction claim over gunny cloth manufacturing process); McGowin v. Remington, 12 Pa. 56 (1849) (first Pennsylvania trade secret case, though the term was not used, concerning surveyor’s plans and maps); JOHN J. FIALKA, WAR BY OTHER MEANS: ECONOMIC ESPIONAGE IN AMERICA 3–17 (1997) (describing Francis Cabot Lowell’s theft from England in the early 1800s of mechanized loom that started the American Industrial Revolution); RICHARD A. LUECKE, SCUTTLE YOUR SHIPS BEFORE ADVANCING AND OTHER LESSONS FROM HISTORY ON LEADERSHIP AND CHANGE FOR TODAY’S MANAGERS 158 (1994) (noting that thanks to Francis Cabot Lowell’s theft, by the 1860s New England textiles had displaced British manufactures in the American market); PAUL JOHNSON, A HISTORY OF THE AMERICAN PEOPLE 364 (1999) (describing Francis Cabot Lowell’s exploits); DAVA SOBEL, LONGITUDE: THE TRUE STORY OF A LONE GENIUS WHO SOLVED THE GREATEST SCIENTIFIC PROBLEM OF HIS TIME (1995) (describing John Harrison’s decades-long struggle with British authorities in the 1700s over secrets behind his navigational sea clocks). 32. See JAY DRATLER JR., 1 INTELLECTUAL PROPERTY LAW: COMMERCIAL, CREATIVE, AND INDUSTRIAL PROPERTY § .01[3] n.72 (2000) (collecting state statutes following the UTSA); Uniform Trade Secrets Act, 14 UNIF. L. ANN. 433 (1995) (same). 33. See Lumley v. Gye, 2 El. & Bl. 216, 118 ENG. REP. 749 (1853) (leading modern case defining tortious interference in case concerning opera singer’s services); STEINFELD, supra note 7, at 33 (noting that enticing away another’s servant was punishable even before the Statute of Artificers was enacted in 1562); W. PAGE KEETON, PROSSER AND KEETON ON THE LAW OF TORTS, Ch. 25, § 129 (West Publishing, 5th ed. 1984) (recounting history of tortious interference claims starting with early Roman law). 34. See RESTATEMENT (SECOND) OF AGENCY § 393, cmt. e (an employee is liable if, before or after leaving the employment, he causes fellow employees to break their contracts with his employer).

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ployees also can be wrongfully wooed if improper means are used, such as defamation or use of an insider to lead a raid.35 In short, everything new is old and sometimes very old. American laws have addressed employee mobility for centuries, and no high tech exception has ever been recognized. The issue is instead how to apply these well established laws to the sometimes unique circumstances of high tech employees. III. Liability Theories, Remedies, and Defenses A. Wrongful Termination Claims against Employees 1. General Principles Many discussions of employee mobility skip the most basic source of potential liability for departing employees: wrongful termination by the employee before the end of an agreed term of employment. If the employment relationship is other than terminable at will, damages and injunctive relief may be available against the departing employee in certain limited circumstances involving employment for a specific term. Even if the agreement is terminable at will, fraud or other circumstance may give rise to liability. 2. Cases A.

SMITH, WATERS, KUEHN, BURNETT & HUGHES, LTD. V. BURNETT

One such circumstance is the presence of unique services as a ground to enjoin an employee from competing during the balance of the employee’s agreed term, as shown by Smith, Waters, Kuehn, Burnett & Hughes, Ltd. v. Burnett.36 In this case, a lawyer quit in breach of his employment agreement. Because he had left without good cause, his former firm sued to enjoin him from competing during the remainder of his contractual term, but the court refused injunctive relief. The court in Burnett recognized that unique services justified injunctive relief for the balance of a contractual term but found that the lawyer’s services were not sufficiently unique to justify such relief because his position was not comparable to athletes and entertainers, whose services were universally deemed unique.37

35. See Preferred Meal Sys., Inc. v. Guse, 557 N.E.2d 506 (Ill. App. Ct. 1990) (officer encouraged fellow employees to resign with him to compete); Diodes, Inc. v. Franzen, 67 Cal. Rptr. 19 (Cal. Dist. Ct. App. 1968) (if defecting employee uses unfair or deceptive means to solicit fellow employees, the former employer has a cause of action); RESTATEMENT (SECOND) OF TORTS § 768 (competitor’s privilege to interfere with at-will contracts is lost if wrongful means are employed). 36. 548 N.E.2d 1331 (Ill. App. Ct. 1989). 37. See MCA Records, Inc. v. Newton-John, 153 Cal. Rptr. 153 (Cal. Dist. Ct. App. 1979) (singer Olivia Newton-John); Lemat Corp. v. Barry, 80 Cal. Rptr. 240 (Cal. Dist. Ct. App. 1969) (basketball star Rick Barry); Torrence v. Hewitt Assoc., 493 N.E.2d 74 (Ill. App. Ct. 1986) (in-house counsel had “unique skill” in designing flexible compensation

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TICOR TITLE INSURANCE CO. V. COHEN

Although unique services are generally thought to be limited to athletes and entertainers, this is not necessarily true. For example, in Ticor Title Insurance Co. v. Cohen, 38 a key title insurance sales employee left one firm to join a competitor. The employee was given exclusive control over key clients, was assigned a large staff to service those clients, and was given a huge entertainment expense account to maintain his customer contacts at those clients. The court in Cohen held that unique services were not limited to athletes and entertainers; the operative New York test was instead whether the employee’s services were of unique importance to the employer in question. Mass departures of customers following employee defections in the title industry demonstrated they were in Cohen. Cohen turned on a non-compete, but its unique services discussion could have been used to expand the traditional meaning of the unique services concept in other contexts where an employee performs critical functions. C.

VENDO CO. V. STONER

Even when unique services are not present, employment for a specific term may warrant injunctive relief for the term’s balance if an interm restrictive covenant is involved, as in Vendo Co. v. Stoner.39 Stoner sold his business to Vendo and signed an employment contract as part of the deal. The employment agreement barred Stoner from competing during the five-year term of the contract and for an additional five years thereafter. Stoner began competing before the initial five-year employment term expired and later challenged the in-term restriction as overly broad because it covered the entire state of Illinois. The Illinois appellate court rejected Stoner’s contention, holding that in-term covenants, unlike post-term covenants, did not need to be reasonable at least when the employee quit. The employee in this situation had not been deprived of the means to support himself except through his own choice. The court noted numerous decisions in Illinois and elsewhere supporting this in-term/post-term distinction.40 This often overlooked issue is crucial to note because many term employment agreements explicitly impose in-term covenants in boilerplate language. D.

MEDPLUS NECK AND BACK PAIN CENTER, S.C. V. NOFFSINGER

Another important implication of an employee’s term agreement is that the employee needs cause to quit. For instance, in MedPlus Neck for firm clients); American Broad. Co. v. Wolf, 420 N.E.2d 363 (N.Y. 1981) (sports announcer Warner Wolf); Lumley v. Wagner, 1 De G. M. & G. 604, 42 ENG. REP. 687 (1852) (establishing unique services doctrine in English law in case involving singer). 38. 173 F.3d 63 (2d Cir. 1999). 39. 245 N.E.2d 268 (Ill. App. Ct. 1969). 40. 245 N.E.2d at 273–76 (citing Saul v. Thalis, 156 F. Supp. 408 (D.D.C. 1957) and Good v. Modern Globe, Inc., 78 N.W.2d 199 (Mich. 1956)).

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and Back Pain Center, S.C. v. Noffsinger,41 the court noted that consequential damages were available against an employee for wrongful termination when the parties contemplated such relief.42 The court held, however, that absent evidence of an intention to pay consequential damages, monetary relief for an employee’s wrongful termination was limited to the employee’s wages and the cost of finding and training a replacement. No such intent had been shown; thus, only limited damages were allowed. Nevertheless, the rule in Noffsinger is quite important: Even when consequential damages are not contemplated, a highlevel executive or key employee who quits without cause before the end of the contract term may have to pay the former employer the difference between the employee’s old and new compensation for the balance of the contract period43 —no small matter when the case involves huge compensation increases in the form of signing bonuses, salary boosts, and stock options. E.

P.A. BERGNER & CO. V. MARTINEZ

The same concepts can appear under other guises if the right circumstances are present, as in P.A. Bergner & Co. v. Martinez.44 In that case, three corporations—P.A. Bergner & Co., Sears, Roebuck & Co., and Saks Fifth Avenue—found themselves vying for the affections of executive Arthur Martinez, though only Bergner and Sears (and Martinez) were parties to the lawsuit. Bergner had slipped into bankruptcy and sought Martinez’s services as CEO to help resuscitate its fortunes. Martinez was interested but did not wish to lose over $1,000,000 in Saks compensation if bankruptcy court and creditor approval would not be secured for his proposed employment contract as Bergner’s new CEO. Bergner’s representatives and Martinez therefore executed an indemnity agreement providing that Bergner would protect Martinez from these losses, and the parties were then to finalize the details of a proposed twenty-four page employment agreement they had been working on. Reflecting the competitive importance of this situation, the draft employment agreement was labeled “privileged and confidential” and was to be submitted to the bankruptcy court in camera or under seal. As soon as the ink was dry on the indemnity agreement, Martinez told Bergner that he had informed Saks that he was terminating his Saks employment agreement, which apparently did not restrict Mar-

41. 726 N.E.2d 687 (Ill. App. Ct. 2000). 42. See Roth v. Speck, 126 A.2d 153 (D.C. 1956) (recognizing consequential damages rule for employee’s breach of contract, but finding the rule inapplicable on the facts). 43. See DAN B. DOBBS, HANDBOOK ON THE LAW OF REMEDIES § 12.26 (1973) (explaining that employee wage damages in this context means the difference between former wages and new wage during the notice/breach period). 44. 823 F. Supp. 151 (S.D.N.Y. 1993).

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tinez from seeking competitive positions (other than through loss of his Saks compensation, which Bergner had agreed to indemnify against).45 Martinez hedged his bets, however, as he secretly began negotiating to become Sears’s CEO. Martinez gave Bergner assurances of his continued commitment to Bergner when Bergner learned of Sears’s unsolicited overtures, and Bergner thereafter moved the bankruptcy court to approve Martinez’s appointment as Bergner’s CEO. Only then did Martinez announce he had accepted and signed an employment agreement with Sears. The district court rejected Martinez’s motion to dismiss, ruling that Bergner had stated claims against Martinez for breach of the indemnity agreement, promissory estoppel, and fraud.46 The district court also rejected Sears’s motion to dismiss, ruling that Bergner had stated claims for tortious interference with contract and tortious interference with prospective economic advantage.47 Thus, Martinez readily demonstrates that key employees and new employers can be saddled with liability in unusual ways on the right facts. 3. Summary Unique services, consequential damages, and fraud-related rules present subtle exposures; wage-differential damage claims and in-term covenants are subtler still. As common law doctrines, they can be invoked in almost any jurisdiction. In addition, they present factdependent inquiries, making them difficult to rule out absent clear contractual language. Many employees move closer to the unique services category as their skills become firm-specific and they rise through the ranks, and one needs only passing familiarity with contract litigation to appreciate the complexity of determining contracting parties’ intentions when their contracts are ambiguous—as widespread employee handbook and haphazard letter agreement cases amply attest.48 Employees who are truly key to an organization, as high tech employees often are, and employees who operate under informal contractual arrangements, as high tech employees often do, could thus be trapped by these rules. B. Non-Compete Agreement Claims against Employees 1. General Principles Employee restrictive covenants come in various forms, from agreements prohibiting employees from joining competitors to agreements prohibiting employees from soliciting customers to agreements prohibiting employees from soliciting fellow employees; even oral non45. Id. at 154. 46. Id. at 158–62. 47. Id. at 162–63. 48. See Duldulao v. St. Mary of Nazareth Hosp. Ctr., 505 N.E.2d 314 (Ill. 1987) (promises of employment security in company handbooks can create enforceable contract rights).

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compete claims are occasionally asserted.49 As noted, most states follow the common law rule of reasonableness, pursuant to which courts will enforce non-compete agreements if a legitimate proprietary interest needs protection and the contract is reasonably limited in terms of geographic scope, time, and subject matter.50 Most states consider trade secrets, confidential information, customer contacts, and good will to be legitimate proprietary interests.51 New York, as Cohen reflects, adds unique services to this proprietary interest list,52 as do Maryland and Utah,53 and Georgia includes employee training.54 In general, assuming a proprietary interest can be shown, such agreements are likely to be enforced if narrowly drawn, especially if the relevant jurisdiction follows some form of the blue-pencil rule that allows courts to modify overly broad covenants in order to enforce 49. See Kodeky Elec., Inc. v. Mechanex Corp., 486 F.2d 449, 450–53 (10th Cir. 1973) (affirming preliminary injunction and damage award under Colorado law based on oral non-compete between businesses); Fireworks Spectacular v. Premier Pyrotechnics, Inc., 86 F. Supp. 2d 1102 (D. Kan. 2000) (granting preliminary injunction under Kansas law to enforce oral non-compete based upon promissory estoppel because employee agreed to sign and continued work for plaintiff); AM Cosmetics, Inc. v. Solomon, 67 F. Supp. 2d 312 (S.D.N.Y. 1999) (enforcing oral non-compete during term of employment under New York law); Metcalfe Invs., Inc. v. Garrison, 919 P.2d 1356 (Alaska 1996) (enforcing employee’s oral non-compete of unlimited duration); Barnett v. Jabusch, 607 So.2d 1007 (La. Ct. App. 1993) (enforcing oral non-compete relating to business sale); Hubbard v. Logsdon, 372 N.E.2d 101 (Ill. App. Ct. 1978) (oral non-compete claim against business seller not barred by Statute of Frauds); but see Maintenance Supply Co. v. Raymond, No. Civ. A. 95–3714, 1996 WL 635996, at *1 (E.D. La. Nov. 1, 1996) (oral non-compete claim against employee rejected for lack of geographic limitations complying with Louisiana non-compete statute); Frantz v. Parke, 729 P.2d 1068 (Idaho Ct. App. 1986) (oral non-compete claim against employee barred by Statute of Frauds); Collection & Investigation Bureau of Maryland, Inc. v. Linsley, 375 A.2d 47 (Md. Ct. Spec. App. 1977) (oral non-compete claim against employee barred by Statute of Frauds); Professional Investigations and Consulting Agency v. Kingsland, 591 N.E.2d 1265 (Ohio Ct. App. 1990) (oral non-compete claim against employee barred by Statute of Frauds). 50. See Hapney v. Central Garage, Inc., 579 So.2d 127 (Fla. Dist. Ct. App. 1991) (collecting employee non-compete cases discussing proprietary interests in thirty-five jurisdictions); Phillip J. Closius & Henry M. Schaffer, Involuntary Nonservitude: The Current Judicial Enforcement of Employee Covenants Not to Compete—A Proposal For Reform, 57 S. CAL. L. REV. 531 (1984) (extensive discussion of employer proprietary interests and their relationship to employee non-competes). 51. See IKON Office Solutions, Inc. v. Belanger, 59 F. Supp. 2d 125 (D. Mass. 1999) (customer goodwill is a protectible interest warranting enforcement of employee restrictive covenant); BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999) (partially enforcing employee restrictive covenant to protect employer’s goodwill for those customers with whom accounting firm employee developed customer contacts at employer’s expense). 52. See Cohen, 173 F.3d 63 (invoking unique services principle in enforcing “star” employee’s restrictive covenant to protect employer’s goodwill with customers). 53. See Becker v. Bailey, 299 A.2d 835 (Md. 1973) (automobile tag and title courier was an unskilled worker whose services were not unique); System Concepts, Inc. v. Dixon, 669 P.2d 421 (Utah 1983) (national sales manager’s responsibilities were special and unique in comparison to the other employees with sales-related positions). 54. See Wesley-Jessen, Inc. v. Armento, 519 F. Supp. 1352 (N.D. Ga. 1981) (time necessary to train a replacement may be considered in evaluating an employee restrictive covenant).

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them.55 Enforcement is almost always by means of injunctive relief, given the preventive purpose of non-competes, but damages and other relief are available. The principal defenses, of course, are that no proprietary interest exists or that the covenant is overly broad, meaning its restrictions are not narrowly tailored to protect the employer’s legitimate interests. Other defenses are also available, such as lack of consideration, fraud, duress, waiver, estoppel, wrongful termination, and antitrust violations.56 Some states have abrogated or modified the common law rule of reasonableness by statute, notably Florida and California.57 Florida makes employee non-compete agreements entered into after July 1, 55. Compare House of Vision, Inc. v. Hiyane, 225 N.E.2d 21 (Ill. 1967) (Illinois courts have discretion to modify restrictive covenants to make them enforceable, but overbreadth of original contractual restraint is an equitable factor to be considered) and BDO Seidman v. Hirshberg, 712 N.E.2d 1220 (N.Y. 1999) (same holding), with Koger Properties, Inc. v. Adams-Cates Co., 274 S.E.2d 329 (Ga. 1981) (Georgia has rejected the blue pencil rule) and CAE Vanguard v. Newman, 518 N.W.2d 652 (Neb. 1994) (Nebraska courts cannot reform covenants not to compete). 56. See Rao v. Rao, 718 F.2d 219 (7th Cir. 1983) (wrongful termination of employee released restrictive covenant); In re UFG Int’l, Inc., 225 B.R. 51 (S.D.N.Y. 1998) (termination without cause released employee from restrictive covenant); Applied Micro, Inc. v. SJI Fulfillment, 941 F. Supp. 750 (N.D. Ill. 1996) (noting divided Illinois authorities as to whether continuing employment constitutes sufficient consideration to support afterthought non-compete); Surgidev Corp. v. Eye Tech. Inc., 648 F. Supp. 661 (D. Minn. 1986), aff’d, 828 F.2d 452 (8th Cir. 1987) (employer’s past failure to enforce employee noncompetes estopped employer from enforcing another employee’s non-compete); Pochopien v. Marshall, O’Toole, Gerstein, Murray & Borun, 733 N.E.2d 401 (Ill. App. Ct. 2000) (nonenforcement of repayment provision as to previous employees in different situations was insufficient to constitute waiver as to subsequent employee); Midwest Television, Inc. v. Oloffson, 699 N.E.2d 230 (Ill. App. Ct. 1998) (question of fact existed as to whether employer waived non-compete rights by virtue of past releases for other employees); Agrimerica, Inc. v. Mathes, 557 N.E.2d 357 (Ill. App. Ct. 1990) (rejecting duress and no consideration defenses to employee restrictive covenant); Williams & Montgomery, Ltd. v. Stellato, 552 N.E.2d 1100 (Ill. App. Ct. 1990) (finding no waiver or estoppel because employee failed to show other employees had violated non-competes to trigger comparable enforcement actions); Jefco Labs v. Carroo, 483 N.E.2d 999 (Ill. App. Ct. 1985) (duress established where new employee was required to sign restrictive covenant or face losing employer’s litigation payments relating to pending suit); Marshall v. Miles Labs, Inc., 647 F. Supp. 1326 (N.D. Ind. 1986) (rejecting federal antitrust claim employee brought to defeat his non-compete); Charles A. Sullivan, Revisiting the “Neglected Stepchild”: Antitrust Treatment of Postemployment Restraints of Trade, 1977 U. ILL. L. FORUM 621 (1977) (discussing relationship between antitrust rule of reason and common law employee non-compete rule of reason). 57. Other state statutes regulating employee restrictive covenants include: ALA. CODE § 8–1-1 (1993); COLO. REV. STAT. ANN. §§ 8–2-113(2) and (3) (West 1994); GA. CODE ANN. § 13–8-2.1 (Harrison 1998); HAW. REV. STAT. ANN. § 480–4(c)(4) (Harrison 1998); LA. REV. STAT. ANN. § 23:921 (West 1993); MICH. COMP. LAWS ANN. § 445.774(a) (West 1993); MONT. CODE ANN. § 28–2-703 (1998 & Supp. 2001); NEV. REV. STAT. ANN. § 613.200 (Michie 2000); N.C. GEN. STAT. § 75–4 (1999); N.D. CENT. CODE § 9–08–06 (1987); OKLA. STAT. ANN. tit. 15, § 217 (West 1993); OR. REV. STAT. § 653.295 (1989 & Supp. 1998); S.D. CODIFIED LAWS § 53–9-11 (Michie 1990); TENN. CODE ANN. § 47–25– 101 (1995); TEX. BUS. & COM. CODE §§ 15.50–15.52 (Vernon Supp. 2001); W. VA. CODE ANN. § 47–18–3(a) (Michie 1999); and WIS. STATS. ANN. § 103.465 (West 1997 & Supp. 2000).

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1996, relatively easy to enforce, as the statute deems a restriction of six months or less presumptively reasonable.58 California, by contrast, completely prohibits post-employment non-competes.59 Moreover, California courts void California employee non-competes under California law even when some other state law is designated in the contract.60 One of the few California cases to depart from this choice-of-law approach was the Ninth Circuit’s recent decision in International Business Machines Corp. v. Bajorek,61 in which the court honored a New York law designation by upholding the $900,000 stock option forfeiture of a technical employee who jumped ship to a competitor. Illinois law falls between these extremes. Illinois follows the common law reasonableness test but with a decided twist: Non-compete agreements can only be used to protect near-permanent customer relations, as opposed to ordinary customer relations.62 In the alternative, non-compete agreements in Illinois can only be enforced to protect confidential information or trade secrets when an employer demonstrates that an employee not only has access to such information, but has also attempted to use it.63 These rather restrictive standards make it difficult to enforce non-compete agreements in Illinois despite the fact that Illinois purports to follow the common law rule of reasonableness.64 Not surprisingly, the Illinois Supreme Court has never explicitly endorsed this questionable approach.65 As noted, employee restrictive covenants are not limited to noncompetition agreements; other post-termination restraints include customer non-solicitation provisions, employee anti-raiding provisions, and golden handcuffs, which call for forfeiture of post-employment compensation. In general, courts favor customer non-solicitation clauses over broad non-compete clauses for the simple reason that customer non-solicitation clauses allow an employee to remain in the industry. To prevail on a non-solicitation claim, an employer must show that the 58. FLA. STAT. ANN. § 542.335 (West 1997). 59. CAL. BUS. & PROF. CODE § 16600 (West 1997). 60. See Application Group, Inc. v. Hunter Group, Inc., 72 Cal. Rptr. 2d 73 (Cal. Ct. App. 1998) (rejecting contractual choice of law and instead applying California law to California employees). 61. 191 F.3d 1033 (9th Cir. 1999). 62. See Outsource Int’l, Inc. v. Barton, 192 F.3d 662 (7th Cir. 1999) (enforcing temporary staffing agency employee’s non-compete agreement based upon “near-permanent relationship” test). 63. See Nationwide Adver. Serv., Inc. v. Kolar, 302 N.E.2d 734 (Ill. App. Ct. 1973) (denying enforcement of employee restrictive covenant in the first Illinois decision to explicitly adopt “near-permanent customer relationship” test and the alternative “trade secret access/subsequent use” test). 64. See Curtis 1000 v. Seuss, 24 F.3d 941 (7th Cir. 1994) (comparing traditional Delaware standard with restrictive Illinois standard in employee non-compete case). 65. See Shapiro v. Regent Printing Co., 549 N.E.2d 793 (Ill. App. Ct. 1989) (Jiganti, J., dissenting) (arguing that Illinois Appellate Court should follow traditional “customer contact” test rather than narrow near-permanent customer relationship test).

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employee had sufficient access to customers to earn their trust and confidence, thereby enabling the employee to erode the employer’s good will through post-employment competition. Most courts enforce customer non-solicitation clauses, though employees can successfully defend against such covenants when their customer contact was marginal.66 Sometimes customer non-solicitation restrictions contain a geographic limitation, as is usually the case when route men are involved. Customer non-solicitation clauses can be enforced when no geographic limitation is supplied, however, on the theory that a geographic limitation makes no sense where customers are widely disbursed.67 Even California law may permit enforcement of very narrow customer non-solicitation clauses.68 On the other hand, no-acceptance clauses, which prohibit former employees from accepting customer business that they did not solicit, may be void in some jurisdictions.69 Contractual provisions restricting employee raiding are enforced by many courts, including California, if only solicitation is prohibited.70 The rationale is not always stated, but it appears that workforce sta-

66. See Easy Returns Midwest v. Schultz, 964 S.W.2d 450 (Mo. Ct. App. 1998) (to show a protectible interest in customer contacts under Missouri law, employer must demonstrate sales employee had “special influence” over customers; employer failed to prove quality, frequency, or duration of employee’s customer contacts). 67. See ATLA Analytics, Inc. v. Muuss, 75 F. Supp. 2d 773 (S.D. Ohio 1999) (enforcing employee non-compete that did not include geographic limitation, in light of industry—insurance and financial fraud detection software—and presence of trade secrets in the form of current design, future design, and marketing features of employer’s software); American Software USA, Inc. v. Moore, 448 S.E.2d 206 (Ga. 1994) (non-compete can dispense with geographic limitations if restricted to customers actually served by employee; non-compete barring software maintenance and support employee from servicing any clients in the United States was overly broad and unenforceable); Donald McElroy, Inc. v. Delaney, 389 N.E.2d 1300 (Ill. App. Ct. 1979) (customer non-solicitation clause requires no geographic limitation); Wolf & Co. v. Waldron, 366 N.E.2d 603 (Ill. App. Ct. 1977) (same holding). 68. See General Commercial Packaging, Inc. v. TPS Package Eng’g, Inc., 126 F.3d 1131 (9th Cir. 1997) (packing firm was entitled to enforce narrow non-solicitation clause prohibiting subcontractor from stealing Walt Disney as a client; barring one from pursuing only a small part of business, trade, or profession does not violate § 16600); Hollingsworth, Solderless, Termino Co. v. Turley, 622 F.2d 1324 (9th Cir. 1980) (remanding for determination as to whether employee’s customer non-solicitation agreement could be enforced under California law to prevent disclosure of employer’s trade secrets); Campbell v. Bd. of Trs., 817 F.2d 499 (9th Cir. 1987) (Stanford University employee’s promise not to “injure the sale” of a career counseling test was not void under § 16600); Boughton v. Socony Mobil Oil Co., 41 Cal. Rptr. 714 (Cal. Dist. Ct. App. 1964) (contract prohibiting gas station operation on particular real estate parcel did not violate § 16600). 69. See AmeriGas Propane, L.P. v. T-Bo Propane, Inc., 972 F. Supp. 685 (S.D. Ga. 1997) (“no acceptance” provisions are void under Georgia law as they overprotect an exemployer’s interests and unreasonably impact on former employees and the public’s ability to choose the services it prefers). 70. See Loral Corp. v. Moyes, 219 Cal. Rptr. 836 (Cal. Ct. App. 1985) (covenant which only barred solicitation, as opposed to hiring, did not violate § 16600); but see Schmersahl, Treloar & Co. v. McHugh, 28 S.W.2d 345 (Mo. Ct. App. 2000) (holding employee anti-recruitment clause violated Missouri law barring competitive restrictions).

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bility and specialized training justify such covenants;71 confidential employee compensation information might also do so.72 The precise wording of anti-recruitment clauses is important, as a clause forbidding solicitation is not the same as a clause prohibiting hiring.73 Enforcement of anti-raiding restrictions can be especially difficult where the limitation is entered into between business entities rather than between an employer and an employee.74 Golden-handcuff arrangements are sometimes utilized to deter employee competition, and they are typically measured by the same standards as employee non-compete agreements.75 Although monthly payment and stock award forfeitures are common in golden handcuff arrangements,76 stock option forfeitures or repayments are used as well,77 as in Bajorek, and so are cost-of-training repayments.78 Even 71. See Freund v. E.D.& F. Man Int’l, Inc., 199 F.3d 382 (7th Cir. 1999) (noting training as a potential rationale for anti-recruitment clauses); Arpac v. Murray, 589 N.E.2d 640 (Ill. App. Ct. 1992) (noting workforce stability and training as rationales for anti-recruitment clauses); Loral Corp., 219 Cal. Rptr. 836 (noting workplace stability and employer’s continued viability as justifications for employee non-interference agreements). 72. Cf. Riggs Inv. Corp. v. Columbia Partners, L.L.C., 966 F. Supp. 1250 (D.D.C. 1997) (executive’s use of subordinates’ confidential salary information constituted breach of fiduciary duty); Bancroft-Whitney Co. v. Glen, 411 P.2d 921 (Cal. 1966) (similar fiduciary duty holding concerning salary information). 73. See Lane Co. v. Taylor, 330 S.E.2d 112 (Ga. Ct. App. 1985) (approving antiraiding covenant prohibiting both solicitation and hiring of employees); Loral Corp., 219 Cal. Rptr. 836 (non-solicitation of employees is permitted under § 16600; hiring prohibition would be void). 74. See Emergency Med. Care, Inc. v. Marion Mem’l Hosp., 94 F.3d 1059 (7th Cir. 1996) (narrow restriction in no switch agreement between hospital and medical firm did not prevent hospital from hiring physicians once they joined a new firm); Frank B. Hall & Co. v. Alexander & Alexander, Inc. 974 F.2d 1020 (8th Cir. 1992) (anti-recruitment agreement between insurance firms did not prevent insurance firm from suing its own employees to enforce their restrictive covenants); Szabo Food Serv. v. Cook County, 513 N.E.2d 875 (Ill. App. Ct. 1987) (employer’s anti-recruitment agreement with government agency did prevent employees from joining new contractor that won same government agency’s bid and then assigned the same employees to the same jobs they previously held). 75. See Torrence v. Hewitt Assoc., 493 N.E.2d 74 (Ill. App. Ct. 1986) (measuring partner forfeiture-for-competition clause under non-compete standards); but see Lucente v. Int’l Bus. Mach., 75 F. Supp. 2d 169 (S.D.N.Y. 1999) (forfeiture-for-competition clause is enforced without regard to its reasonableness, under New York “employee choice doctrine,” if employer remains willing to keep employee). 76. See Sarnoff v. Am. Home Prods., 798 F.2d 1075 (7th Cir. 1986) (stock award in installments over ten years forfeited for competition under New York law). 77. See Maxxim Med., Inc. v. Michelson, 51 F. Supp. 2d 773 (S.D. Tex. 1999) (finding stock option forfeiture/non-compete void under California law), rev’d on other grounds, 182 F.3d 915 (5th Cir. 1999); Cohen v. Lord, Day & Lord, 550 N.E.2d 410 (N.Y. 1989) (forfeiture for competition clause treated as non-compete and deemed void as applied to lawyer). 78. See Heartland Secs. Corp. v. Gerstenblatt, Nos. 99 CIV. 3694, 3858, 2000 WL 303274, at *7 (S.D.N.Y. March 22, 2000) (day trader’s training repayment/non-compete, requiring him to pay up to $200,000, was void); Brunner v. Hand Indus., Inc., 603 N.E.2d 157 (Ind. Ct. App. 1992) (voiding sliding scale clause requiring training cost repayment ranging from $2,200 to $20,000); Patrick McGeehan, Attempt to Dun a Former Broker

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retirement benefits can be subject to non-competition forfeiture agreements.79 The problem with golden handcuffs, standing alone of course, is that the new employer may simply compensate the employee for the forfeited sums80 or the employee may simply walk away from them as the cost of a better opportunity. The safest approach is to include both non-compete and post-employment payment/forfeiture provisions in the same agreement.81 Whatever their form, non-compete agreements have three basic benefits. First, they allow a former employer to go immediately to court upon learning that an ex-employee has formed or joined a competitor, as such conduct by itself triggers the agreement;82 the ex-employer does not have to wait for more specific evidence of competitive wrongdoing, as in many trade secret and business tort cases.83 Second, courts are far more willing to grant injunctive relief when they face agreed-upon restrictions. This is especially true with respect to the length of the restriction; courts can fashion cooling-off or head-start injunction periods on their own, even without a contract,84 but they are reluctant to Costs Dean Witter $1.8 Million, WALL. ST. J., Oct. 23, 1997, at B4 (reporting adverse arbitration award arising out of employer’s attempt to require repayment of training expenses pursuant to non-compete). 79. See Clark v. Lauren Young Tire Center Profit Sharing Trust, 816 F.2d 480 (9th Cir. 1987) (non-compete forfeiture clause is valid under ERISA so long as the plan provides that benefits accrued after ten years of service cannot be forfeited); Noell v. Am. Design, Inc., 764 F.2d 827 (11th Cir. 1985) (same holding); Lojek v. Thomas, 716 F.2d 675 (9th Cir. 1983) (same holding); Hepple v. Roberts & Dybdahl, Inc., 622 F.2d 962 (8th Cir. 1980) (same holding); Capsonic Group v. Plas-Met Corp., 361 N.E.2d 41 (Ill. App. Ct. 1977) (profit sharing agreement, which required repayment in the event of competition within three years, was not a non-compete agreement); Van Pelt v. Berefco, Inc., 208 N.E.2d 858 (Ill. App. Ct. 1965) (pre-ERISA decision enforcing retirement benefits forfeiture-for-competition clause under Massachusetts law). 80. See Cohen, 173 F.3d 63 (new employer gave employee guaranteed base salary of $750,000 and signing bonus of $2 million to cover employee’s loss of income in the event six-month restrictive covenant was enforced by former employer); P.A. Bergner & Co. v. Martinez, 823 F. Supp. 151 (S.D.N.Y. 1993) (discussing proposed agreement to indemnify executive against $1,000,000 compensation loss if he joined competitor). 81. See Gateway 2000, Inc. v. Livak 19 F. Supp. 2d 748 (E.D. Mich. 1998) (computer assembly firm granted preliminary injunction enforcing six-month employee separation/non-compete agreement paying salary and benefits for the six-month period). 82. See Torrence, 493 N.E.2d 74 (mere employment by competitor, without more, triggered non-compete forfeiture/liquidated damages clause). 83. But see Shapiro v. Regent Printing Co., 549 N.E.2d 793 (Ill. App. Ct. 1989) (noting trial court issued 60-day injunction to remedy employee’s breach of fiduciary duty); Cross Wood Prods., Inc. v. Suter, 422 N.E.2d 953 (Ill. App. Ct. 1981) (recognizing trial court’s authority to issue injunctive relief to remedy employee’s breach of fiduciary); Shorr Paper Prods., Inc. v. Frary, 392 N.E.2d 1148 (Ill. App. Ct. 1979) (a court need not wait until an injury occurs before granting injunctive relief in an employee restrictive covenant case); Armour & Co. v. United Am. Food Processors, Inc., 345 N.E.2d 795 (Ill. App. Ct. 1976) (a court need not wait until an injury occurs before granting injunctive relief in an employee trade secret misappropriation case). 84. See Brunswick Corp. v. Outboard Marine Corp., 404 N.E.2d 205 (Ill. 1980) (approving head start trade injunction concept); Schulenburg v. Signatrol, Inc., 212 N.E.2d 865 (Ill. 1965) (same).

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do so.85 By contrast, when a contract is present, courts at times will extend the restriction beyond the contractual period, depending upon the equities.86 Third, non-compete agreements are a direct and simple deterrent everyone in business understands and fears. Many employers simply take a pass when they learn an attractive employment candidate is subject to a non-compete agreement.87 2. Cases A.

BUSINESS INTELLIGENCE SERVICES V. HUDSON

Any number of cases reflects how courts apply these familiar noncompete principles in high tech settings, but a few will suffice. In Business Intelligence Services, Inc. v. Hudson,88 a British citizen, Hudson, joined Business Intelligence Services (BIS) and progressed from software programmer to senior programmer and then to consultant. Hudson’s duties included developing and installing software products and providing consulting services to financial institution customers using BIS’s software for international multi-currency transactions. Hudson had been given a non-compete at the outset of her employment with BIS, but she apparently had never signed it. BIS later provided her with another non-compete, which Hudson did sign, even though she was contemplating a move to a rival firm, MTI, which was run by a former BIS employee. Hudson subsequently announced her intention to join MTI but agreed to a four-week notice period.

85. See EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299 (S.D.N.Y. 1999) (refusing inevitable disclosure trade secret injunction on the ground the former employer should have negotiated an enforceable non-compete), rev’d on other grounds, 205 F.3d 1322 (2d Cir. 2000). 86. See JAK Prod., Inc. v. Wiza, 986 F.2d 1080 (7th Cir. 1993) (non-compete period can be extended by injunction beyond contract’s stated term where employee violates contract); Overholt Crop. Ins. Serv. Co. v. Travis, 941 F.2d 1361 (8th Cir. 1991) (approving district court’s extension of restrictive covenant period by injunction); Thermatool Corp. v. Borzym, 575 N.W.2d 334 (Mich. Ct. App. 1998) (non-compete can be extended beyond its stated expiration date to avoid injustice); Preferred Meal Sys., Inc., 557 N.E.2d 506 (remanding case to trial court to consider whether equities required extension of employee restrictive covenant); Agrimerica, Inc. v. Mathes, 557 N.E.2d 357 (Ill. App. Ct. 1990) (remanding case to trial court to determine whether the equities required extending the ex-employee’s two-year, non-solicitation covenant, in view of ex-employee’s ongoing breach of contract, to allow ex-employer to “win back” former customers); Elec. Support Sys., Inc. v. Schattke, 388 N.E.2d 787 (Ill. App. Ct. 1979) (in certain circumstances injunctive relief may be appropriate even after the expiration of the contractual non-compete period); but see Wesley-Jessen, Inc. v. Armento, 519 F. Supp. 1352 (N.D. Ga. 1981) (under Georgia law, the pendency of litigation does not toll running of non-compete period called for in employment contract). 87. See Mark D. Risk, When the Tango Takes Three: Restrictive Covenants Reconsidered, EMPLOYMENT RIGHTS AND RESPONSIBILITIES COMMITTEE NEWSLETTER, AMERICAN BAR ASSOCIATION SECTION OF LABOR AND EMPLOYMENT LAW, Vol. 5, No. 2, at 10 (Fall 2000) (noting that even overbroad, unenforceable restrictive covenants discourage employee mobility, as new employers are often unwilling to risk litigation). 88. 580 F. Supp. 1068 (S.D.N.Y. 1984).

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The district court enforced Hudson’s one-year restrictive covenant. The court emphasized that BIS and MTI were head-to-head competitors; indeed, the top employee at MTI had designed BIS’s international currency program while employed with BIS and had since designed a competing product for MTI. The court found that BIS’s source code constituted a trade secret and noted that BIS had developed confidential information about its customers and potential customers—all information to which Hudson had had access while with BIS. The court also noted that BIS had initiated litigation for trade secret misappropriation against another ex-employee who had joined MTI. Under these circumstances, the court concluded BIS would suffer irreparable harm if Hudson were to disclose BIS’s information to MTI, a scenario the court viewed as “likely, if not inevitable and inadvertent.”89 The one-year restriction struck the court as reasonable in light of the time and effort it had taken BIS to develop its software and customer relations, and the worldwide prohibition was deemed reasonable since BIS did business worldwide. The district court subsequently rejected Hudson’s fraud defense and made the injunction permanent, even though the effect of its final order would preclude Hudson from securing employment in the United States due to her visa status.90 B.

KRAMER V. ROBEC, INC.

A similar analysis was used in Kramer v. Robec, Inc.91 In this case, an employee signed a three-year agreement not to compete with Robec’s business anywhere in the United States. The employee, Kramer, managed a project to develop a commercially viable computer network system but had no sales, marketing, or customer responsibilities. Kramer subsequently sought employment with Artisoft to oversee the plans and development of a competitive product. The court rejected Kramer’s argument that Robec had no legally protective interest simply because the technology at issue was owned by Emex, a limited partnership that licensed the technology to Robec and was sixty-five-percent owned by Robec; the court deemed Robec’s business interest in Emex a sufficient protective interest in and of itself. The court also rejected Kramer’s geographic restriction challenge, noting that Robec did business nationwide. The court modified the covenant from three years to two, however, in view of the “quick pace of obsolescence and technological innovation” in the computer industry—“often 12 to 18 months.”92 Kramer’s twenty years of experience in the inter-computer communications field also influenced the court’s decision to reduce the restriction. 89. Id. at 1072 (emphasis added). 90. See Business Intelligence Servs., Inc. v. Hudson, No. 84 Civ. 0164, 1984 WL 555, at *1 (S.D.N.Y. June 21, 1984). 91. 824 F. Supp. 508 (E.D. Pa. 1992). 92. 824 F. Supp. at 512–13.

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NATIONAL BUSINESS SERVICES, INC. V. WRIGHT

Kramer was subsequently followed partially in another high tech case, National Business Services, Inc. v. Wright.93 Wright entered into a non-compete agreement as an employee of National Business, which sold information products and services to the advertising specialty and promotional products industry. National Business had hired Wright to launch a new Internet product. Wright was in charge of sales to thirtyeight of National Business’s largest customers, which were located throughout the United States. By virtue of her key sales position, Wright had access to confidential information about these customers and extensive and intimate contact with these and other customers. Wright rose to prominence in the industry, and her former employer, Impact, sought to hire her away from National Business at a substantial salary increase. Impact also promised to indemnify and defend Wright in the event National Business sought to enforce her restrictive covenant. National Business subsequently sued Wright, and the district court granted a permanent injunction based upon her non-compete. The court found the one-year contractual restriction reasonable, though it acknowledged that one year was a long time in the relatively fast-paced Internet advertising industry. The court also found the nationwide limitation reasonable, relying on Kramer, because National Business and Impact competed nationwide. The court emphasized, “Transactions involving the Internet, unlike traditional ‘sales territory’ cases, are not limited by state boundaries.”94 The court concluded that National Business’s customer goodwill and confidential information were legitimate proprietary interests warranting protection. The court also concluded that Wright would suffer little harm under its permanent injunction, as Impact had promised to indemnify her and she was prominent in the industry. D.

SPRINT CORP. V. DEANGELO

While rapidly evolving technology failed as a defense in Kramer and Wright, it prevailed in Sprint Corp. v. DeAngelo.95 Sprint sold telecommunication services, including Internet access and support systems. DeAngelo signed a non-compete with Sprint and served as assistant vice president for Internet services, a position in which he supervised the development and marketing of Sprint’s Internet telecommunications services in the United States. DeAngelo developed strategic, marketing, personnel, pricing, and customer information in this capacity. He subsequently signed to join IXC, which competed with Sprint in the long distance telephone business and was developing an Internet business. 93. 2 F. Supp. 2d 701 (E.D. Pa. 1998). 94. Id. at 708. 95. 12 F. Supp. 2d 1188 (D. Kan. 1998).

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Sprint sought to enforce DeAngelo’s non-compete but ran into a problem: The agreement only prohibited DeAngelo from engaging “in the long distance business or performing functions relating to long distance services.”96 DeAngelo argued, and the district court agreed, that the value-added Internet services business was not long distance business or even related to long distance services because of differences in their purposes, regulations, pricing structures, and customer segments. Invoking the traditional rule that non-competes should be strictly construed, the court concluded that the agreement was ambiguous because the Internet landscape had rapidly evolved in the three years since the parties had executed the non-compete. The court, therefore, denied Sprint’s preliminary injunction request. E.

EARTHWEB, INC. V. SCHLACK

The Internet’s fast-paced evolution also played a key defense role in EarthWeb, Inc. v. Schlack.97 The defendant, Schlack, before joining EarthWeb, had worked in the publishing industry for sixteen years, including stints as senior editor and/or editor-in-chief of several print magazines, such as Byte and Webb Builder. Schlack worked for EarthWeb for eleven months and had overall editorial responsibilities for the content on EarthWeb’s Web sites. Schlack left EarthWeb to join IDG, the world’s leading provider of IT print-based information because he was offered a significant increase in compensation. EarthWeb responded by suing to enforce Schlack’s non-compete agreement. In rejecting the non-compete claim, the district court relied heavily on the unreasonableness of a one-year restriction in the rapidly changing Internet field.98 Schlack’s position with EarthWeb, the court noted, had been dependent on his keeping abreast of daily changes in content on the Internet. The court’s view was buttressed by the narrow scope of Schlack’s non-compete, which only prohibited him from joining a firm whose “primary business” was to provide information technology professionals with an online reference library or a directory of third party technology, software, or developer resources. Apart from the fact that Schlack’s new firm had only a de minimus presence in these areas, the court stressed that EarthWeb was simply speculating that Schlack’s new employer might enter these areas in the next few months—a long time indeed in the Internet world. Finally, the court rejected EarthWeb’s unique services argument under Ticor Title Insurance Co. v. Cohen,99 ruling that high value to the ex-employer is not enough.

96. 97. 98. 99.

Id. at 1190. 71 F. Supp. 2d 299 (S.D. N.Y. 1999), remanded, 205 F.2d 1322 (2d Cir. 2000). Id. at 302–03. 173 F.3d 63 (2d Cir. 1999).

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The court ruled that EarthWeb also had to show Schlack’s replacement was impossible or that his departure would cause irreparable harm. F.

CAP GEMINI AMERICA, INC. V. JUDD

Another representative restrictive covenant case is Cap Gemini America, Inc. v. Judd.100 The employer, Cap Gemini, provided computer software programming and analytical services for clients. Judd was Cap Gemini’s Los Angeles branch manager. Judd and Cap Gemini became dissatisfied with one another over Judd’s responsibilities and other matters. Fearful Judd would become a competitor, Cap Gemini gave Judd a new position and had Judd sign an agreement in an attempt to resolve their disputes. The agreement, which stated that California law governed, included an employee non-solicitation clause, but a non-compete provision was deleted. Judd later formed a competing firm and then resigned from Cap Gemini shortly thereafter. The parties agreed to a release and payment of a $23,000 bonus to Judd, but Cap Gemini subsequently refused to pay the bonus when Judd solicited Cap Gemini employees in violation of his anti-recruitment agreement. Cap Gemini sued to enforce the covenant and for other relief, and Judd counter-claimed, asserting breach of contract, fraud, and other theories. The trial court found that Cap Gemini had never intended to give Judd a new position and therefore voided both the employment agreement and the release on fraud grounds. The trial court then awarded Judd $3,000,000 in compensatory damages and $1,000,000 in punitive damages, plus Judd’s $23,000 bonus. The Indiana Court of Appeals, applying California law, affirmed the trial court’s finding that Cap Gemini had been guilty of fraud in procuring Judd’s employment agreement and release but reversed the compensatory damages awards as speculative. In view of the lack of compensatory damages, the court also reversed the punitive damages award, although the court approved the $23,000 bonus judgment. Despite having determined that the employment agreement containing the non-interference clause had been fraudulently obtained, the court addressed Judd’s argument that the employee anti-recruitment clause was void under section 16600 of the California Business and Professions Code. The court in Judd distinguished Loral Corp. v. Moyes,101 emphasizing that the clause in Loral was designed to maintain a stable workforce in a small way with no significant impact on trade or business because it prohibited the defendant employee from soliciting employees but allowed him to receive and consider applications. By contrast, the clause in Judd prohibited the defendant from soliciting or inducing fellow employees from leaving their employment. The court 100. 597 N.E.2d 1272 (Ind. Ct. App. 1992). 101. 219 Cal. Rptr. 836 (Cal. Ct. App. 1985).

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in Judd took offense at the notion that the non-interference clause precluded Judd from merely accepting applications from Cap Gemini employees who responded to Judd’s blind newspaper ads in Indianapolis. It therefore concluded the restriction was unenforceable under California law. Finally, the court rejected Cap Gemini’s claim that Judd had tortiously interfered with non-compete agreements signed by seven Indiana employees whom he had recruited through his ads, holding the non-competes were overly broad and thus void. G.

APPLICATION GROUP, INC. V. HUNTER GROUP, INC.

California law was also at issue in the potentially far-reaching case of Application Group, Inc. v. Hunter Group, Inc.102 Application Group, Inc. (AGI), and Hunter were frequent combatants in employee raiding skirmishes over high tech computer consultants. When Hunter sued an ex-employee and AGI in Maryland state court, AGI retaliated with a California state court declaratory judgment action. Hunter lost the Maryland case, but AGI pressed on with its California case, seeking to bar Hunter once and for all from restricting AGI in recruiting and hiring employees in California. In view of the continuing battle between Hunter and AGI, as well as past notice letters from Hunter to AGI, the California Court of Appeal held that a justifiable controversy existed on the important question of mobile computer consultants who work for virtual employers in California. The court concluded that section 16600 represented a fundamental California public policy that trumped Maryland choice of law designations in Hunter’s employment contracts—even for non-California residents so long as they worked in California, regardless of their “precise degree of involvement in California projects.”103 To hold otherwise, the court stressed, “would have been to allow an out-of-state employer/competitor to limit employment and business opportunities in California.”104 H.

INTERNATIONAL BUSINESS MACHINES CORP. V. BAJOREK

More recently, in International Business Machines Corp. v. Bajorek,105 the Ninth Circuit seemed to reach the opposite result in enforcing a choice-of-law clause designating another state’s law in a California employee case. Bajorek had worked for International Business Machines (IBM) for twenty-five years, mostly in California but also for a few years in Minnesota and New York. Bajorek’s stock option agreement with IBM contained a cancellation clause stating he would repay his gains if he worked for a competitor within six months after exercising his options. Bajorek quit and joined a competitor, and IBM therefore demanded repayment of over $900,000 in option gains that Bajorek had 102. 103. 104. 105.

72 Cal. Rptr. 2d 73 (Cal. Ct. App. 1998). Id. at 85. Id. at 86. 191 F.3d 1033.

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received. New York-based IBM sued for breach of contract and fraud in New York, and Bajorek sued for declaratory relief in California. The New York action was transferred to California; the California federal district court dismissed the New York case and granted Bajorek’s request for a declaratory judgment voiding the cancellation clause under section 16600. The Ninth Circuit reversed. The court of appeals found the stock option agreement had a sufficient connection to New York to warrant enforcement of the New York choice-of-law provision in the agreement, noting that IBM was headquartered there and had a legitimate interest in consistent interpretations of its stock option plan under New York law.106 The court also held that section 16600 did not apply on the narrow facts presented because Bajorek was free to work in his profession and in the same industry and to keep the money so long as he simply did not work for a competitor within the six-month period. Indeed, the court pointed out that “Bajorek could have kept the money and gone to work for a competitor immediately upon quitting, had he elected to exercise his stock options six months before he quit.”107 The court therefore avoided the choice-of-law controversy in holding that Bajorek had to repay the money. Interestingly, despite an exhaustive review of California conflicts of law principles, the Ninth Circuit did not discuss or even cite Hunter, which had been decided only nineteen months earlier. I.

NET2PHONE V. SINCLAIR

The same California exception recently surfaced again in another high tech case, Net2Phone v. Sinclair.108 New Jersey-based Net2Phone sued California-based Dialpad in New Jersey federal court for luring away employees Sinclair and Doyle. Both employees had signed oneyear non-compete agreements designating New Jersey law as governing, even though they worked for Net2Phone in California. Sinclair became Dialpad’s business development director, and Doyle became Dialpad’s executive vice president. Net2Phone argued that Sinclair and Doyle had had access to confidential information in the form of business strategies and were violating their agreements by virtue of their new employment with Dialpad. Dialpad responded with a California action of its own, seeking declaratory relief, as did Sinclair and Doyle in separate California declaratory judgment actions. The New Jersey federal court issued a preliminary injunction against Sinclair and Doyle before 106. In fact, IBM had made a similar stock forfeiture claim under New York law against another employee in Int’l Bus. Mach. Corp. v. Martson, 37 F. Supp. 2d 613 (S.D.N.Y. 1999) (stock options are not “wages” and may be forfeited under New York “employee choice doctrine”), a case decided seven months before Bajorek that the Ninth Circuit did not note. 107. 191 F.3d at 1041. 108. See Wylie Wong, Tech Worker Case Highlights Tight Job Market, at http:// news.cnet.com/news (visited Nov. 4, 2000) (describing Net2Phone litigation).

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the California courts made any substantive rulings. The defendants appealed to the Third Circuit, but the case ended with a confidential settlement shortly thereafter. J.

ADVANCED BIONICS CORP. V. MEDTRONIC, INC.

Yet another variation on the California exception recently arose in Advanced Bionics Corp. v. Medtronic, Inc.109 Here, a Minnesota employee, Stultz, was hired by Medtronic to work in its marketing department. Stultz signed a two-year non-compete agreement that called for the contract to be governed by the law of the state in which Stultz worked: Minnesota. On June 7, 2000, Stultz quit Medtronic and went to work on the same day for Advanced Bionics in California. More importantly, on the same day, Stultz filed a declaratory relief action in California state court, seeking to invalidate his non-compete agreement pursuant to section 16600. On June 8, Stultz moved for a temporary restraining order to prevent Medtronic from taking any action, other than in the California case, to enforce Stultz’s non-compete agreement. In response, on June 8, 2000, Medtronic removed the California state court action to federal court, and on June 9, 2000, Medtronic brought its own injunctive relief action against Stultz in Minnesota state court. These initial tactical maneuvers were just the beginning, however. The California federal district court remanded Stultz’s case back to the California state court, and the California state court then issued an order barring Medtronic from proceeding with its Minnesota state court action. After a long and complicated parallel litigation battle, the California state court restraining order was appealed to the California Court of Appeal. The court of appeal affirmed the restraining order because the California state court action was the first-filed case. The court also found that the case was controlled by Application Group, Inc. v. Hunter Group, Inc.110 on the question of section 16600’s application to a California employee who had signed a non-compete agreement designating foreign law. The court in Medtronic therefore remanded the matter for further proceedings on the merits. Accordingly, Stultz was able to control the forum and the choice of law by his filing strategy, and the ultimate outcome of his non-compete dispute on remand seems fairly plain under section 16600. 3. Summary In summary, high tech employees are subject to the same postemployment contract constraints as other employees. Courts are open to reducing or even eliminating limitations where information or customer contacts have quickly diminishing value, as in Kramer and EarthWeb, but this is true in all cases when such facts are present, not 109. 105 Cal. Rptr. 2d 265 (Cal. Ct. App. March 22, 2001). 110. 72 Cal. Rptr. 2d 73 (Cal. Ct. App. 1998).

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just in high tech employee disputes. In addition, as EarthWeb and DeAngelo underscore, rapidly evolving technology can create ambiguities in narrow non-compete agreements that were drafted years before disputes arise. When California law applies, section 16600 can void certain covenants for high tech employees, as is the case for all California employees (as Hunter shows). The only significant question seems to be how courts should apply choice-of-law provisions calling for non-California law to govern California employees, as in Hunter, Bajorek, Net2Phone, and Medtronic.111 This issue will remain controversial until the California Supreme Court expresses its view.112 C. Trade Secret Claims against Employees 1. General Principles As noted, trade secret claims are recognized in all jurisdictions in the United States. Most jurisdictions, and especially those following the UTSA, have embraced a very broad definition of trade secrets, encompassing both technical and non-technical information. In general, to qualify for trade secret status, information must be generally unknown in the industry, must give the employer an economic advantage by virtue of its secrecy, and must be subject to reasonable secrecy efforts.113 A wide range of remedies are available for actual or threatened trade secret misappropriation, including damages, reasonable royalties, and injunctive relief.114

111. See Baxter Int’l, Inc. v. Morris, 976 F.2d 1189 (8th Cir. 1992) (disapproving district court’s ruling voiding employee’s non-compete under § 16600; employee no longer worked in California and district court therefore should have honored contractual choice of law clause designating Illinois law as governing); SG Cowen Sec. Corp. v. Messih, No. 00CIV.3228, 2000 WL 633434, at 1 (S.D.N.Y. May 17, 2000) (denying injunctive relief pending arbitration, in part on the ground that § 16600 likely applied to California-based high tech investment banker, despite New York law designation clause in the underlying employment agreement); Maxxim Med., Inc. v. Michelson, 51 F. Supp. 2d 773 (S.D. Tex. 1999) (stock option forfeiture/non-compete was void under § 16600), rev’d on other grounds, 182 F.3d 915 (5th Cir. 1999). 112. See Nedlloyd Lines B.V. v. Superior Court, 834 P.2d 1148 (Cal. 1992) (adopting § 187 of the RESTATEMENT (SECOND) CONFLICT OF LAWS in a case not involving § 16600). 113. See Serv. Ctrs. of Chicago, Inc. v. Minogue, 535 N.E.2d 1132 (Ill. App. Ct. 1989) (noting this definition under the Illinois version of the Uniform Trade Secrets Act). 114. See Cacique, Inc. v. Robert Reiser & Co., 169 F.3d 619 (9th Cir. 1999) (holding that reasonable royalty is available under the California version of the UTSA only when actual damages and unjust enrichment are unprovable); Caliper Technologies Awarded $52.6 Million in Suit Against Aclara, WALL ST. J., Oct. 31, 2000, at B6 (reporting trade secret misappropriation jury verdict in computer chip case based upon intellectual property lawyer’s simultaneous representation of rivals that allegedly resulted in one firm’s trade secrets being used to secure a patent for the other); ConAgra Foods, Inc.: Appeal of $20 Million Award Vowed in Trade-Secrets Suit, WALL. ST. J., Oct. 19, 2000, at B20 (noting Arkansas state court jury verdict of $20 million against ConAgra for stealing feed formula and recruiting employees from Tyson Foods); Charles McCoy, Avant! Corp. Is Hit with Judgment of $31.4 Million, WALL ST. J., Nov. 17, 1997, at B11 (reporting $31 million trade secret misappropriation verdict and noting related felony indictment against Avant! Corp. for industrial espionage).

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The most difficult problem in many trade secret cases is distinguishing between an employee’s general skill and knowledge, which the employee has the right to use after leaving, from particularized employer knowledge, which warrants trade secret protection. This issue lies at the heart of trade secret inevitable disclosure claims. In inevitable disclosure cases, the former employer alleges, in essence, that the employee knows too much and therefore cannot effectively perform in a new, competitive position without at least inadvertently drawing upon prior, proprietary knowledge of the ex-employer.115 Inevitable disclosure claims have become widely accepted throughout the United States, especially since the Seventh Circuit’s 1995 decision in PepsiCo, Inc. v. Redmond.116 The doctrine is much older than the PepsiCo decision,117 however, and it has been employed in a variety of circumstances that typically involve engineers or other technical employees.118 California, the most populous state and the home of Silicon Valley, is presently a battleground over the inevitable disclosure doctrine. Many assume the doctrine will not take root in California, given section 16600’s strong prohibition of non-compete restrictions. While some California federal courts have rejected the doctrine,119 other California federal courts have accepted it120 or at least not questioned it.121 Adding to the confusion, the California Court of Appeal embraced the doctrine in Electro Optical Industries, Inc. v. White,122 only to have the Califor115. See Strata Mktg., Inc. v. Murphy, 740 N.E.2d 1166 (Ill. App. Ct. 2000) (inevitable disclosure trade secret claim was properly alleged based upon assertion that ex-employee could not perform new job without disclosing former employer’s secrets). 116. 54 F.3d 1262 (7th Cir. 1995) (affirming six-month injunction, completely barring marketing executive from working for a competitor, based on inevitable disclosure theory). 117. See B.F. Goodrich Co. v. Wohlgemuth, 192 N.E.2d 99 (Ohio Ct. App. 1963) (recognizing early form of inevitable disclosure claim); E.I. duPont de Nemours & Co. v. American Potash & Chem. Corp., 200 A.2d 428 (Del. Ch. 1964) (mentioning inevitable disclosure in following Wohlgemuth). 118. See Union Carbide Corp. v. UGI Corp., 731 F.2d 1186 (5th Cir. 1984) (vice president and general manager/gas products); FMC Corp. v. Varco Int’l, Inc., 677 F.2d 500 (5th Cir. 1982) (engineering manager); Hyman Cos., Inc. v. Brozost, 119 F. Supp. 2d 499 (E.D. Pa. 2000) (general counsel); Emery Indus, Inc.. v. Cottier, 202 U.S.P.Q. (BNA) 829 (S.D. Ohio 1978) (chemical engineer); Air Prods. and Chems., Inc. v. Johnson, 442 A.2d 1114 (1982) (petroleum engineer). 119. See Danjaq LLC v. Sony Corp., 50 U.S.P.Q.2d (BNA) 1638 (C.D. Cal. 1999) (stating without analysis that inevitable disclosure is not the law in California or the Ninth Circuit); Bayer Corp. v. Roche Molecular Sys., Inc., 72 F. Supp. 2d 1111 (N.D. Cal. 1999) (finding inevitable disclosure doctrine runs afoul of California public policy reflected in § 16600). 120. See Excel Dowel & Wood Prods., Inc. v. Kavanaugh, No. SA CV 00–577 DOC (C.D. Cal. June 26, 2000) (granting trade secret preliminary injunction to prevent inevitable disclosure of identities of former employer’s overseas suppliers). 121. See Computer Sciences Corp. v. Computer Assoc. Int’l, Inc., Nos. CV 98–1374WMB SHX, CV 98–1440-WMB SHX, 1999 WL 675446, at *1 (C.D. Cal. Aug. 12, 1999) (finding inevitable disclosure doctrine irrelevant on money damages summary judgment motion). 122. 90 Cal. Rptr. 2d 680 (Cal. Ct. App. 1999).

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nia Supreme Court de-publish the Electro Optical decision, thereby robbing it of precedential value. Nevertheless, California is a UTSA state, and there is no reason why this commonsense doctrine should not be followed. On the other hand, given the strong public policy in favor of employee mobility in California and given the extraordinary success of Silicon Valley, the inevitable disclosure doctrine will probably be applied with caution by California courts, as shown by the recent California state trial court preliminary injunction ruling in Intel Corp. v. Broadcom Corp.,123 which is discussed later. This is particularly likely where the trade secret in question has a limited useful life, as is often the case in high tech industries.124 The main defenses of special relevance in high tech fields are general skill and knowledge and reverse engineering. General skill and knowledge, as noted, are often difficult to distinguish from particularized, proprietary information that can be protected under trade secret law. Nevertheless, as a rule of thumb, the longer an employee has been in a particular industry, the more likely the court will give serious thought to the notion that the value of the employee’s general skill and knowledge outweighs the claimed trade secret. Reverse engineering is, in a sense, a related concept in that it suggests that a person reasonably skilled in the industry could develop a competing product simply by examining or disassembling it. These are, of course, highly fact-sensitive inquiries. 2. Cases A.

DOUBLECLICK, INC. V. HENDERSON

In high tech circles, two inevitable disclosure cases have attracted a fair amount of attention: DoubleClick, Inc. v. Henderson125 and EarthWeb v. Schlack.126 DoubleClick involved two employees who conspired to leave DoubleClick, an Internet advertising firm. The court found that the employees had had access to significant confidential information in the form of revenue projections, future project plans, pricing and product strategies, and databases containing client information that had been collected by DoubleClick. The court further found that the employees had not only begun competing before quitting, but had also misappropriated at least some of this information before departing. Against this backdrop, it was only a small step for the court to conclude that these employees would inevitably disclose or use this and other information to which they had accessed while DoubleClick employees. 123. No. CV 788301 (Super. Ct. Santa Clara County, Cal. May 25, 2000). 124. See Bridgestone/Firestone, Inc. v. Lockhart, 5 F. Supp. 2d 667 (S.D. Ind. 1998) (general familiarity with past employer’s financial data had limited and diminishing potential value as compared to a knowledgeable outsider’s estimates, and thus inevitable disclosure injunction was not warranted). 125. No. 116914/97, 1997 WL 731413, at *1 (N.Y. Sup. Ct. 1997). 126. 71 F. Supp. 2d 299 (S.D. N.Y. 1999).

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The DoubleClick court’s main difficulty was fashioning appropriate injunctive relief. Because the defendants had previously worked for companies, placing advertisements in other media, the court was not willing to completely prevent them from working in the advertising industry, particularly since some companies engaged in Internet advertising as only a marginal part of their businesses. The court also recognized that in the rapidly evolving Internet advertising industry, secret information would likely have quickly diminishing value. The court therefore limited the preliminary injunction to six months. B.

EARTHWEB V. SCHLACK

In EarthWeb, discussed earlier, the employer not only sued Schlack on non-compete grounds, it also argued in the alternative that Schlack would inevitably disclose trade secrets in the form of information relating to strategic content planning, licensing agreements and acquisitions, advertising, and technical knowledge. The court appreciated the inevitable disclosure doctrine’s relevance where the new employer competed directly with the ex-employer and the transient employee possessed highly confidential or technical knowledge concerning manufacturing processes, marketing strategies, and the like. The court also recognized that PepsiCo and several New York decisions,127 including DoubleClick, had acknowledged this doctrine. Nonetheless, the court characterized DoubleClick as representing “a high water mark for the inevitable disclosure doctrine in New York,”128 emphasizing that DoubleClick rested heavily on evidence of the defendants’ overt theft of trade secrets and breaches of fiduciary duty. The EarthWeb court then cautioned that an expansive view of the inevitable disclosure doctrine ran counter to New York’s strong policy against non-compete agreements and could have had a chilling effect on employees changing jobs. The court found that EarthWeb had failed to demonstrate an imminent and inevitable risk of trade secret disclosure warranting injunctive relief partly because EarthWeb’s Web sites themselves revealed EarthWeb’s strategies and partly because Schlack did not have access to some of the asserted trade secrets. Nevertheless, a careful reading of EarthWeb readily reveals that the court did not hold that inevitable disclosure 127. See Int’l. Paper Co. v. Suwyn, 966 F. Supp. 246 (S.D.N.Y. 1997) (rejecting inevitable disclosure theory on the facts presented; wood and building products are “comparatively low-technology industries” and executive merely had general managerial expertise); Lumex, Inc. v. Highsmith, 919 F. Supp. 624 (E.D.N.Y. 1996) (applying inevitable disclosure rule in health fitness industry because there was a “high risk” of disclosure in that “copy cat”/“cloning” industry); Bus. Intelligence Serv., Inc. v. Hudson, 580 F. Supp. 1068 (S.D.N.Y. 1984) (computer software programmer’s non-compete agreement enforced; trade secret disclosure was likely, “if not inevitable and inadvertent,” given competition between old and new employers); Eastman Kodak Co. v. Powers Film Prods., 179 N.Y.S. 326 (N.Y. App. Div. 1919) (enforcing non-compete covenant where departing employee possessed information about Kodak secret film manufacturing processes and formulae that he would have inevitably used in performing his new job duties for competitor). 128. 71 F. Supp. 2d at 310.

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was never available as a theory; the court simply said that the doctrine called for careful and narrow application. C.

PSC, INC. V. REISS

EarthWeb was followed recently by another high tech inevitable disclosure case, PSC, Inc. v. Reiss.129 PSC and Optimal Robotics were partners in developing and manufacturing Optimal U-Scan, an automated self-checkout system for use in grocery stores and other retail establishments. Optimal Robotics developed the software and designed the configuration of the partnership’s scanning unit, and PSC manufactured and assembled the component parts. PSC’s key salesman, Reiss, had sold Optimal U-Scan units for the partnership for several years. The PSC/Optimal Robotics partnership collapsed when they could not agree on renewal terms, and Reiss later jumped ship to Optimal Robotics. PSC sought a preliminary injunction on inevitable disclosure grounds since Reiss had signed no restrictive covenant. The district court relied heavily on EarthWeb in rejecting PSC’s inevitable disclosure claim. The court ruled that Reiss’s minimal access to and input in the preparation of PSC’s proposed rival scanning unit did not justify injunctive relief. The court stressed that Reiss was not a scientist, an engineer, or a computer specialist. What little he did have to offer from a technical standpoint appeared, to the court, to be nothing more than general knowledge in the industry. Reiss’s minimal knowledge also struck the court as having little value to Optimal Robotics, which was the leader in its industry and which already had hundreds of units in place in the market. As far as the court was concerned, Reiss was simply going “to continue doing what he ha[d] been doing for years—sell[ing] the Optimal U-Scan equipment.”130 The court concluded by observing that since PSC intended to launch its new product within a few months, “all of [PSC’s] supposed confidential matters will be on display for all to see,”131 an apparent reference to the fast evolution of the market at issue there. D.

WAL-MART V. AMAZON.COM

Inevitable disclosure is an especially important theory in teamraiding situations. En masse departures present a heightened threat of disclosure: the more employees involved, the more likely someone will engage in questionable conduct in departing and the more likely a court will find an unfair competitive advantage is being sought through collective memory.132 One recent high tech example of team raiding is 129. 111 F. Supp. 2d 252 (W.D.N.Y. 2000). 130. Id. at 259. 131. Id. 132. See Advanced Power Sys., Inc. v. Hi-Tech Sys., Inc., 801 F. Supp. 1450 (E.D. Pa. 1992) (taking of computer program plus recruiting of seven employees from competitor gave rise to trade secret misappropriation inference).

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Wal-Mart v. Amazon.com.133 Wal-Mart alleged that Amazon.com had poached fifteen information systems employees who were familiar with Wal-Mart’s data warehousing, merchandise systems, and buyerdecision supportive software trade secrets. Wal-Mart stressed the obvious: Why would a high tech center firm like Seattle-based Amazon.com come all the way to Arkansas to find its target (a pointed question other courts have also raised on similar facts)?134 No judicial decision resulted from the case because the parties settled. According to one press account, the settlement required Amazon.com to reassign one former Wal-Mart employee, to limit the job responsibilities of other former Wal-Mart employees, and to require former Wal-Mart employees to return Wal-Mart’s property. The settlement also was said to bar Amazon.com from recruiting additional Wal-Mart employees for one year unless they first approached Amazon.com.135 E.

INTEL CORP. V. BROADCOM CORP.

Another recent case, Intel Corp. v. Broadcom Corp.,136 also shows the risk of luring away multiple high tech employees from a competitor. Intel alleged that Broadcom had raided four Intel engineering employees, thereby posing a threat of inevitable disclosure of Intel’s ethernet computer network secrets. The California state trial court sided with Intel, at least in part, after a preliminary injunction hearing on the evidence. The trial court’s injunction ruling was not officially reported,137 but the court’s May 25, 2000, order indicated that Judge Martin required Broadcom to (1) implement an adequate training/educational program concerning trade secret law and the related obligations of Broadcom’s employees and executives, and (2) establish appropriate mechanisms to monitor Broadcom’s compliance in these

133. See David Smith, Wal-Mart Weighs Threat by Amazon.com, ARK. BUS., Nov. 9, 1998, at 1 (describing Wal-Mart/Amazon.com lawsuit shortly after it was filed); Mike Lynn, Is “Team Raiding” Misappropriation? Wal-Mart Claims Amazon.com Obtained Its Trade Secrets By Hiring Skilled Retail Employees, NAT’L L. J., Feb. 8, 1999, at C10 (commenting on Wal-Mart/Amazon.com action). 134. See Anaconda Co. v. Metric Tool & Die Co., 485 F. Supp. 410 (E.D. Pa. 1980) (Pennsylvania tool and die employer targeted employees from Illinois town where competitor was located); American Potash, 200 A.2d 428 (California firm advertised for employees exclusively in Delaware city where competitor was located). 135. See Emily Nelson & George Anders, Wal-Mart, Amazon.com Settle Fight Over Recruitment and Trade Secrets, WALL ST. J., April 6, 1999, at A2 (reporting settlement of Wal-Mart/Amazon.com litigation). 136. No. CV 788301 (Super. Ct. Santa Clara County, Cal. 2000). 137. See Sukhjt Purewal, Judge Rules, THE RECORDER, May 26, 2000, at 1 (reporting defeat of Intel’s inevitable disclosure trade secret injunction request seeking to bar three former Intel engineers from joining rival Broadcom); Broadcom Restricted from Obtaining Proprietary Injunction from Intel Workers, 1 EMPL. L. WEEK (BNA) 11 (June 30, 2000) (reporting trial judge’s order requiring Broadcom to establish procedures, including a possible special master, to prevent trade secret disclosure by three ex-Intel employees, and barring Broadcom from hiring a fourth ex-Intel employee).

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areas, including possible audits, ongoing discovery, a special master,138 and verified statements of compliance by Broadcom’s top management. Judge Martin also prohibited Broadcom from employing one engineer, Gunther, in any capacity pending trial; the court drew an inference of trade secret misappropriation arising from Broadcom’s retention of certain notes relating to its interview of Gunther. For the same reason, the court enjoined Broadcom from using or disclosing any Intel trade secrets disclosed by Gunther and required Broadcom to return the original and all copies of any writings relating to interactions with Gunther. The trial court, however, allowed Broadcom to retain the other three ex-employees of Intel, finding them trustworthy with the foregoing safeguards in place.139 Cases like Wal-Mart and Broadcom are becoming almost commonplace in the high tech sector. McKesson recently brought a similar action in a Massachusetts federal court against W3Health Corporation over the loss of twelve employees.140 A comparable claim concerning the departure of eighteen employees was also recently filed in California state court by PeopleSoft against Evolve Software.141 A recent news article suggests this problem may be brewing in Seattle as well, where Microsoft has apparently lost many teams of employees to start ups.142 Clearly, inevitable disclosure is alive and well in high tech fields, despite the frequent assertion that high tech is somehow different from other industries. F.

PROCTER & GAMBLE V. STONEHAM

Inevitable disclosure allegations can also buttress non-compete claims, as common sense suggests. A district court in New York used inevitable disclosure language (though it cited no cases) in enforcing the one-year non-compete agreement in Business Intelligence Services, Inc. v. Hudson,143 as noted earlier. More recently, the Ohio Court of Appeals invoked the inevitable disclosure doctrine in enforcing a three138. See American Can Co. v. Mansukhani, 742 F.2d 314 (7th Cir. 1984) (approving appointment of special master as a possible option for trade secret monitoring); Picker Int’l Corp. v. Imaging Equip. Servs., Inc., 931 F. Supp. 18 (D. Mass. 1995) (appointing former FBI agent to monitor new employee in order to prevent trade secret violations). 139. Order at p. 5–6 (on file with author). 140. See McKesson Sues Rival, NAT’L L. J., Sept. 25, 2000, at B2 (reporting that in a recently filed federal court action, McKesson HBOC, Inc. recently accused rival W3Health Corp. of stealing trade secrets, by recruiting twelve former McKesson employees to design and develop a software management system based on a McKesson prototype). 141. See John Roemer, Trade Secret Law Limits Internet Job Hopping, THE INDUSTRY STANDARD, March 21, 2000, at C1 (reporting PeopleSoft’s inevitable disclosure trade secret action against Evolve Software for raiding 18 employees); Kelly Zito, Evolve Claims Intimidation By PeopleSoft, SAN FRANCISCO CHRONICLE, March 21, 2000, at 1 (reporting same lawsuit by PeopleSoft against Evolve Software). 142. See Rebecca Buckman, Tech Defectors From Microsoft Resettle Together, WALL ST. J., Oct. 16, 2000, at B1 (describing Microsoft’s desire, thus far, to work with its former employees, even when they depart in teams). 143. 580 F. Supp. 1068.

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year non-compete in Procter & Gamble Co. v. Stoneham.144 Stoneham, a senior level manager for Procter & Gamble, had signed a non-compete agreement when he became eligible for stock options. He subsequently joined a competitor, Alberto Culver, as president of Alberto Culver International. Procter & Gamble sued Stoneham in Ohio and Alberto Culver in Illinois, and Stoneham sued Procter & Gamble in Germany.145 The Ohio Court of Appeals reversed the trial court’s denial of injunctive relief, holding that Stoneham had had significant access to Procter & Gamble competitive information that would give Alberto Culver an unfair advantage. The court stressed that under Ohio law, an actual threat of harm existed when an employee possessed knowledge of an employer’s trade secrets and began working in a position that caused him to compete directly with the former employer or the product line the employee had formerly supported. Although it thought Ohio courts had not previously referred to this evidentiary proposition as inevitable use or inevitable disclosure, the court in Stoneham viewed the concepts as the same as Ohio’s traditional actual threat standard. In fact, at least two Ohio decisions had previously embraced the inevitable disclosure concept.146 G.

VERMONT MICROSYSTEMS, INC. V. AUTODESK

Inevitable disclosure may seem like the only game in town, but traditional misappropriation cases are plentiful in high tech situations. To name just one, consider Vermont Microsystems, Inc. v. Autodesk, Inc.147 Vermont Microsystems, Inc. (VMI) developed a display list driver, called AutoMate, that produced faster graphics speed for computer-aided design software used by engineers and architects to render computer drawings. VMI also developed a triangle-shading algorithm for coloring three-dimensional objects displayed on computer screens. Berkes, a VMI employee and gifted programmer, was the principal architect of AutoMate, and he authored or at least had access to VMI’s triangle shading algorithm source code. When Berkes announced his intention to leave VMI to join Autodesk, VMI sensed trouble and gave Berkes two separate exit interviews to remind him of his confidentiality obligations with respect to VMI’s trade secrets. VMI also sent warning letters to Autodesk. Despite these secrecy preservation measures, Autodesk did little other than to conduct a superficial and inadequate investigation; worse still, the investigation suggested that Berkes had misappropriated VMI’s display list 144. No. C-990859, 2000 WL 1455278, at *1 (Ohio Ct. App. Sept. 29, 2000). 145. See Procter & Gamble Co. v. Alberto-Culver Co., No. 99 C 1158, 1999 WL 319224, at *1 (N.D. Ill. April 28, 1999) (reviewing history of multiple proceedings among the parties). 146. See Emery Indus. Inc. v. Cottier, 202 U.S.P.Q. (BNA) 829 (S.D. Ohio 1978); B.F. Goodrich Co. v. Wohlgemuth, 192 N.E.2d 99 (Ohio Ct. App. 1963). 147. 88 F.3d 142 (2d Cir. 1996), appeal after remand, 138 F.3d 449 (2d Cir. 1998).

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driver source code. Despite the obvious risks, Autodesk quickly came out with a competing display list drive product, which Berkes had created—the product was an immediate success in the market. The overlapping origins of the VMI and Autodesk products were both obvious and undeniable: Berkes had retained the source code for VMI’s AutoMate. To add insult to injury, Autodesk published VMI’s triangleshading algorithm source code in materials detailing technical specifications for Autodesk’s rival triangle-shading product. Long litigation predictably ensued, including two visits to the Second Circuit. On the first appeal, the court of appeals affirmed the lower court’s trade secret misappropriation findings but vacated its $25 million reasonable royalty award. The Second Circuit criticized the lower court’s royalty methodology, which rested entirely on an opening settlement offer VMI had made.148 On remand, the lower court initially awarded approximately $7.7 million as a reasonable royalty but then increased it to about $14 million based on VMI’s argument that Autodesk needed to be punished and deterred. On the second appeal, the Second Circuit affirmed the $7.7 million royalty award but vacated the additional amounts. The Second Circuit concluded that the lower court had improperly allowed a double recovery in increasing the judgment to $14 million and had erroneously ignored its own finding that Autodesk had not acted willfully and maliciously for punitive damages purposes.149 As Autodesk graphically displays (pun intended), trade secret claims present a serious and ever-present risk when high tech employees are pirated. Whatever could go wrong did go wrong there, as often happens when companies turn a blind eye to danger signals. Indeed, the only surprising aspect of Autodesk was the defendants’ escape from punitive damages and attorney fees under the California version of the UTSA applicable there. Some courts would not be so forgiving when faced with a new employer’s conscious decision to ignore notice letters and its own internal investigation revealing red flags.150 H.

ISC-BUNKER RAMO CORP. V. ALTECH

Another traditional trade secret case that involves elements of many of the cases described earlier is ISC-Bunker Ramo Corp. v. Altech, 148. 88 F.3d at 146, 151–52. 149. 138 F.3d at 452–53. 150. See e.g., Micro Data Base Sys., Inc. v. Dharma Sys., Inc., 148 F.3d 649 (7th Cir. 1998) (holding that some form of aggravated conduct is necessary to trigger a willfulness finding under UTSA); Mangren Research and Dev. Corp. v. Nat’l Chem. Co., 87 F.3d 937 (7th Cir. 1996) (affirming punitive damages and attorney’s fees awards under UTSA, and holding that “willful and malicious” for these purposes simply means a conscious disregard for the trade secret owner’s rights); Miles Inc. v. Cookson Am., Inc., No. Civ. A. 12,310, 1994 WL 676761, at *1 (Del. Ch. Nov. 15, 1994) (awarding plaintiff’s fees under Delaware version of UTSA for willful and malicious misappropriation where defendants used plaintiff’s trade secrets despite notice letters).

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Inc.151 ISC, a Washington state-based firm, designed, sold, and serviced computer systems for financial institutions. Its workforce grew from seventy to over one thousand, all of whom signed nondisclosure agreements. Trade secrets in the form of software code, service manuals, and technical bulletins were distributed to employees on a need-to-know basis and were appropriately marked confidential and proprietary. Similar secrecy measures were employed on the infrequent occasions when ISC’s customers needed access to proprietary information. Altech, a firm that serviced ISC computer systems, sought to expand its business in Chicago in the most expedient fashion possible: It hired twentytwo ex-ISC employees, all of whom had been specially trained by ISC. Altech also copied ISC’s service manuals and software, which it claimed to have obtained through purchases of used ISC equipment, even though Altech admitted such equipment was extraordinarily hard to come by. In light of this evidence, the district court had little difficulty in preliminarily enjoining Altech from infringing ISC’s copyrights, misappropriating ISC’s trade secrets, and interfering with ISC’s employee nondisclosure agreements. ISC’s widespread distribution of its secrets was not fatal, thanks to its reasonable and comprehensive secrecy measures. 3. Summary In summary, trade secret rules apply with full force to high tech employees. They may be valuable employees, but like all other employees, they owe the same continuing duty not to use or disclose their prior employers’ secrets, as cases like Autodesk, Hudson, Stoneham, and Altech show. Even when actual misappropriation or overt threats are absent, inevitable disclosure can be asserted, particularly in mass raid situations, as in Wal-Mart and Broadcom. Courts have wide discretion to prevent disclosure through injunctive relief and other measures, as the trial court’s order in Broadcom demonstrates. Substantial monetary awards can be rendered if actual misappropriation is shown, as Autodesk reflects. D. Breach of Fiduciary Duty Claims against Employees 1. General Principles An agent’s duty of loyalty includes an obligation not to compete during the term of the agency. This means an employee may not solicit customers or fellow employees before departure or otherwise interfere with the employer’s operations through sabotage or espionage.152 Of151. 765 F. Supp. 1310 (N.D. Ill. 1990). 152. See DeLeonardis v. Credit Agricole Indosuez, No. 00 CIV. 0138, 2000 WL 1718543, at *1 (S.D.N.Y. Nov. 15, 2000) (subordinate employee’s attendance at meeting, where immediate supervisor offered to move the group to a rival, was subject to termination for cause); conflicts of interest are also prohibited by the duty of loyalty, but they do not always involve competitive activity. See Glenn R. Simpson & Scott Thurm, Web of

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ficers and managers are routinely held to this standard;153 in fact, some cases hold that such high level employees owe an affirmative duty to protect their employer, thereby placing them at special risk when they lead subordinates out the door to compete.154 Lower level employees, as agents, should be held to this standard as well, and they usually are,155 though some courts purport to find the duty of loyalty more limited or even non-existent when it comes to mere employees.156 Corporate opportunity claims are an important component of the duty of loyalty and are often asserted against departing employees.157 In addition, Interests: At Cisco, Executives Accumulate Stakes in Clients, Suppliers, WALL ST. J., Oct. 3, 2000, at A1 (describing controversy at Cisco over executives investing in or accepting stock options from customers, suppliers, and partners). 153. See GAB Bus. Servs., Inc. v. Lindsey & Newsom Claim Servs., Inc., 99 Cal. Rptr.2d 665 (Cal. Ct. App. 2000) (holding that corporate officers are fiduciaries as a matter of law in a case involving mass exodus of seventeen employees to competitor); A. Gilchrist Sparks, III & Lawrence A. Hamermesh, Common Law Duties of Non-Director Corporate Officers, 48 BUS. LAWYER 215 (1992) (suggesting the proper fiduciary test is whether the officer has discretionary management power). 154. See Veco Corp. v. Babcock, 611 N.E.2d 1054 (Ill. App. Ct. 1993) (corporate officers owe a higher duty of disclosure than ordinary employees); Preferred Meal Sys., Inc., 557 N.E.2d 506 (corporate officers’ failure to inform their employer that other employees were forming a rival company constituted breach of fiduciary duty); Unichem Corp. v. Gurtler, 498 N.E.2d 724 (Ill. App. Ct. 1986) (same); Maritime Fish Prods., Inc. v. WorldWide Fish Prods., Inc., 474 N.Y.S.2d 281 (N.Y. App. Div. 1984) (employee has an affirmative duty to act at all times in employer’s best interests); Quality Systems v. Warman, 132 F. Supp. 2d 349 (D. Md. 2001) . 155. See United States v. Hernandez, 231 F.3d 1087 (7th Cir. 2000) (staff accountant had sufficient access to items of value to trigger “position of trust” enhanced sentence under federal criminal sentencing guidelines); Fryetech, Inc. v. Harris, 46 F. Supp. 2d 1144 (D. Kan. 1999) (fiduciary obligations apply to “mere employees,” not just those with managerial authority); Mullaney, Wells & Co. v. Savage, 402 N.E.2d 574 (Ill. 1980) (employees, as agents, owe a fiduciary duty of loyalty); E. J. McKernan Co. v. Gregory, 623 N.E.2d 981 (Ill. App. Ct. 1993) (employees, like officers and directors, owe a fiduciary duty of loyalty); Maritime Fish Products, Inc., 474 N.Y.S.2d 281 (fiduciary obligations apply to all employees, not just officers and directors). 156. See Pony Computer, Inc. v. Equus Computer Sys. of Missouri, Inc., 162 F.3d 991 (8th Cir. 1998) (low level clerical employee owed no fiduciary duty); Condon Auto Sales & Serv., Inc. v. Crick, 604 N.W.2d 587 (Iowa 1999) (collecting and contrasting conflicting cases on lower level employee fiduciary duties); Radiac Abrasives, Inc. v. Diamond Tech., Inc., 532 N.E.2d 428 (Ill. App. Ct. 1988) (mere employees owed no duty of loyalty). 157. See Regal-Beloit Corp. v. Drecoll, 955 F. Supp. 849 (N.D. Ill. 1996) (six-month preliminary injunction barring former executives from completing the purchase of a $10 million business on the ground that such purchase was a usurped corporate opportunity belonging to their former employer); LCOR Inc. v. Murray, No. 97 C 1302, 1997 WL 136278, at *1 (N.D. Ill. 1997) (following Regal-Beloit in granting preliminary injunctive relief to block employee corporate opportunity usurpation); MQS Inspection, Inc. v. Bielecki, 963 F. Supp. 771 (E.D. Wis. 1995) (granting summary judgment in employee corporate opportunity usurpation case); Kenneth B. Davis, Jr., Corporate Opportunity and Comparative Advantage, 84 IOWA L. REV. 211 (1999) (suggesting reconsideration of standard corporate opportunity principles to take into account the relative abilities of employer and employee to develop and utilize the opportunity and the cost of contracting between them); Eric Talley, Turning Servile Opportunities to Gold: A Strategic Analysis of the Corporate Opportunities Doctrine, 108 YALE L.J. 277 (1998) (arguing that an optimal corporate opportunity doctrine should turn on the extent to which corporate fiduciaries possess private, unverifiable knowledge about the relevant characteristics of new

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disloyal conduct begun before but completed after quitting remains actionable.158 Injunctive relief and damages, including punitive damages, are available in duty-of-loyalty cases. Indeed, because public policy so strongly disfavors employee disloyalty, some courts hold, as a matter of law, that an employee forfeits all compensation during the period of disloyalty, even if the employer suffered no loss and even if the employee arguably performed some valuable service during the questioned period.159 COBRA benefits can also be lost for disloyalty.160 To be sure, in the universe of claims against departing employees, faithless conduct before departure is the most serious charge. While courts tend to give ex-employees the benefit of the doubt in other wrongful competition cases, as often captured in the presumption favoring employee mobility in non-compete and trade secret disputes, the opposite presumption is obtained in employee disloyalty cases, with courts frequently placing the burden of proof on the employee once an apparent breach of loyalty has been demonstrated.161 Thus, defenses such as employer acquiescence or waiver seldom succeed in disloyalty cases except on clear and convincing proof.162

projects); Victory Brudney & Robert Charles Clark, A New Look At Corporate Opportunities, 94 HARV. L. REV. 998 (1981) (arguing that different rules should govern corporate opportunity claims involving closely held corporations and publicly held corporations). 158. See T.A. Pelsue Co. v. Grand Enters., Inc., 782 F. Supp. 1486 (D. Colo. 1991) (resignation does not automatically free an employee from fiduciary obligations); Comedy Cottage, Inc. v. Berk, 495 N.E.2d 1006 (Ill. App. Ct. 1986) (same holding). 159. Compare Vendo Co. v. Stoner, 321 N.E.2d 1 (Ill. 1974) (holding that compensation must be forfeited during the period of disloyalty, as a matter of public policy, regardless of any injury to the employer); Zakibe v. Ahrens & McCarron, Inc., 28 S.W.2d 373 (Mo. App. Ct. 2000) (former president forfeited all compensation, even if he did not profit from his conflict of interest in secretly investing in competing venture) with In re Tri-Star Techs. Co., 257 B.R. 629 (D. Mass. 2001) (under Massachusetts law, an employee’s breach of fiduciary duty gives rise to forfeiture of only that portion of compensation which exceeds the worth of the employee’s services); Hartford Elevator, Inc. v. Lauer, 289 N.W.2d 280 (Wis. 1980) (rejecting rigid rule that forfeiture is automatically required for disloyalty, and instead adopting balancing test). 160. See Mlsna v. Unitel Communications, Inc., 41 F.3d 1124 (7th Cir. 1994) (disloyalty, if proven, constitutes “gross misconduct” warranting forfeiture of COBRA benefits), appeal after remand, 91 F.3d 876 (7th Cir. 1996). 161. See Regal-Beloit Corp. v. Drecoll, 955 F. Supp. 849 (N.D. Ill. 1996) (initial burden of proving corporate opportunity’s existence rests upon the former employer; once this has been shown, burden of proof shifts to ex-employees to demonstrate they did not breach their duty of loyalty). 162. See Dolezal v. Plastic and Reconstructive Surgery, S.C., 640 N.E.2d 1359 (Ill. App. Ct. 1994) (physician who moonlighted violated his fiduciary duties, but his employer was aware of such conduct and therefore was barred from making a claim); Tarin v. Pellonari, 625 N.E.2d 739 (Ill. App. Ct. 1993) (breach of fiduciary/diversion of business claim defeated by laches, due to 15 month delay); Rybak v. Provenzale, 537 N.E.2d 1321 (Ill. App. Ct. 1989) (employee’s “moonlighting” activities were “open and obvious,” in part because she recorded all such payments on ledger cards at the front desk of her employer’s office).

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Apart from full disclosure and ratification, the principal defense in disloyalty cases focuses upon the preparing-to-compete doctrine,163 although there is limited authority for the proposition that preparing to compete is itself a breach of fiduciary duty.164 Most states tolerate a surprising level of suspicious conduct under the preparation rubric, including purchasing equipment, obtaining leases and loans, and even outfitting or purchasing a rival concern before leaving. Solicitation of customers and fellow employees before departure is prohibited, but what constitutes improper solicitation is often difficult to discern. The clandestine nature of preparatory activities compounds the problem, leading to egregious situations in which employees orchestrate mass walkouts or engage in extortionate attempts to take over their employer’s business.165 2. Cases A.

CHEMFAB CORP. V. INTEGRATED LINE TECHNOLOGIES INC.

Several cases demonstrate employee loyalty principles in action in high tech settings. In Chemfab Corp. v. Integrated Line Technologies Inc., 166 Chemfab took an assignment of claims that Loctite had against three former Loctite managerial employees: DeLaney, Petrosino, and Gee. Loctite manufactured and distributed septa, which were small laminated disks of Teflon and silicone used as cap liners in the pharmaceutical trade. DeLaney and Petrosino lost their jobs as part of a reduction in force on June 4, 1993, and they subsequently formed their 163. See William Lynch Schaller, Disloyalty and Distrust: The Eroding Fiduciary Duties of Illinois Employees, 3 DEPAUL BUS. L.J. 1 (1991) (exhaustive examination of preparing to compete under Illinois law, arguing it constitutes poor policy); Scott W. Fielding, Note, Free Competition Or Corporate Theft?: The Need for Courts to Consider the Employment Relationship in Preliminary Steps Disputes, 52 VAND. L. REV. 201 (1999) (arguing that a relaxed duty of loyalty should be required of an at-will employee with respect to pre-departure preparation, but contending that stricter loyalty requirements should be demanded of fixed-term employees with respect to pre-departure preparation). 164. See Aero Drapery of Kentucky, Inc. v. Engdahl, 507 S.W.2d 166 (Ky. 1974) (corporate officers and directors must terminate their positions of trust before preparing to compete); Standard Brands, Inc. v. U.S. Partition & Packaging Corp., 199 F. Supp. 161 (D.C. Wis. 1961) (protection of employer requires employee to fully disclose employee’s preparation to compete); Sequoia Vacuum Sys. v. Stransky, 40 Cal. Rptr. 203 (Cal. Ct. App. 1964) (same holding); Daniel Orifice Fitting Co. v. Whalen, 18 Cal. Rptr. 659 (Cal. Ct. App. 1962), superceded by rule as stated in Cooper v. Westbrook Torey Hills, LP, 97 Cal. Rptr. 2d 742 (Cal. Ct. App. 2000) (same holding); but see Bancroft-Whitney Co. v. Glen, 411 P.2d 921 (Cal. 1966) (officers are required to disclose preparatory activities only when nondisclosure would be harmful to employer; mere act of disclosure, however, cannot immunize office from liability where officer’s conduct in other respects amounts to breach of duty). 165. See Vigoro Indus., Inc. v. Crisp, 82 F.3d 785 (8th Cir. 1996) (mass walkout); Bancroft-Whitney Co. v. Glen, 411 P.2d 921 (Cal. 1966) (mass walkout and extortionate demand); ABC Transp., Inc. v. Aeronautics Forwarders, Inc., 379 N.E.2d 1228 (Ill. App. Ct. 1978) (mass walkout), on later appeal, 413 N.E.2d 1299 (Ill. App. Ct. 1980); Duane Jones Co. v. Burke, 117 N.E.2d 237 (N.Y. 1954) (extortionate demand); Feddeman & Co. v. Langan Assoc., 530 S.E.2d 668 (Va. 2000) (mass walkout and extortionate demand). 166. 693 N.Y.S.2d 752 (N.Y. 1999).

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own septa manufacturing firm, Integrated Liner Technologies (ILT), on July 22, 1993. Later, in October, they leased manufacturing facilities, and in November they began selling septa to a German firm, La-PhaPack, which had been a significant customer of Loctite during 1992 and 1993. Loctite quickly learned of La-Pha-Pack’s switched allegiance, based on a tip, and began investigating possible misuse of confidentiality information by DeLaney and Petrosino. In March, Loctite discovered on Gee’s computer a letter written by Gee to La-Pha-Pack’s president, which had solicited a business partnership between ILT and La-Pha-Pack and had requested financial assistance for ILT. Gee was still a Loctite employee at the time of this discovery. Loctite fired Gee shortly after learning about the letter. One month after his termination, Gee became a one-third owner of ILT. The New York Appellate Division agreed with the defendants that no confidential information had been misused by the defendants, and an independent expert’s inspection of ILT’s operations confirmed this. The court also agreed that the identity of La-Pha-Pack did not constitute a trade secret or confidential information since La-Pha-Pack was well known through trade shows and industry conferences. Nevertheless, the court found sufficient evidence to warrant a trial for breach of fiduciary duty. Gee’s use of Loctite’s computers suggested he had been using Loctite’s time and resources to further ILT’s competitive interests—conduct inconsistent with an employee’s duty of loyalty under New York law.167 B.

CBS CORP. V. DUMSDAY

Six months later, the New York Appellate Division reached a similar decision on analogous facts in CBS Corp. v. Dumsday.168 Con Edison invited CBS to bid on a proposal to perform design and licensing work for a Con Edison nuclear power plant. CBS and Con Edison then entered into a no-switch agreement barring Con Edison for one year from employing or otherwise engaging CBS personnel who performed services under the anticipated design/licensing agreement, and CBS then assigned a key employee, Dumsday, to head the project. Dumsday drafted CBS’s confidential bid proposal, and two other CBS employees, Proviano and Van Buren, created the commercial strategy and cost/ price work-up for the proposal. The proposal was labeled proprietary and submitted to Con Edison in October 1997 after certain revisions had been made at Con Edison’s request. CBS was led to believe that it was the only qualified bidder and that it would be awarded the Con Edison contract once a price was agreed upon.

167. Accord Preferred Meal Sys., 557 N.E.2d 506 (employee’s use of company computers to prepare competitive business plan constituted breach of fiduciary duty). 168. 702 N.Y.S.2d 248 (N.Y. App. Div. 2000).

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Dumsday, Proviano, and Van Buren, however, had a plan of their own. Van Buren resigned December 1 and Proviano resigned December 31. Shortly before Proviano’s resignation, Van Buren and Proviano incorporated a rival firm, Preferred Licensing Services, Inc. In January, Con Edison suddenly advised CBS that Con Edison would be doing the project on its own, and shortly thereafter, Dumsday resigned from CBS. Just three days after these suspicious events, Dumsday began working on the Con Edison project as an employee of Preferred Licensing Services, Inc., as did Van Buren and Proviano—all providing the same services CBS had sought to provide. Amazingly enough, the trial court dismissed CBS’s claims. The New York Appellate Division reversed. The court had no difficulty inferring that Dumsday, Proviano, and Van Buren had used CBS’s confidential information to win the Con Edison job “in light of the rapid-fire resignations.”169 The court properly concluded that discovery was necessary to unravel the suspicious circumstances under which Con Edison had replaced CBS with a start-up operation. Not surprisingly, the court ruled that CBS had stated a cause of action for breach of fiduciary duty based upon CBS’s allegation that the defendants had used CBS’s confidential information to plan and form a competing company while they had been CBS employees. The court also sustained tortious interference with contractual and prospective economic relations as well as common-law unfair-competition claims for good measure. C.

ICOM SYSTEMS, INC. V. DAVIES

Fiduciary duty outcomes always turn on the facts and circumstances as well as nuances of local law, as shown by Icom Systems, Inc. v. Davies.170 In that high tech case, Dillingham, McGraw, and Davies formed Icom Systems in 1989 to exploit the Telephone Interactive Golf Reservation Exchange (TIGRE), an interactive computer system for managing and scheduling golf course tee times. The system was later expanded to include tennis facility reservation times. Dillingham had authored and assigned to Icom Systems the software for the original and updated versions of TIGRE. Even though Davies was Icom Systems’ day-to-day manager, in 1991 he formed Interactive Promotions, Inc., to provide interactive point-of-purchase display software (called the Garden Professor) to a lawn care company, Green Light. Davies used Icom Systems’ computers and telephones to correspond with Green Light. Davies, however, hired an independent contractor to write the Garden Professor point-of-purchase display software. Davies then resigned from Icom Systems, and Dillingham resigned two weeks later. McGraw, as the sole remaining shareholder of Icom Systems, brought 169. 702 N.Y.S.2d at 250. 170. 990 S.W.2d 408 (Tex. App. 1999).

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an action for breach of fiduciary duty against Davies for usurping the Garden Professor point-of-purchase display software and Green Light business opportunities. The Texas Court of Appeals rejected McGraw’s fiduciary duty claim. The court began by stating that Texas followed the “line of business” test in assessing corporate opportunity charges, a narrower standard than the full disclosure rule used in some jurisdictions.171 Under the line-of-business approach, the court noted, a claim arose when a corporation had a legitimate interest or expectancy in, and the financial resources to take advantage of, a particular business opportunity. This reduced to an inquiry of whether the corporation had the knowledge, experience, and ability to pursue the opportunity and whether the opportunity was logically and naturally adaptable to the corporation’s current or anticipated business. A fiduciary’s full disclosure was also a relevant, but not necessarily controlling, factor. The trial court found after a trial on the merits that Davies had disclosed his activities in organizing Interactive Promotions and developing the Garden Professor program. The trial court also found that the TIGRE and Garden Professor programs were dissimilar products that did not compete in the same market. In view of these findings and the fact that Davies had been completely supporting Icom by paying all its expenses until his resignation, the Texas Court of Appeals upheld the trial court’s verdict in favor of Davies on the ground that the line-of-business standard had not been met. D.

PONY COMPUTER, INC. V. EQUUS COMPUTER SYSTEMS

Another high tech fiduciary duty case favoring employees is Pony Computer, Inc. v. Equus Computer Systems.172 Zhou was a data entry clerk and Jones was a shipping employee for Pony Computer. Both had had access to Pony Computer’s confidential computer data, but neither was shown to have improperly used or disclosed such information. On the other hand, Zhou had used her Pony Computer work telephone number to recruit employees for a competitor, and she also had once used Pony Computer’s fax machine for this purpose. The Eighth Circuit rejected all claims against the defendants, holding that Zhou and Jones, as low-level, non-managerial employees, had not held confidential positions or had otherwise owed a fiduciary duty to disclose their preparatory activities before quitting. E.

UNITED STATES V. MARTIN

Although it is common to think of employee fiduciary misconduct as solely a civil matter, United States v. Martin173 teaches a very dif171. Cf. Regal-Beloit Corp., 955 F. Supp. 849 (comparing broad Illinois full disclosure and narrow Wisconsin line of business corporate opportunity tests). 172. 162 F.3d 991 (8th Cir. 1998). 173. 228 F.3d 1 (1st Cir. 2000).

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ferent lesson. Martin was the first case to review a conviction following a trial under the Economic Espionage Act, but it also addressed a fiduciary duty charge. A grand jury indicted Camp and Martin on “ten counts of wire fraud, two counts of mail fraud, one count of conspiracy to steal trade secrets, one count of conspiracy to transport stolen goods, and one count of interstate transportation of stolen goods.”174 Camp agreed to testify against Martin as part of a plea bargain. Her testimony reflected a high tech employee’s worst nightmare resulting from innocent pen-pal e-mail communications that took a sinister turn over time. Camp was a chemist for IDEXX, a Maine-based veterinary products manufacturer. She had signed a confidentiality and non-compete agreement at the outset of her employment. Camp became dissatisfied with IDEXX and came across a Web site for Wyoming DNA Vaccine (WDV). She electronically forwarded her resume and received an immediate response from Martin, the CEO of WDV. From early 1998 through July 1998, Camp and Martin continuously communicated by e-mail about finding a way to work together. At first, Camp simply forwarded IDEXX gossip to Martin; over time, however, Camp began forwarding more significant and proprietary information by e-mail to Martin, including IDEXX strategic plans, IDEXX product problems, IDEXX pricing and testing information, and internal IDEXX legal information to which Camp had gained access. In her final weeks with IDEXX, Camp even forwarded to Martin packages containing products and information labeled as confidential. The Camp/Martin scheme only came to light by accident when Camp inadvertently sent an e-mail meant for Martin to an executive at IDEXX. The First Circuit dispatched Martin’s appeal with ease. The court of appeals had no difficulty in holding that sufficient evidence supported Martin’s conviction, noting repeated references in Camp’s emails to the effect that Camp and Martin knew Camp had been acting as a corporate spy. The court found that Camp and Martin had reached an agreement to steal trade secrets in an effort to compete with IDEXX, thereby violating the Economic Espionage Act’s conspiracy provisions. The court also upheld Martin’s remaining convictions, finding that wire and mail fraud had been committed and noting that purely intellectual property was able to be used to meet the $5,000 value requirement for conspiracy to transport stolen tangible goods in interstate commerce. On the wire and mail fraud theories, the First Circuit held that confidential information constituted property. Most important for purposes of this article, the court of appeals in Martin held that Camp’s e-mail communications and mail deposits reflected a scheme to defraud IDEXX of Camp’s honest services under 18 U.S.C. § 1346. The Martin court acknowledged that federal “courts have 174. Id. at 6.

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been hesitant to impose federal mail and wire fraud liability upon every employee transgression, [pointing out that courts] have required ‘a failure to disclose something which in the knowledge or contemplation of the employee poses an independent business risk to the employer’ or creates ‘reasonably foreseeable economic harm’ to the employer.”175 The court also acknowledged that it had previously held in United States v. Czubinski176 that merely examining confidential information for one’s own purposes did not rise to this level. Even so, the court in Martin concluded, “[U]se of confidential information for ‘private purposes’ may rise to the necessary level of self-dealing” under § 1346.177 The evidence in Martin rose to this level because Camp knew she had been breaching her fiduciary duty to IDEXX; her failure to disclose her communications with Martin posed “an independent business risk” and created “reasonably foreseen economic harm” to IDEXX, in the First Circuit’s view.178 Camp had signed nondisclosure and non-compete agreements with IDEXX and knew the consequences of her actions, as her own e-mails showed. Martin willfully participated in her wrongdoing since he too knew of Camp’s agreements and had himself signed a similar confidentiality agreement as part of a research proposal that IDEXX had rejected a year before the Camp/Martin e-mails began, the First Circuit stressed. Accordingly, the court affirmed Martin’s conviction. F.

VENDO CO. V. STONER

Martin reflects the frightening criminal consequences of predeparture fiduciary misconduct. Another, older high tech tale, Vendo Co. v. Stoner,179 depicts the equally grim civil implications of competing before leaving. The Stoner saga is recounted elsewhere in detail,180 but the facts are straightforward. Stoner sold his vending-machine manufacturing business to Vendo in 1959 and stayed on as an officer and director. Stoner became dissatisfied, however, when he was relegated to the role of a figurehead, albeit with the title of president. In 1961, Stoner learned that two former Vendo employees were seeking to form a rival vending machine manufacturing company that later became known as Lektro-Vend. From 1961 to 1964, Stoner secretly supported this secret organization by financing Lektro-Vend’s activities, leasing its premises and paying its employees. Stoner and his cohorts built a prototype vending machine, successfully displayed it at a trade show, 175. 228 F.3d at 17 (quoting United States v. Sun-Diamond Growers of California, 138 F.3d 961, 973 (D.C. Cir. 1998) (quoting United States v. Lemire, 720 F.2d 1327, 1337 (D.C. Cir. 1983)). 176. 106 F.3d 1069 (1st Cir. 1997). 177. 228 F.3d at 17. 178. Id. at 18. 179. 321 N.E.2d 1 (Ill. 1974). 180. See William Lynch Schaller, Disloyalty and Distrust: The Eroding Fiduciary Duties of Illinois Employees, 3 DEPAUL BUS. L.J. 1, 10–12 (1991).

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then formally incorporated Lektro-Vend, and commenced business. Vendo was unaware of Stoner’s secret sponsorship of Lektro-Vend until Stoner resigned in 1969 from his position as an officer and employee of Vendo. With this auspicious beginning, Stoner soon found himself living a life of litigation. The case was tried twice and appealed twice to the Illinois Appellate Court before it finally reached the Illinois Supreme Court in 1974. In an opinion by Justice Walter Schaefer (who was longregarded as one of the greatest state court judges in the United States in the twentieth century), the Illinois Supreme Court held that Stoner had breached his fiduciary duties from the moment he began assisting the formation of Lektro-Vend. The court could have based its decision on Stoner’s business sale non-compete agreement, but the conduct was so serious that the court decided the case on a more fundamental ground: an employee’s fiduciary duty of loyalty.181 The court rejected Stoner’s defense that he was only a figurehead and proceeded to affirm a lost-profits award of over $7 million—a huge sum when awarded in 1969 and upheld in 1974.182 However, the court in Stoner did not stop there. It went on to hold that Stoner also was required to forfeit over $170,000 in salary earned from the time he began assisting Lektro-Vend until his resignation.183 Moreover, the court made it clear that deterrence of fiduciary misconduct was the point of its decision, holding that Stoner forfeited his salary as a matter of public policy, regardless of whether Vendo had suffered any injury. Stoner fought this result in federal court antitrust proceedings that went twice to the Seventh Circuit and twice to the U.S. Supreme Court, resulting in the Court’s opinion in Lektro-Vend Corp. v. Vendo Corp.184 In the end, one of Stoner’s companies went bankrupt,185 and collection proceedings continued until as late as 1982.186 Stoner died in 1976 and thus never lived to see the end of the seventeen-year legal battle that followed his fateful decision to assist Lektro-Vend. 187 3. Summary By any measure, Stoner was epic litigation, particularly for its time, but that is exactly the point: Employee fiduciary duty disputes can trigger fierce litigation that is fueled by emotion as much as financial desire (as in Stoner), which surely illustrates that courts do not 181. Id. at 46. 182. Id. at 10–11. 183. Id. at 11. 184. 433 U.S. 623 (1977). 185. See Lektro-Vend Corp. v. Vendo Corp., 500 F. Supp. 332, 344 (N.D. Ill. 1980), aff’d, 660 F.2d 255 (7th Cir. 1981), cert. denied, 455 U.S. 921 (1982). 186. See Vendo v. Stoner, 438 N.E.2d 933 (Ill. App. Ct. 1982). 187. See Lektro-Vend Corp. 500 F. Supp. at 335.

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take kindly to employees serving two masters.188 Martin, Chemfab, and Dumsday make essentially the same point: Such conduct is simply dishonest and implicates fundamental public policies that go to the very heart of doing business in the United States. Full disclosure can provide a meaningful defense, as Icom Systems shows, but even full disclosure may not be enough in some instances.189 Only low-level employees preparing to compete seem to escape these rules, as in Pony Computer. Thus, employers and employees alike, in high tech industries as in all other businesses, should treat fiduciary duties as the third rail of the law: those who touch it may die—or at least may die before litigation ends. E. Nondisclosure, Intellectual Property Assignment, and Holdover Agreement Claims against Employees 1. General Principles Many high tech employees are hired precisely for their ability to create intellectual property, such as patented processes and copyrighted computer programs. Employers frequently require such employees to execute nondisclosure agreements, which impose continuing confidentiality obligations, and intellectual-property assignment agreements, which give employers title to all intellectual property created by employees during their employment. These assignment agreements increasingly contain holdover or trailer clauses, which typically state that for a limited period of time following departure, usually one year,190 intellectual property developed by a former employee belongs to the ex-employer.191 Nondisclosure agreements are usually enforceable without much fanfare.192 For the most part, they simply make explicit an employee’s common-law confidentiality duties that exist both during and after employment. A few jurisdictions have struggled with these agree188. See Vendo Co. v. Stoner, 321 N.E.2d 1, 9 (Ill. 1974) (stating that “Stoner had a foot in each camp”); Fowler v. Varian Assocs., Inc., 241 Cal. Rptr. 530 (Cal. Ct. App. 1987) (stating that “Fowler could not continue to serve two masters by postponing indefinitely the decision whether to join Omega”). 189. See Bancroft-Whitney Co., 411 P.2d at 936 (holding that officers are required to disclose preparatory activities only when nondisclosure would be harmful to employer; “mere act of disclosur[e],” however, “cannot immunize officer from liability where his conduct in other respects amounts to a breach of duty”). 190. See Am. Science & Eng’g, Inc. v. Kelly, 69 F. Supp. 2d 227 (D. Mass. 1999) (holding that the employee’s one-year holdover agreement resulted in separate but related state and federal court proceedings); Universal Winding Co. v. Clarke, 108 F. Supp. 329 (D. Conn. 1952) (stating that one-year trailer clause in employee assignment contract was enforceable under Rhode Island law). 191. See Marc B. Hershovitz, Unhitching the Trailer Clause: The Rights of Inventive Employees and Their Employers, 3 J. INTELL. PROP. L. 187 (1995). 192. See Terry Morehead Dworkin & Elletta Sagrey Callahan, Buying Silence, 36 AM. BUS. L.J. 151 (1998) (reviewing more favorable treatment nondisclosure agreements receive as compared to non-competes).

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ments, usually because they confuse them with non-compete clauses. This problem is reflected in Illinois, where cases erroneously likened nondisclosure requirements to non-compete restrictions,193 a mistake the Illinois General Assembly attempted to put to rest by passing a Illinois Trade Secrets Act provision which explicitly states that nondisclosure agreements do not need geographic and time limitations to be enforceable.194 Explicit employee intellectual-property assignment clauses are important to avoid common law pitfalls. Unless hired to invent, ordinary employees usually own their inventions at common law, even if they conceived and developed them while employed.195 In other words, employment alone does not normally compel an employee to assign a patent to an employer; the employer may just have a nonexclusive, nontransferable shop-right in routine employee invention situations, and this assumes the employer can first show that the employee used the employer’s materials or conceived the invention during working hours.196 Only where an employee is hired to invent does the employee have a duty to assign the patent to an employer,197 unless the employee occupied a special position of trust198 or implicitly agreed to assign patents to the employer.199 An express employee-invention assignment 193. See AMP, Inc. v. Fleischhacker, 823 F.2d 1199 (7th Cir. 1987) (nondisclosure agreement lacking time and geographic limitations was void under Illinois law); Disher v. Fulgoni, 464 N.E.2d 639 (Ill. App. Ct. 1984) (same holding); Cincinnati Tool Steel Co. v. Breed, 482 N.E.2d 170 (Ill. App. Ct. 1985) (same holding). 194. See PepsiCo v. Redmond, 54 F.3d 1262, 1269 n.7, 1272 n.10 (7th Cir. 1995) (noting geographic and time restrictions are no longer necessary for nondisclosure agreements under explicit terms of the Illinois Trade Secret Act). 195. See Voith Hydro, Inc. v. Hydro West Group, Inc., No. C-96–1170 SC, 1997 WL 154400, at *1 (N.D. Cal. 1997) (unless hired to invent, under Pennsylvania law an individual owns patent rights in the subject matter of which he is an inventor even though he conceived of the subject matter or reduced it to practice during the course of employment); National Dev. Co. v. Gray, 55 N.E.2d 783 (Mass. 1944) (stating that employee hired for noninventive services owns his inventions, even if they may have great value to his employer). 196. See United States v. Dubilier Condenser Corp., 289 U.S. 178, 188 (1932) (comparing shop right with hired-to-invent situation); McElmurry v. Ark. Power & Light Co., 995 F.2d 1576 (Fed. Cir. 1993) (discussing shop right). 197. See Ingersoll-Rand Co. v. Ciavatta, 542 A.2d 879 (N.J. 1988) (reciting the general rule). 198. See Dowse v. Fed. Rubber Co., 254 F. 308 (N.D. Ill. 1918) (finding that inventor was alter ego of corporation which the corporation’s life depended upon the inventor’s patent). 199. See Banks v. Unisys Corp., 228 F.3d 1357 (Fed. Cir. 2000) (employee’s refusal to execute assignment created question of fact precluding summary judgment over whether employee impliedly agreed to assign patent); Daniel Orifice Fitting Co. v. Whalen, 18 Cal. Rptr. 791 (Cal. Ct. App. 1962) (defendant’s prior assignment of patents to employer implied defendant was obliged to assign patent in question); Velsicol Corp. v. Hyman, 90 N.E.2d 717 (Ill. 1950) (employee’s prior assignment of other patents implied duty to assign patent at issue); Bradley C. Wright, Employees May Own Key Inventions: Use of Employment Agreements Is the Only Way Companies Can Control Worker’s Inventions, NAT’L L.J., Dec. 18, 2000, at C1 (describing appropriate contractual measures employers should take to secure ownership of employee inventions).

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clause avoids these disputes,200 even though employee patent ownership acts may exempt patents unrelated to the prior employer’s affairs and for which no company time or resources were utilized.201 No special compensation is necessary to enforce employee-invention assignment agreements, though many firms offer incentives to encourage inventive activities.202 The more significant question is whether post-employment trailer clauses can require employees to assign inventions purportedly conceived and/or reduced to practice after termination. The limited nature of trailer clause restrictions tends to make courts somewhat more receptive to them than outright non-compete agreements, for the obvious reason that affected employees can remain in the industry under trailer clauses.203 Even so, courts often use non-compete tests of reasonableness to measure trailer clauses, holding such restrictions unenforceable if they extend beyond the protection the employer reasonably requires, if they prevent the inventor from seeking other employment, or if they adversely impact the public.204 The critical issue is whether the employer can show a proprietary interest tied to the trailer clause. Trade secrets and confidential information are routinely recognized as sufficient for this purpose, and the New Jersey Supreme Court in Ingersoll200. See Speedplay, Inc. v. Bebob, Inc., 211 F.3d 1245 (Fed. Cir. 2000) (employment agreement stating employee “conveys, transfers and assigns” all future inventions constituted a present assignment and covered later-developed inventions); Morgan Adhesives Co. v. Questel, 162 U.S.P.Q. (BNA) 61 (Ohio Com. Pl. 1969) (interpreting contract that covered “all inventions made or conceived” during employment to cover invention employee conceived but never perfected during employment). 201. See Robert L. Gullette, State Legislation Governing Ownership Rights in Inventions Under Employee Invention Assignments, 62 J. PAT. & TRADEMARK OFF. SOC’Y 732, 732–33 (1980) (collecting state statutes); Evelyn D. Pisegna-Cook, Ownership Rights of Employee Inventions: The Role of Preinvention Assignment Agreements and State Statutes, 2 U. BALT. INTELL. PROP. L.J. 163 (1994) (collecting state statutes); CAL. LAB CODE §§ 2860, 2870 to 2872; DEL. CODE ANN. TIT. 19, § 805 (1999); 765 ILL. COMP. STAT. Ch. 765, §§ 1060/1 to 1060/2 (West 2001); KAN. STAT. ANN. § 44–130 (1999); MINN. STAT. ANN. § 181.78 (West 2000); MONT. REV. STAT. § 41–211; N.C. GEN. STAT. §§ 66–57.1–66–57.2 (West 2000); UTAH CODE ANN. §§ 34–39–1 to 34–39–3(2000); WASH. REV. CODE. ANN. §§ 49.44.140–49.44.150 (West 2000); Waterjet Tech., Inc. v. Flow Int’l. Corp., 996 P.2d 598 (Wash. 2000) (construing WASH. REV. CODE ANN. § 49.44.140 as allowing employers to give notice of statutory invention ownership rights in employee invention agreements). 202. See Thomas R. Savitsky, Compensation for Employee Inventions, 73 J. PAT. & TRADEMARK OFF. SOC’Y. 645, 652 (1991) (surveying employee inventor compensation practices and noting that 91% of responding companies said they provided fixed payment as special compensation); Richard C. Witte & Eric W. Guttag, Employee Inventions, 71 J. PAT. & TRADEMARK OFF. SOC’Y. 467, 472 (1989) (noting there is no requirement in the United States that inventors be compensated for their inventions made at work). 203. See Universal Winding Co. v. Clarke, 108 F. Supp. 329 (D. Conn. 1952) (noting employee was restricted only as to a very limited field of machine design under patent assignment trailer clause). 204. See Guth v. Minn. Mining & Mfg. Co., 72 F.2d 385 (7th Cir. 1934), cert. denied, 294 U.S. 711 (1935) (voiding employee invention assignment agreement to the extent it lacked time and subject matter limitations); Dorr-Oliver, Inc. v. United States, 432 F.2d 447 (Ct. Cl. 1970) (holding that one-year trailer clause did not cover employee invention unrelated to matters he had worked on while employed).

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Rand Co. v. Ciavatta205 expanded this list to include “highly specialized, current information not generally known in the industry, created and stimulated by the research environment furnished by the employer, to which the employee has been ‘exposed’ and ‘enriched’ solely due to his employment.”206 The court in Ciavatta recognized its standard was imprecise but used a think-tank environment as an example of this latter category. Team raiding, of course, often presents exactly this fact pattern. Employee copyright ownership disputes can be equally complex. In a true employment relationship, the employer owns copyrighted work product under the work-for-hire doctrine, absent an agreement to the contrary, if the work was within the scope of employment.207 By contrast, independent contractors typically own their copyrighted material if no other contractual arrangement is in place.208 When an author’s status as an employee or independent contractor is unclear, courts evaluate the issue under common-law agency principles, as the Supreme Court commanded in Community for Creative Non-Violence v. Reid.209 Even though written assignment agreements moot this issue, postdeparture scenarios can still create uncertainty. An employee who begins a copyrighted work before resigning may have to assign the end product, even if it is completed after departure, if the corporate opportunity doctrine applies.210 Moreover, an employer that makes substantial contributions to a copyrighted work may make a joint authorship claim against an ex-employee.211 Employee trade secret ownership disputes also can arise. Most courts hold that trade secrets that are developed on the job belong to the employer, but a few allow employees who create trade secrets to use or disclose them in subsequent jobs based on rules similar to those

205. 542 A.2d at 879. 206. Id. at 894. 207. See Miller v. CP Chems., Inc., 808 F. Supp. 1238 (D.S.C. 1992) (holding that computer program prepared at home during off-hours, without direction or extra compensation from employer, was “work for hire” within the meaning of Copyright Act); In re Simplified Info. Sys., Inc., 89 B.R. 538 (W.D. Pa. 1988) (company president’s computer program, compiled during off hours, constituted company property under the “work for hire” doctrine); Marshall v. Miles Labs., Inc., 647 F. Supp. 1326 (N.D. Ind. 1986) (holding that scientist-employee could not avoid “work for hire” doctrine merely by preparing the work during non-working hours or in a facility not controlled by the employer). 208. See Liu v. Price Waterhouse LLP, No. 97 CV 3093, 2001 WL 199823, at *1 (N.D. Ill. Feb. 28, 2001) (license may prevent derivative work author from claiming copyright). 209. 490 U.S. 730 (1989). 210. See Robinson v. R&R Publishing, Inc., 943 F. Supp. 18 (D.D.C. 1996) (finding that the corporate opportunity doctrine required an ex-employee to turnover to her former employer a copyrighted medical standards book she authored). 211. See Ashton-Tate Corp. v. Ross, 916 F.2d 516 (9th Cir. 1990) (stating that joint work requires each author to make an independently copyrightable contribution; mere ideas alone are not sufficient); Aymes v. Bonelli, 980 F.2d 857 (2d Cir. 1992) (remanding for consideration of employer’s joint work claim).

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involved in employee patent ownership cases.212 Of course, employer trade secrets cannot be misappropriated by departing employees, even absent a written agreement, as a legion of cases hold. However, a written nondisclosure/assignment agreement always helps.213 Most important, new products prepared by employees after leaving may still belong to the former employer if they were derived from the ex-employer’s trade secrets.214 The sooner an employee comes up with a secret after leaving, the more likely a court will hold it was misappropriated.215 2. Cases A.

INGERSOLL-RAND CO. V. CIAVATTA

A natural starting point for analysis is whether the employer can show a protected interest because without one the contract has no meaning no matter what it says. For example, in Ingersoll-Rand Co. v. Ciavatta,216 Ciavatta, an engineer with extensive experience before joining Ingersoll-Rand, signed a holdover agreement stating that he would assign to Ingersoll-Rand any intellectual property he made, conceived, developed, or perfected within one year after termination “if conceived as a result of and . . . attributable to work done during such employment and relate[d] to a method, substance, machine, article of manufacture or improvements therein within the scope of [IngersollRand’s] business.”217 Within a few months of his termination, Ciavatta conceived an “invention, an elliptical metal tube designed to stabilize mine roofs.”218 Nine months after his termination, Ciavatta filed a patent application on this device, and he ultimately received two patents 212. See MELVIN F. JAGER, TRADE SECRETS LAW § 8.01 (1999) (general discussion); ROGER M. MILGRIM, MILGRIM ON TRADE SECRETS §5.02[4][a] (1994) (collecting cases allowing employees to use unpatented discoveries); DTM Research, L.L.C. v. AT&T Corp., No. 00–1450, 2001 WL 293674, at *1 (4th Cir. March 27, 2001) (holding, in a nonemployee trade secret dispute, that fee simple ownership in its traditional property law sense is not an element of a trade secret’s misappropriation claim). 213. See Coady v. Harpo, Inc., 719 N.E.2d 244 (Ill. App. Ct. 1999) (enforcing nondisclosure agreement by issuing injunction to prevent publication of book by former employee of television personality Oprah Winfrey), leave to appeal denied, 724 N.E.2d 1267 (Ill. 2000). 214. See Mangren Research, 87 F.3d at 944 (competitor misappropriated manufacturer’s secret formula for producing mold release agent, even though the competitor used a slightly different formula, because the competitor could not have produced its product without using a secret derived from the manufacturer’s formula and provided by the manufacturer’s former employee). 215. See Syntex Opthalmics, Inc. v. Tsuestaki, 701 F.2d 677 (7th Cir. 1983) (citing that new chemical compound developed by employee just four days after termination belonged to ex-employer); Gen. Signal Corp. v. Primary Flow Signal, Inc., Nos. CIV.A. 85–0471B, CIV.A. 86–034B, 1987 WL 147798, at *1 (D.R.I. July 27, 1987) (flow meter invention conceived five days after trailer clause expired belonged to ex-employer); Nat’l Dev. Co. v. Gray, 55 N.E.2d 783 (Mass. 1944) (holding that idea developed by employee just three months after termination belonged to ex-employer). 216. 542 A.2d at 879. 217. Id. at 882. 218. Id. at 883

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relating to it. Ingersoll-Rand viewed Ciavatta’s stabilizer as a threat to Ingersoll-Rand’s competing product and brought litigation to enforce Ciavatta’s holdover agreement. The New Jersey Supreme Court appreciated the need to balance employer and employee rights and even defined the employer’s rights broadly through the think-tank concept, as previously noted. Nevertheless, the court ruled for Ciavatta, finding that he had developed the product based upon his general skill and knowledge and not based upon any research Ingersoll-Rand was then doing. It helped that IngersollRand’s technology had been highly publicized and that Ciavatta had not departed in opportunistic fashion. The court did not decide whether the holdover clause explicitly covered the stabilizer invention because the court found Ingersoll-Rand had no protected interest even if the agreement applied. B.

KAUMAGRAPH CO. V. STAMPAGRAPH CO.

Another example of an employer that lacked a proprietary interest is Kaumagraph Co. v. Stampagraph Co.219 The facts, somewhat simplified, showed that Chadwick had worked for William Briggs & Co., an English firm whose founders had patented a process for making transfer stamps and embroidery patterns. Chadwick came to the United States and signed nondisclosure and non-compete agreements upon joining Kaumagraph Company as an employee. He later left to pursue competitive activities and was sued by Kaumagraph for trade secret misappropriation. The court found that the process in question was revealed by the English patent and that, in fact, knowledge of the process had been brought to Kaumagraph rather than obtained from it by Chadwick. Accordingly, the trade secret misappropriation claim was rejected. C.

RIGGING INTERNATIONAL MAINTENANCE CO. V. GWIN

Kavanaugh may be an old case, but the principle it stands for remains a fabric of modern law as shown by Rigging International Maintenance Co. v. Gwin.220 Prior to his employment with Rigging, Gwin had worked for ten years as a foreman in charge of maintaining stevedoring cranes. Upon joining Rigging, Gwin signed a confidentiality and invention assignment agreement requiring him to assign any invention improvements to Rigging. Gwin came up with a twist-lock safety device for cranes after leaving Rigging, and Rigging sued to enforce the invention assignment agreement. The court rejected Rigging’s claims, holding that Gwin had had knowledge of the basic principles involved in the twist-lock device before joining Rigging and that Gwin had learned no trade secrets from Rigging that assisted his subse219. 138 N.E. 485 (1923). 220. 180 Cal. Rptr. 451 (Cal. Ct. App. 1982).

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quent improvements. The court’s decision was made easier by the fact that Riggings had told Gwin on two occasions during his employment that Riggings was not in the business of manufacturing. It also helped that Gwin had not been hired to invent. D.

GEORGIA-PACIFIC CORP. V. LIEBERAM

Even when an employer has proprietary interests, the invention assignment agreement’s terms remain crucial, as shown by GeorgiaPacific Corp. v. Lieberam.221 Lieberam, a German national, came to the United States in 1985 on a special student visa that allowed him to work for Georgia-Pacific. He had been sent a letter referring to an employee confidential information and assignment agreement before he arrived, but Lieberam apparently never signed it. He stayed six months and then returned to Germany. He returned to Georgia-Pacific in 1986 and originated an improved condenser system, working on it at least in part on Georgia-Pacific’s time. Georgia-Pacific at this point realized Lieberam had not signed an invention agreement, and the company therefore had him do so as part of a permanent employment offer in 1987. Lieberam returned to Germany when his visa expired, but Georgia-Pacific brought him back in 1988 to develop a prototype of the condenser system. Lieberam quit in 1988 when he realized GeorgiaPacific viewed itself as the owner of the condenser technology, and Lieberam thereafter sought to patent the condenser system, leading to Georgia-Pacific’s lawsuit. On appeal following summary judgment in favor of Georgia-Pacific, the Eleventh Circuit concluded that the invention assignment agreement was sufficiently ambiguous to require a trial on the merits. The invention assignment agreement, reprinted in full at the end of the court of appeals’ opinion, stated that Lieberam would assign any invention, improvement, or discovery conceived or made “during [his] employment by Georgia-Pacific or within six months immediately thereafter”222 that related to the past or present business of Georgia-Pacific. The question was whether the “during [his] employment” language, agreed to in 1987, had been intended to apply retrospectively to cover Lieberam’s prior employment or only prospectively—a distinction of importance in light of Lieberam’s contention that he had invented the condenser system before signing the invention agreement in 1987. The Eleventh Circuit held that the agreement, when construed as a whole, was capable of being interpreted as having only prospective effect, as Lieberam argued, due to the use of future-tense verbs. The court construed the ambiguity against Georgia-Pacific as the drafter and re221. 959 F.2d 901 (11th Cir. 1992). 222. 959 F.2d at 909.

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manded for a trial. Interestingly, the court did not simply hold that the strict construction rule required judgment for the employee.223 E.

VOITH HYDRO, INC. V. HYDRO WEST GROUP, INC.

Similar contractual interpretation problems appeared in Voith Hydro, Inc. v. Hydro West Group, Inc.224 An employee, Gokhman, sought a patent in 1985 on turbine flow wicket gates while employed by AllisChalmers, but the Patent and Trademark Office rejected the application in light of prior art. Allis-Chalmers abandoned the wicket concept for financial and efficiency reasons and then fired Gokhman as part of a reduction in force shortly after the patent application denial. Voith later purchased Allis-Chalmers’s hydro turbine business and took an assignment of Gokhman’s invention agreement. A few years later, Gokhman submitted a new flow turbine patent application, this time disclosing runner blades to work in conjunction with the wicket gates disclosed in the 1985 application. The 1993 patent was issued to Gokhman, and Voith sued to enforce the invention agreement as AllisChalmers’s assignee. After a trial, a district court ruled in favor of Gokhman. The court acknowledged that employee invention assignment agreements were commonplace in manufacturing, research, and development companies. Even though the court found Gokhman’s agreement enforceable, it sided with Gokhman because the agreement’s language did not apply to the 1993 patent. The court concluded that Gokhman had “conceived of” the idea before joining Allis-Chalmers and that Gokhman had not developed the patented flow turbine while employed by Allis-Chalmers. The court also pointed out that the prototype wicket gates had never been refined or tested at Allis-Chalmers nor had computer calculations for corresponding runner blades been translated into a tangible form or tested. The court further noted that the flow turbine had not been developed at Allis-Chalmers because the company had never put together a working, tangible prototype either before or after Gokhman left.225 Thus, the narrow invention assignment agreement did not cover the employee’s later invention, rendering the assignment agreement irrelevant.226 223. See New Britain Mach. Co. v. Yeo, 358 F.2d 397, 405 (6th Cir. 1966) (the law does not favor covenants that place “a mortgage on a man’s brain, to bind all its future products”; assignment agreement does not include future inventions and improvements unless it so states), quoting DeLong Corp. v. Lucas, 176 F. Supp. 104, 127 (S.D.N.Y. 1959). 224. No. C-96–1170 SC, 1997 WL 154400, at *1 (N.D. Cal. March 26, 1997). 225. See Mosser Indus., Inc. v. Hagar, 200 U.S.P.Q. (BNA) 608 (Pa. Com. Pl. 1978) (invention “developed” where the elements were combined into a working prototype, not during prior employment where individual elements were conceived). 226. Cf. Butler v. Continental Airlines, Inc., 31 S.W.2d 642 (Tex. Ct. App. 2000) (computer macros were literary works covered by Copyright Act; they were not “inventions” or “improvements” covered by employee’s invention assignment agreement).

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GOLDWASSER V. SMITH CORONA CORP.

Assuming a proprietary interest is shown and contract terms are triggered, employee opportunism will not be well received. A pointed illustration is Goldwasser v. Smith Corona Corp.227 Goldwasser signed an agreement that required him to assign inventions to IBM if three conditions were met: (1) he made or conceived the invention or idea while working for IBM; (2) he was working for IBM in positions involving research, planning, and technical responsibilities; and (3) the invention or idea related to IBM’s actual or anticipated business. While an IBM employee, Goldwasser invented certain improvements in wordprocessing, and he eventually submitted software called PointWriter to IBM for consideration. After IBM had declined to market PointWriter, Goldwasser and his wife sought and received a patent on it. He quit IBM and one year later filed for a second patent as a continuation in part of the first. Only the second patent was in issue in the subsequent invention assignment litigation, and Goldwasser conceded that the invention embodied in the second patent had been conceived of and reduced to practice while he had been an IBM employee. The district court granted judgment in favor of IBM and ordered Goldwasser to assign the second patent. The court noted that employee invention assignment agreements were enforceable under applicable New York law. The court then found that all three contractual criteria were met: Goldwasser had conceived the invention while an IBM employee, Goldwasser had held technical positions with IBM, and the software obviously related to IBM’s computer business. The court rejected Goldwasser’s statute of limitations, laches, and estoppel defenses, ruling that IBM had promptly sued within two years of the second patent’s issuance and that IBM’s original rejection of PointWriter was irrelevant since it owned PointWriter by virtue of the assignment agreement. G.

GENERAL SIGNAL CORP. V. PRIMARY FLOW SIGNAL, INC.

Timing was also a key issue in General Signal Corp. v. Primary Flow Signal, Inc.228 Halmi was an employee of General Signal for twenty-five years and then resigned to form his own firm. During his fifteenth year at General Signal, he signed an invention assignment agreement that included a six-month trailer clause that covered patents and ideas conceived by him and related to the actual or anticipated business of General Signal. Five days after the six-month restriction expired, Halmi conceived a flow meter invention that he subsequently patented. The court found that Halmi’s continued employment after signing the agreement constituted sufficient consideration under Rhode Island law because he had been terminable at will. The court 227. 817 F. Supp. 263 (D. Conn. 1993). 228. Nos. CIV.A. 85–0471B, CIV.A. 86–034B1987 WL 147798, at *1 (D.R.I. July 27, 1987).

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then concluded that Halmi had conceived the flow meter invention while employed by General Signal because Halmi failed to show that he had undertaken on his own the painstaking and intricate testing process necessary to perfect a flow meter. Accordingly, the court ordered Halmi to assign the flow meter patent to General Signal and enjoined him from making, using, or selling the flow meter. H.

BROOKS V. BATES

Another illustration of the need for explicit assignments is Brooks v. Bates.229 The facts presented a common scenario: One party put up the software, and the other put up the money. Bates authored five software programs and was doing business under the name Knowledge Engineering, though his one-man firm was unincorporated. Bates needed money, Brooks supplied it, and together they formed a corporation called Knowledge Engineering, Inc. (KEI). Brooks prepared five software registrations, listing Bates as the author of each program, and Brooks—not Bates—signed these registrations. Brooks subsequently discovered that Bates, while still an officer of KEI, had set up a rival business and had begun to deal directly with KEI’s customers. The decision in Brooks limited itself to whether Brooks or Bates owned the software programs; unjust enrichment and breach of contract claims were left for later. On the software ownership question, the court granted summary judgment in favor of Bates, ruling that a written assignment was necessary to transfer ownership from Bates to Brooks or KEI. The court found no such written agreement and refused to stretch the copyright ownership transfer “by operation of law” provision of the Copyright Act to cover the situation.230 Obviously, as Brooks demonstrates, written assignments can be particularly crucial in copyright ownership disputes involving high-tech employees. I.

AYMES V. BONELLI

The copyright work-for-hire and joint work doctrines came into play in Aymes v. Bonelli.231 Aymes, a computer programmer who graduated from Cornell University’s School of Engineering in 1981, worked with Island Swimming Sales’ computer systems from 1980 to 1982. He was hired by Bonelli, Island’s president, who was not a professional programmer. Aymes wrote a program dubbed CSALIB for Island, but Aymes severed his relationship with Island in 1982 when Bonelli cut Aymes’s hours. A dispute arose over Aymes’s demand for past due compensation, and Aymes thereafter registered a copyright in his own name for CSALIB. Aymes sued Island for copyright infringement, and Island defended under the work-for-hire and joint authorship provisions of the Copyright Act. 229. 781 F. Supp. 202 (S.D.N.Y. 1991). 230. 17 U.S.C. § 204(a) (1995). 231. 980 F.2d 857 (2d Cir. 1992).

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The Second Circuit, applying the Supreme Court’s Reid decision, found some support for Island’s work-for-hire defense in Island’s right to control the means of CSALIB’s creation and Island’s right to assign other projects to Aymes. The court of appeals emphasized, however, that other factors supported Aymes’s independent contractor argument, including Aymes’s level of skill needed to create CSALIB, Island’s decision not to offer Aymes benefits, and Aymes’s payment of his social security taxes. These last two factors convinced the court to rule for Aymes on the work-for-hire doctrine. The Second Circuit noted, “[E]very case since Reid that has applied the test has found the hired party to be an independent contractor where the hiring party failed to extend benefits or pay social security taxes.”232 The court of appeals remanded the joint work question, however, because the district court had made no findings concerning Bonelli’s contribution to CSALIB. On remand, the district court ruled that Aymes had sold CSALIB to Island, thereby precluding Aymes’s infringement claim and mooting Bonelli’s joint authorship claim.233 The Second Circuit subsequently affirmed this ruling.234 J.

AVTEC SYSTEMS, INC. V. PEIFFER

A more complex employee work-for-hire dispute—with a very different outcome from Aymes—was addressed in Avtec Systems, Inc. v. Peiffer.235 Peiffer worked for Avtec as a full-time employee from 1984 to 1992. His job involved using computer programs to solve problems and to produce simulations relating to satellite orbital analysis. In 1985, Peiffer began developing an initial version of a program called Orbit. He developed Orbit at home on his own computer equipment, on his own initiative, and without Avtec’s knowledge. Peiffer spent approximately 6,240 hours working on Orbit’s source code, for which he received no compensation from Avtec. In 1988, Peiffer demonstrated Orbit to Avtec’s president, and a slightly modified version of it was used to help win a client for Avtec, resulting in a $5,000 bonus for Peiffer. The program, with some additional modifications, was also demonstrated to two other potential clients in 1989. Avtec lost interest in Orbit in 1989, however, and an Avtec supervisor introduced Peiffer to Kisak-Kisak, Inc. (KKI). Peiffer later granted KKI an exclusive license to market Orbit. In 1992, Avtec asked Peiffer to demonstrate Orbit as part of a NASA contract bid, but Peiffer used the old, uncorrected ver-

232. Id. at 863. But see MELVILLE B. NIMMER & DAVID NIMMER, 1 NIMMER ON COPY§ 5.03[B][1][a], at 5–27 to 5–30 (criticizing Aymes as unduly emphasizing benefits and taxes to the exclusion of other factors identified by the Supreme Court in Reid, and noting subsequent cases that have disagreed with Aymes). 233. See Aymes v. Bonelli, 30 U.S.P.Q.2d (BNA) 1718 (S.D.N.Y. 1994). 234. See Aymes v. Bonelli, 47 F.3d 23 (2d Cir. 1995). 235. 21 F.3d 568 (4th Cir. 1994). RIGHT

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sion of Orbit, causing Avtec to lose the bid. Peiffer’s relationship with Avtec soured, and in 1992 Avtec registered for a copyright on the original version of Orbit and then sued Peiffer and KKI for copyright infringement, trade secret misappropriation, and breach of fiduciary duty. After a trial, the district court ruled in favor of Peiffer on the copyright ownership claim but against him on the state law claims. The court believed Peiffer had not created the original version of Orbit within the scope of his Avtec employment but nevertheless found the slightly modified version of Orbit was an Avtec trade secret that Peiffer and KKI had misappropriated. The court likened this trade secret interest to an employer’s shop-right in a patent. The court also found Peiffer had breached his fiduciary duty in sabotaging the NASA opportunity. The Fourth Circuit reversed, holding that Peiffer could not have misappropriated Orbit if he owned the copyright for it and that patent shop-right principles were irrelevant. The court of appeals also gave the district court guidance in interpreting the Supreme Court’s Reid decision, explaining that for a work for hire to be established, it must be created by the employee acting “within the scope of his or her employment.”236 To prove this scope issue, the Fourth Circuit instructed, Avtec had to show that (1) the work was of the type for which Peiffer had been hired to perform, (2) Peiffer’s creation of Orbit had occurred substantially within the authorized time and space limits of his job, and (3) Peiffer had been actuated at least in part by a purpose to serve Avtec’s interests.237 Because Peiffer plainly had been hired to perform computer work, the second and third scope questions were the main issues on remand. The district court found in favor of Peiffer on the work-for-hire issues the second time around, though it acknowledged the factual issues were close. The huge number of hours that Peiffer had worked on his own without compensation at his home outweighed the minimal hours he had spent at Avtec improving Orbit, let alone the minimal $5,000 bonus he had received. The fact that Avtec at one point had also said forget this in reference to Orbit also weighed heavily in the court’s decision for Peiffer on the copyright ownership issue. Since Avtec had no ownership interest in Orbit, its copyright and trade secret claims were rejected, as was its fiduciary duty claim for lack of damages proof. The district court therefore ordered Avtec to cancel its Orbit copyright registration. The Fourth Circuit subsequently affirmed in an unpublished order, largely making the point that copyright ownership had 236. Id. at 571 (quoting Community for Creative Non-Violence v. Reid, 490 U.S. 730, 737–38 (1989)). 237. Id. at 571.

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been vested in Peiffer the moment he created Orbit—which was outside the time and space constraints of his Avtec employment.238 The Fourth Circuit stressed that any evidence showing Peiffer might have been motivated to serve Avtec’s interests related to incidents after the initial fixing of Orbit in a tangible medium at a time when Peiffer’s ownership had already been set under copyright law. K.

BROWN V. DSC COMMUNICATIONS CORP.

A more novel example of an employee intellectual property ownership fight is Brown v. DSC Communications Corp.239 Brown had a written agreement with his employer, DSC, in which he promised to reveal and assign to DSC any inventions or software relating to DSC’s business or resulting from his work at DSC. Brown later came up with a computer solution for an industry-wide problem of outdated computer codes, which Brown claimed he had been working on for over twelve years before joining DSC. Brown discussed his idea with DSC executives and sought an agreement to develop his solution independently. Although the opinion is silent on the details, a news article reported that DSC allegedly offered Brown up to $2 million of any money saved by DSC and its customer, Motorola, plus fifty percent of the profits from the sale of the system to third parties.240 Brown reportedly demanded more: $5 million in addition to fifty percent of the profits. Negotiations collapsed and DSC demanded that Brown disclose his solution pursuant to his employment agreement obligations. When Brown refused, DSC fired him and sued for breach of contract. A Texas state court trial judge issued an order requiring Brown to disclose his solution because Brown claimed he had never made any notes or written record describing it. The Texas Court of Appeals affirmed the injunction for lack of jurisdiction without reaching the merits. L.

REVERE TRANSDUCERS, INC. V. DEERE & CO.

The value of nondisclosure agreements was recently evident in Revere Transducers, Inc. v. Deere & Co.241 Deere became interested in developing and manufacturing a draft sensor device for measuring tractor plow depth and ground force resistance. Deere and Revere eventually signed a nondisclosure agreement, and Revere set about developing a sensor through a team of Revere employees that included Eckhart and Delfino, both of whom had signed agreements requiring disclosure and assignment to Revere of inventions as well as nondisclosure of Re238. 67 F.3d 293 (4th Cir. 1995). 239. See Brown v. DSC Communications Corp., No. 05–97–01098-CV, 1998 WL 2366, at *1 (Tex. Ct. App. Jan. 6, 1998). 240. See John S. Pratt & Peter Dosik, Whose Idea Is It? Company Sues Ex-Employee: Former Employee’s Unwritten Idea to Update Computer Codes Is Focus of Current Litigation, NAT’L L. J., Oct. 20, 1998, at C16 (discussing Brown at the trial court level). 241. 595 N.W.2d 751 (Iowa 1999).

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vere trade secrets. Revere never completely met Deere’s engineering qualification tests and then ran into financial problems unrelated to the sensor project, which resulted in employee layoffs. Eckhart and Delfino decided to quit and form their own firm, and they secretly sought to provide a slightly modified sensor device to Deere. Deere liked their new device, gave them an order, and cancelled the Revere project. Revere later learned what happened and sued Eckhart and Delfino in Connecticut federal court. That court issued an injunction against Eckhart and Delfino, and they subsequently settled with Revere for $60,000. In the meantime, Revere sued Deere in Iowa state court for tortious interference, civil conspiracy, and trade secret misappropriation. The Iowa Supreme Court upheld tortious interference and civil conspiracy compensatory damage awards against Deere of $350,000 and $200,000, respectively, as well as an additional $450,000 in punitive damages against Deere. The court held that employee nondisclosure and invention assignment agreements were enforceable under Iowa law and found sufficient evidence that Deere had known of the Eckhart and Delfino agreements. The key question was whether Eckhart and Delfino had violated their agreements with Revere. The court found that they had because they had learned confidential sensor device information while Revere employees; this information did not need to rise to the level of a trade secret to be protected, the court concluded. The court concluded that Revere’s sensor information had not been disclosed by prior art. The court also ruled that simply because Eckhart and Delfino had presented their idea to Revere and had had it rejected by Revere at one point did not relieve them of their duty to refrain from using or disclosing Revere’s confidential information as required by their agreements. Finally, the court refused any offset for the $60,000 settlement by Eckhart and Delfino on the basis that their settlement would likely cover claims unrelated to those pressed against Deere. 3. Summary In short, courts have wide discretion to compel assignments of employee intellectual property, especially if an assignment agreement is in place and the subject matter relates to work for the past employer. A court can order an affirmative turnover of title, can prohibit use of intellectual property, or both; a court can even order disclosure, as in Brown. On the other hand, courts are not likely to do anything until the former employer first shows that a proprietary interest is in jeopardy, as in Ciavatta, Kavanaugh, and Gwin, and even then the employer must show the agreement covers the situation, which the employer failed to do in Voith Hydro. Ambiguous agreements will simply generate trials, as in Lieberam, and this assumes the court does not invoke the strict construction rule against the employer as drafter of Copyright 2001 American Bar Association

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the document. Nondisclosure agreements represent only a modest imposition on employees and are usually routinely enforced, as Revere Transducers illustrates. The total absence of agreements spells long litigation, as in Aymes and Peiffer. Moreover, Peiffer demonstrates that the interplay between copyright and state laws can be quite complex and counterintuitive, with the outcome turning on factual subtleties that are very difficult to predict in advance absent an agreement. F. Other Potential Claims against Employees Other unfair competition principles can apply in employee departure scenarios, but these tend to have limited application. Antitrust, trademark, false advertising, deceptive trade practice, copyright, patent, and RICO claims are not likely to apply in garden-variety employee departure scenarios.242 Rather, these laws can usually be invoked only in narrow circumstances, such as where an ex-employee falsely claims that his or her products are superior to those of the employee’s former firm. If an employee also happens to be a shareholder, particularly a significant shareholder, fiduciary liability might be imposed on this basis independent of the employment relationship.243 Idea misappropriation claims are another possibility.244 Employees, of course, are also subject to tortious interference liability like anyone else.245 242. See Israel Travel Advisory Serv., Inc. v. Israel Identity Tours, Inc., 61 F.3d 1250 (7th Cir. 1995) (rejecting antitrust claims against ex-employees); Computer Care v. Serv. Sys. Enter., 982 F.2d 1063 (7th Cir. 1992) (finding trade dress infringement, but rejecting false advertising and trade secret misappropriation claims against ex-employee); Midwest Grinding Co. v. Spitz, 976 F.2d 1016 (7th Cir. 1992) (rejecting RICO claims against ex-employees); Stamatakos Indus., Inc. v. King, 965 F.2d 469 (7th Cir. 1992) (rejecting antitrust claim against ex-employee); Liquid Air Corp. v. Rogers, 834 F.2d 1297 (7th Cir. 1987) (allowing RICO claims against ex-employees); Cullen Elec. v. Cullen, 578 N.E.2d 1058 (Ill. App. Ct. 1991) (despite similarity of company name selected by ex-employee, customers knew who was who, and therefore unfair competition confusion claim did not warrant injunction). 243. See Hayes v. Olmsted & Assoc., Inc., No. CA A106401, 2001 WL 294294, at *1 (Or. Ct. App. March 28, 2001) (terminated employee who settled employment claims was permitted to bring separate minority oppression claims in his capacity as shareholder); See G & N Aircraft, Inc. v. Boehm, 743 N.E.2d 227 (Ind. 2001) (majority shareholder was liable to minority shareholder for breach of fiduciary duty in reorganizing corporation’s affairs); Sletteland v. Roberts, 16 P.3d 1062 (Mont. 2001); see also William Lynch Schaller, Competing After Leaving: Fiduciary Duties of Closely Held Corporation Shareholders After Hagshenas v. Gaylord, 84 ILL. B.J. 354 (1996) (discussing Illinois cases holding that resignation of officer and director positions does not end liability for disloyalty where person continues to be equal or minority shareholder). 244. See Margreth Barrett, The “Law of Ideas” Reconsidered, 71 J. PAT. & TRADEMARK OFF. SOC’Y. 691 (1989) (comprehensive review of idea claims under various federal and state law theories); Big Wins, NAT’L L. J., Oct. 2, 2000, at C16 (reporting $240 million Florida jury verdict against Walt Disney Co. for misappropriating multi-purpose sports complex idea). 245. See Mid-State Vending Serv., Inc. v. Rosen, 222 N.E.2d 99 (Ill. App. Ct. 1966) (rejecting tortious interference claim against ex-employee where customers were not solicited, but instead, cancelled their contracts and then called ex-employee).

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So-called techno-torts are an emerging area of concern.246 A disgruntled employee’s ability to damage an ex-employer by disseminating false information over the Internet has vastly magnified the risks associated with existing and former employees,247 especially those bent on competition. No doubt, anonymity has led employees to think they can get away with these scams, but employers have responded with John Doe actions and have uncovered employee identities through subpoenas to Internet service providers.248 It is difficult to predict how this area of law will evolve, but courts surely will remain sensitive to legitimate employer interests in preventing unauthorized and highly damaging disclosures by dissatisfied or vengeful employees. Another route of recovery may be civil liability under computer fraud statutes. For example, in Shurgard Storage Centers, Inc. v. Safeguard Self Storage, Inc.,249 a storage facility operator alleged that one of its competitors had engaged in a systematic scheme to raid key employees to obtain the storage facility firm’s trade secrets. The complaint alleged a violation of the Computer Fraud and Abuse Act,250 which makes it illegal to intentionally access a protected computer without authorization or, in excess of authorized access, to obtain information if the conduct involves an interstate or foreign communication.251 The district court in Shurgard Storage Centers ruled that the act is not limited to hackers or other outsiders and found that a claim had been stated against an ex-employee for taking trade secret information via improper computer access. This new avenue of relief could prove es-

246. See David E. Dukes & Michael W. Hogue, “Techno-Torts” Pose New Challenges for Litigators: Internet Crimes Ranging from Hacking, Defamation and Complex Market Fraud Abound, NAT’L L. J., Oct. 9, 2000, at B11 (surveying various claims arising out of employees posting confidential information on the Internet); Jay Eisenhofer & Sidney S. Liebesman, Caught by the Net: What to Do if a Message Board Messes with Your Client, 9 BUS. L. TODAY 40 (Sept./Oct. 2000) (surveying cases involving wrongful disclosure on the Internet). 247. See Bruce T. Atkins, Note, Trading Secrets In the Information Age: Can Trade Secret Law Survive The Internet? 1996 U. ILL. L. REV. 1151 (1996) (describing Internet publication scams). 248. See Jeffrey R. Elkin, Cybersmears: Dealing with Defamation on the Net, 9 BUS. L. TODAY 22, 24–25 (Jan./Feb. 2000) (describing Raytheon’s action against 21 “John Does” after confidential information about earnings and trade secrets was posted in chat rooms; Yahoo identified the chat room users, and four Raytheon employees resigned); Frank Alvarado, Bosses Win Right to Probe Disclosures: Florida Company Clams an Ex-Manager Posted Inside Information on Internet, NAT’L L.J., Feb. 5, 2001, at B11 (describing court order allowing MasTec to serve discovery on former senior manager to determine whether he was behind message board postings on Yahoo and Raging Bull). 249. 119 F. Supp. 2d 1121 (W.D. Wash. 2000). 250. 18 U.S.C. § 1030. 251. See Shaw v. Toshiba Am. Info. Sys., Inc., 91 F. Supp. 2d 926 (E.D. Tex. 1999) (manufacturer’s sale of laptop computers containing floppy-diskette controllers with allegedly defective microcode was “transmission” within the meaning of the Computer Fraud and Abuse Act).

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pecially potent, as the federal statute at issue in Shurgard Storage Centers appears to apply to any information, not just trade secrets.252 G. Third-Party Liability 1. General Principles Virtually all states recognize some form of third-party liability when a new employer wrongfully retains an employee who is under binding legal restrictions to a former employer. Sometimes these claims are couched as tortious interference with contract; sometimes they are cast as civil conspiracy claims; sometimes they are called unfair competition; and sometimes they are captured under the aiding and abetting heading.253 Contributory infringement can also be asserted against third parties.254 Whatever the label, the new employer faces prolonged discovery and serious exposure in the form of compensatory and punitive damages if it is on notice that the new employee violated obligations to the ex-employer.255 These claims can give rise to significant judgments, as shown by the $3.3 million conspiracy verdict (before treble and attorney fees under a special Virginia statute) against an accounting firm that raided twenty-five of the thirty-one employees of a competitor in Feddeman & Co. v. Langan Associates.256 The main defense to such third-party claims is lack of knowledge on the third party’s part. In tortious interference with contract claims, for example, the third party must be shown to have known of the contract. Similarly, in trade secret cases, the evidence must demonstrate 252. See Stephen R. Buckingham, Court Gives New Use to 1994 Law: Trade Secrets, NAT’L L.J., Feb. 5, 2001, at C11 (noting that the plain language of the Computer Fraud and Abuse Act does not require that information obtained from a protected computer rise to the level of a trade secret). 253. See Eastern Trading Co. v. Refco, Inc., 229 F.3d 617 (7th Cir. 2000) (one who aids and abets a fraud is guilty of the tort of fraud; nothing is added by saying he is guilty of the tort of aiding and abetting as well or instead); J.D. Edwards & Co. v. Podany, 168 F.3d 1020 (7th Cir. 1999) (software consultant, who pronounced J.D. Edwards software a “piece of shit” without knowing enough about it to have an opinion, was guilty of tortious interference); Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476 (Ky. 1991) (using civil conspiracy and aiding and abetting labels interchangeably with respect to thirdparty liability for assisting employee disloyalty); Baty v. Protech Ins. Agency, 2000 WL 1591006, at *1 (Tex. Ct. App. Oct. 26, 2000) (discussing tortious interference, civil conspiracy and inducing breach of fiduciary duty claims in employee departure scenario), withdrawn and superseded on overruling of reh’g, 2001 WL 3344006, at *1 (Tex. Ct. App. Apr. 5, 2001); Thomas J. Leach, Civil Conspiracy: What’s the Use?, 54 U. MIAMI L. REV. 1 (1999) (describing history of civil conspiracy laws in England and the United States). 254. See Carte P. Goodwin, Comment, Live in Concert . . . and Beyond: A New Standard of Contributory Copyright Infringement, 13 EMORY INT’L L. REV. 345 (1999) (general discussion of contributory copyright infringement). 255. See Computer Assocs. Int’l v. Altai, 982 F.2d 693 (2d Cir. 1992) (new employer was on constructive notice that computer programmer misappropriated software trade secrets); Campbell Soup Co. v. Conagra, 801 F. Supp. 1298 (D.N.J. 1991) (noting new employer received notice letter regarding employee’s confidentiality obligations), rev’d on other grounds, 977 F.2d 86 (3d Cir. 1992). 256. 530 S.E.2d 668 (2000).

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that the third party knew or should have known that the secrets were stolen. Direct evidence of third-party knowledge is often lacking, and thus many of these claims are proven inferentially.257 In addition, when interference with at-will employees is alleged, some courts impose a heightened proof showing, such as “substantial evidence that the defendant’s predominate or sole motive of the interference was to damage the plaintiff.”258 Courts are generally receptive to defense pleas in atwill employee cases because, as Judge Learned Hand famously put it, “nobody in his own business may offer better terms to an employee, himself free to leave, is so extraordinary a doctrine, that we do not feel called upon to consider it at large.”259 2. Cases A.

HIGH-TEK CONSULTING SERVICES V. BAR-NAHUM

Although third-party liability cases abound, several are illustrative. In High-Tek Consulting Services v. Bar-Nahum,260 a computer consulting company sued a former employee and a client, alleging the client had interfered with the consulting company’s contractual relationship with its employee. As is often the case, the employer’s contract with its customer prohibited the customer from soliciting or hiring the consulting firm’s employees. In this particular case the customer prevailed because the evidence established that the employee had quit the consulting firm for personal reasons unrelated to the customer and had subsequently been hired by the customer. Although summary judgment was granted in favor of the customer, in most cases such circumstances would present a question of fact as to the true cause and effect relationship between the quitting and immediate hiring. B.

AUTOMATED CONCEPT V. WEAVER

Similarly, in Automated Concepts, Inc. v. Weaver,261 a computer consulting firm saw a key employee leave to join a competitor. The employee in question then solicited other key employees of his former employer’s knowledge-management practice to join him at the new firm. The employee’s contract prohibited him from raiding his former fellow employees, and the court found that proper claims were stated against the former employee for breach of contract and against the 257. See DSC v. Sokol Crystal Prods., 15 F.3d 1427 (7th Cir. 1994) (access to trade secrets, plus substantial similarity of products, led to inference of misappropriation); Tower Oil & Tech. Co. v. Buckley, 425 N.E.2d 1060 (Ill. App. Ct. 1981) (circumstantial evidence was sufficient to prove tortious interference and civil conspiracy by new employer who induced employee to breach restrictive covenant). 258. Condon Auto Sales & Serv., Inc. v. Crick, 604 N.W.2d 587, 601 (2000) (at-will employee occupied non-fiduciary position; new employer had no plan or motive to damage former employer). 259. Triangle Film Corp. v. Ancraft Pictures Corp., 250 F. 981, 983 (2d Cir. 1918). 260. 578 N.E.2d 993 (Ill. App. Ct. 1991). 261. No. 99 C 7599, 2000 WL 1134541, at *1 (N.D. Ill. Aug. 9, 2000).

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new employer for tortious interference with contract and for tortious interference with prospective economic advantage. C.

PMC, INC. V. KADISHA

In another example of this exposure, the California Court of Appeal recently decided PMC, Inc. v. Kadisha.262 A former employer alleged trade secret misappropriation and tortious interference with prospective economic advantage when a key employee allegedly misappropriated computer disks containing trade secret financial data and specifications for molds and inserts. As one might expect, the former employer sued the departing employee, but the former employer also sued the officers, directors, and principal shareholders of the new employer. The California Court of Appeal held that the officers, directors, and principal shareholders were like to be liable based solely on their investment and control of the new employer if they knew or had reason to know about misappropriation of the former employer’s trade secrets. The result in Kadisha is certainly not surprising and in fact conforms with the language of the UTSA.263 Kadisha is a good reminder that the liability net can sweep very wide with respect to third parties that encourage or assist a jumping-ship employee in competitive wrongdoing.264 D.

MONTGOMERY WARD HOLDING CORP. V. SEARS, ROEBUCK & CO.

Still another variation on this theme is raiding to destroy a competitor, as in Montgomery Ward Holding Corp. v. Sears, Roebuck & Co.265 In that case, the court issued a preliminary injunction to stop employee raiding of a failing retailer. The facts revealed rare evidence of a competitor luring away a rival’s employees in an apparent effort to hasten the target’s demise, rather than to simply secure vulnerable employees uncertain about their future prospects. The competitor’s privilege was overcome because of stray e-mails that suggested an improper, predatory motive. The case settled when Sears agreed not to solicit Montgomery Ward management employees for the duration of the Chapter 11 proceedings and to pay $100,000 to cover Montgomery

262. 93 Cal. Rptr. 2d 663 (Cal. Ct. App. 2000). 263. See UTSA, § 1(2)(i), 14 U.L.A. 541 (1980); James C. Lydon, The Deterrent Effect of the Uniform Trade Secrets Act, 69 J. PAT. & TRADEMARK OFF. SOC’Y. 427, 431 (1987) (describing third-party liability under the UTSA); Miles, Inc. v. Cookson Am., Inc., 1994 WL 676761, at *1 (Del. Ch. Nov. 15, 1994) (parent company that loaned $8 million to subsidiary shortly before subsidiary’s employees used their ex-employee’s trade secrets was jointly and severally liable for trade secret misappropriation under Delaware version of UTSA). 264. See Steelvest, Inc., 807 S.W.2d 476 (bank that financed startup by disloyal employees was potentially liable for their conduct under civil conspiracy and/or aiding and abetting theories). 265. No. 97–1409 (Del. Bk. 1997).

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Ward’s attorney fees and costs. However, Sears was allowed to pursue hourly and commissioned sales employees.266 E.

IN RE JOTAN, INC.

Facts somewhat similar to those in Montgomery Ward were presented in another bankruptcy case, In re Jotan, Inc.267 Thompson and Barnett, two Jotan employees with substantial customer contacts and access to confidential information, signed non-compete agreements. Jotan had slid into bankruptcy and sought to sell portions of its shipping business to ESP, which signed a confidentiality agreement as part of the negotiations. Barnett—Jotan’s chief negotiator with ESP—and Thompson and several other Jotan employees jumped ship to ESP only a few weeks after the ESP/Jotan negotiations had commenced. The bankruptcy court recognized that ESP’s mass raid severely diminished the value of Jotan, thereby harming Jotan’s creditors. The court also concluded that the restrictive covenants of Thompson and Barnett were reasonable in view of their prior access to Jotan’s confidential information and customers. The court therefore enjoined ESP from employing Barnett and Thompson and from encouraging other Jotan employees to violate their employment contracts. F.

FORD MOTOR CO. V. LANE

Last, but certainly not least, is the remarkable decision in Ford Motor Co. v. Lane.268 Ford objected to a student’s use of the Ford name as part of his Web site domain name. The student, Lane, retaliated by threatening to release confidential information he had apparently received from Ford employees and subsequently made good on this threat by posting articles on his Web site. The articles revealed Ford’s confidential strategies, quality control problems, and engineering blueprints. When Ford threatened an injunction, Lane responded by posting forty-four additional documents on line, including materials with high competitive sensitivity. Ford sued, and the district court issued a temporary restraining order enjoining Lane from destroying evidence and requiring Lane to identify his sources. The district court’s temporary restraining order also blocked Lane from soliciting Ford employees to disclose trade secrets and other confidential information belonging to Ford. At the preliminary injunction hearing, however, the district court changed its mind, ruling that First Amendment “prior restraint” principles barred the injunctive relief Ford was seeking to protect its trade secrets—even though the court conceded that Ford had more than made out a case for actual and threatened violations of Michigan’s version of the UTSA. 266. Id. (TR. OF PROC., Aug. 25, 1997, at 1–2). 267. 229 B.R. 218 (M.D. Fla. 1998). 268. 86 F. Supp. 2d 711 (E.D. Mich. 2000).

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Unfortunately, the case settled while on appeal, so no authoritative precedent arose from the case on the key First Amendment question.269 3. Summary Clearly, third parties court disaster when they approach a rival’s employees with unfair competition in mind. If the new employer knows a contract is being violated or other improper behavior is taking place, the new employer will be sucked into the storm unless it makes an affirmative effort to end the wrongdoing. Indeed, the new employer may actually face greater exposure than the employee in some instances. The employee may only confront breach of contract damages for violating a non-complete, for example, but the new employer may be saddled with open-ended punitive damages for tortious interference, as occurred in the analogous case of Revere Transducers, Inc. v. Deere & Co.,270 discussed earlier. Moreover, as a practical matter, the employee may be judgment-proof; new employers can seldom say the same. IV. Practical Considerations in Assessing Unfair Competition Claims against Ex-Employees A. Former Employers’ Considerations Preventing unfair competition arising from employee mobility requires comprehensive planning. Confidentiality legends on materials and computer screens, computer passwords, handbook warnings, premise-access restrictions, sign-in/sign-out procedures, and need-toknow distribution are always good ideas, as is an audit program.271 An idea suggestion program should also be established to ensure employer ownership of unsolicited ideas from employees who may later contest these rights.272 Once in place, employers should insist on adherence to these procedures. Of course, not all employers find comprehensive protection worthwhile, so a careful balance must be struck between costs and benefits in adopting reasonable secrecy measures.273 As this discussion suggests, contractual protection can be and often is the single most important factor in combating ex-employees in the 269. Cf. Mark A. Lemley & Eugene Volokh, Freedom of Speech and Injunctions in Intellectual Property Cases, 48 DUKE L.J. 147 (1998) (analyzing First Amendment principles in intellectual property injunction cases). 270. 595 N.W.2d 751. 271. See William Lynch Schaller, Protecting Your Trade Secrets in Illinois, 3 ILL. MFR’S J. 1 (1998) (reviewing confidentiality procedures); Roger Norman Coe, Keeping Trade Secrets Secret, 76 J. PAT. & TRADEMARK OFF. SOC’Y. 833 (1994) (same). 272. See Lewis v. Am. Airlines, Inc., 678 N.E.2d 728 (Ill. App. Ct. 1997) (employee suggestion program gave employer ownership of flexible door idea and allowed employer to deny employee compensation); Ronald B. Coolley, An Update: Employee Suggestion Programs, 69 J. PAT. & TRADEMARK OFF. SOC’Y. 503 (1987) (reviewing potential elements of employee idea suggestion programs). 273. See Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174 (7th Cir. 1991) (emphasizing that only reasonable secrecy measures are necessary to preserve trade secret rights).

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marketplace. Courts can fashion relief even in the absence of a contract, but such relief tends to be stingy and only reluctantly granted on a fairly compelling showing. Thus, all employers should ensure that executives and key employees are subject to appropriate agreements tailored to the duties of the particular employee, preferably one that includes a choice-of-law designation.274 Using the same form contract for all employees eases administration but runs the risk of invalidation on over-breadth grounds in some courts.275 An employer also should not automatically assume that tendering overly broad agreements is a harmless mistake; in some jurisdictions, terminating employees for refusing to sign void non-compete agreements can give rise to claims against employers.276 When contractual protection for key players is lacking, and even when it is in place, exit interviews are important. An exit interview may present the last opportunity to secure an agreement, and such a face-to-face meeting always provides the chance to have the employee reaffirm ethical and legal obligations bearing on post-employment activities.277 The exit interview should be documented, and a signed memorialization should be obtained if possible. Indeed, an employee’s refusal to sign exit papers acknowledging basic common-law or contractual duties may create a powerful inference of impending wrongdoing to support declaratory and injunctive relief.278 Interviewing other employees is also a good idea when a key employee leaves. Some remaining employees may be friendly with the exemployee and may even be operating as moles, lurking behind to assist the departed employee as part of a larger plot;279 they likely will resist

274. See Vencor, Inc. v. Webb, 33 F.3d 840 (7th Cir. 1994) (Illinois public policy did not preclude enforcement of Kentucky choice of law provision in employee non-compete). 275. See Telxon Corp. v. Hoffman, 720 F. Supp. 657 (N.D. Ill. 1989) (criticizing employer’s use of identical non-competes for all employees, regardless of the individual’s particular responsibilities or stature). 276. See D’Sa v. Playhut, Inc., 102 Cal. Rptr. 2d 495 (Cal. Ct. App. 2000) (employees may claim wrongful discharge under California law when terminated for refusing to sign noncompete agreements); Dymock v. Norwest Safety Protected Equip., 2001 WL 123352, at *1 (Or. Ct. App. Feb. 14, 2001) (similar holding under Oregon law). 277. See Vermont Microsystems, Inc. v. Autodesk, Inc., 88 F.3d 142 (2d Cir. 1996) (noting employee was reminded of his confidentiality obligations in two separate exit interviews), on later appeal, 138 F.3d 449 (2d Cir. 1998); PCX Corp. v. Ross, 522 N.E.2d 1333 (Ill. App. Ct. 1988) (noting company departed from its exit interview policy by instead having just “a brief conversation” with employee who was leaving); Reinhardt Printing Co. v. Feld, 490 N.E.2d 1302 (Ill. App. Ct. 1986) (employee was vague at exit interview about her future plans). 278. Cf. MBL (USA) Corp. v. Diekman, 445 N.E.2d 418 (Ill. App. Ct. 1983) (plaintiff brought suit when ex-employee ignored letter demanding compliance with confidentiality agreement and requesting disclosure of ex-employee’s recent designs and other business activities). 279. See United States v. Martin, 228 F.3d 1 (1st Cir. 2000) (describing employee who acted as a “spy” in passing company trade secrets to competitor); United States v.

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an informal interview and may insist upon having a co-worker present, assuming they do not simply quit when confronted.280 Other employees may be more forthcoming. Indeed, on occasion, loyal employees who have remained silent in the face of wrongdoing become eager to share their knowledge when suspicious employees depart.281 Those left behind can provide invaluable firsthand information about conspiratorial misconduct. Because departing employees seldom announce their competitive intentions, other investigative steps may also be prudent. In addition to interviewing employees, an employer should consider reviewing computer information, examining telephone records, contacting customers, and hiring investigators to probe current and former employees’ activities—all of which can reveal surprising information.282 In any event, Andreas, 216 F.3d 645 (7th Cir. 2000) (describing Mark Whitacre’s activities as a government mole in secretly recording conversations between competitors conspiring to violate federal antitrust laws); Food Lion, Inc. v. Capital Cities/ABC, Inc., 194 F.3d 505 (4th Cir. 1999) (television investigators secured employment with grocery store chain target to conduct expose´); Huntington Life Sciences, Inc. v. Rokke, 986 F. Supp. 982 (E.D. Va. 1997) (animal rights organization investigator secured employment with animal testing firm to conduct expose´); Harllee v. Professional Servs. Indus., Inc., 619 So.2d 298, 302 (Fla. Dist. Ct. App. 1993) (Gersten, J., dissenting) (pointing out that when fifty-seven employees moved to a competitor in a short time, one stayed behind and advised a customer that his current employer could no longer do the job, but said his “team” could do it at the new employer); Stevens-Davis Co. v. Mather & Co., 1923 WL 3289, at *1 (Ill. App. Ct. 1923) (firm planted its employees at rival to acquire secrets); Robert Manor, Corporate Spy Case Unfolds in Lawsuit: Fruit of the Loom Worker Admits Sharing Secrets, CHI. TRIB., April 8, 2001, Sec. 5, at 1 (describing recent Illinois federal court trade secret misappropriation action based upon a Fruit of the Loom employee’s alleged admission that she was secretly passing confidential business reports to a former co-worker who had joined rival Gildan Activewear in Montreal); Dean Starkman, Secrets and Lies: The Dual Career of a Corporate Spy, WALL ST. J., Oct. 23, 1997, at B1 (describing eight-year scheme in which Avery Dennison employee passed $50 million in secrets to overseas competitor in return for $150,000); ADAM L. PENENBERG & MARC BARRY, SPOOKED: ESPIONAGE IN CORPORATE AMERICA (2000) (book-length treatment of the Avery Dennison case). 280. See Epilepsy Foundation of Northeast Ohio, 331 NLRB No. 92, 164 L.R.R.M. (BNA) 1233, 2000 WL 967066, at *1 (July 10, 2000) (employers must afford non-unionized employees the right to have a co-worker present at an investigatory interview which the employee reasonably believes might result in disciplinary action). 281. See Radiac Abrasives v. Diamond Tech., 532 N.E.2d 428 (Ill. App. Ct. 1988) (employees who remained loyal testified against former co-workers who were secretly competing before resigning). 282. See Pony Computer, Inc., 162 F.3d 991 (noting employer discovered employee’s efforts on behalf of competitor by examining employee’s work telephone records); Louis Vuitton v. Lee, 875 F.2d 584 (7th Cir. 1989) (commenting on private party’s use of an investigator discredited in an earlier, unrelated federal criminal “sting” operation); Fraser v. Nationwide Mut. Ins. Co., No. 98-CV-6726, 2001 WL 290656, at *1 (E.D. Pa. March 27, 2001) (employer did not violate federal and Pennsylvania Wiretap Acts and Stored Communications Acts in accessing and reviewing stored e-mails; these laws only apply to interception of communications in transit); Frank W. Winne and Son, Inc. v. Palmer, No. CIV.A . 91–2239, 1991 WL 155819, at *1 (E.D. Pa. Aug. 7, 1991) (court found no trade secret misappropriation where competitor searched plaintiff’s garbage and reconstructed customer lists from discarded invoices); Johnson v. K-Mart Corp., 723 N.E.2d 1192 (Ill. App. Ct. 2000) (invasion of privacy claim sustained where employer had investigators pose as employees); Davis v. John Crane, Inc., 633 N.E.2d 929 (Ill. App. Ct. 1994) (use of

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such steps are probably a good idea simply as a matter of competitive intelligence: High tech employees from rival firms often retain social and professional ties, and they tend to talk.283 Of course, questionable investigative steps can result in invasion of privacy or malicious prosecution charges, to name just two,284 not to mention negative publicity.285 If a former employer is aware of an ex-employee’s new activities with a competitor, a warning letter may be in order. Notice letters need to be carefully analyzed, as they can give rise to liability claims against the former employer if they overstate rights, defame the ex-employee, or otherwise make wrongful accusations.286 Nevertheless, notice letters can outside drug testing firm, and use of separate investigation firm, to uncover on-premises drug use at employer’s work site; handbook and defamation claims rejected); Teresa Butler, The FCRA and Workplace Investigations, 15 LAB. LAW. 391 (2000) (discussing possible third-party investigator liability under the Fair Credit Reporting Act for employment investigations); Geanne Rosenberg, The Big Push Into Law-Related Business Investigation Practices, NAT’L L.J., Oct. 9, 2000, at B7 (noting typical investigation of a company and key executives costs about $15,000). 283. See generally JOHN J. MCGONAGLE & CAROLYN M. VELLA, PROTECTING YOUR COMPANY AGAINST COMPETITIVE INTELLIGENCE (1998) (describing the “cloaking” program); PENENBERG & BARRY, supra note 279 (describing various corporate espionage methods); BORIS PARAD, COMMERCIAL ESPIONAGE: 79 WAYS COMPETITORS CAN GET ANY BUSINESS SECRETS IN ANY COUNTRY (1997) (describing various corporate espionage methods). 284. See Malik v. Carrier Corp., 202 F.3d 97 (2d Cir. 2000) (rejecting negligent investigation claim in federal employment discrimination claim context); Dawson v. New York Life Ins. Co., 932 F. Supp. 1509 (N.D. Ill. 1996) (jury could find life insurer’s decision to use its own employees to investigate manager’s role in failing to supervise an agent’s fraudulent misconduct, rather than retaining others to conduct an independent investigation, made its investigation recklessly insufficient for defamation purposes); Dopp v. Fairfax Consultants, 771 F. Supp. 494 (D. Puerto Rico 1990) (rejecting claim that private investigator acted improperly); Rodgers v. Peoples Gas, Light & Coke Co., 733 N.E.2d 835 (Ill. App. Ct. 2000) (employer conspired with government investigators to find grounds to fire employee); BRYAN BURROUGH, VENDETTA: AMERICAN EXPRESS AND THE SMEARING OF EDMOND SAFRA (1992) (detailed discussion of corporate espionage campaign to discredit business rival); Margaret J. Grover & Lauren S. Antonio, Workplace Investigations: A Practical Approach, 30 BRIEF 8 (2000) (summarizing workplace investigation techniques and potential claims). 285. See Glenn R. Simpson, Investigative Firm Played a Role in Microsoft Case: IGI Comes under Scrutiny in Attempt to Purchase Lobbying Group’s Trash, WALL ST. J., June 19, 2000, at A48 (reporting Silicon Valley trash-buying incident, where Investigative Group International leased office space in target’s building to avoid trespassing charge); Glenn R. Simpson, U.S. Corporate Spy Firms Face Overseas Rival, WALL ST. J., Oct. 31, 2000, at B1 (describing business problems of investigative firms Kroll-O’Gara, PricewaterhouseCoopers, Investigative Group International and Control Risks Group); Raytheon Co. Settles Corporate Spy Case with AGES Group, WALL ST. J., May 13, 1999, at A18 (reporting multi-million dollar settlement arising out of Raytheon’s alleged use of Wackenhut investigators to eavesdrop and steal confidential documents in order to undermine AGES’ bid for a $450 million military contract). 286. See Gardner v. Senior Assisted Living, Inc., 731 N.E.2d 350 (Ill. App. Ct. 2000) (former employer’s notice letters to customers, accusing ex-employee of trade secret misappropriation, were defamatory); Zdeb v. Baxter Int’l, Inc., 697 N.E.2d 425 (Ill. App. Ct. 1998) (affirming $8 million jury verdict based on employer’s lack of good faith in sending notice letter asserting intellectual property rights in ex-employee’s invention); Schuler v. Abbott Labs., 639 N.E.2d 144 (Ill. App. Ct.. 1993) (employer’s notice letters threatening injunctions, sent to ex-employee but not prospective employers, did not constitute tortious

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prove critical where the ex-employee and the new employer embark upon a course of wrongdoing in violation of the letter; such conduct may even be deemed willful for purposes of punitive damages and attorney fees.287 Notice letters also may defeat laches defenses, especially when the defendant responds by promising to behave.288 On a practical level, too, notice letters sometimes trigger a favorable, perhaps limited, response from the new employer, which may take steps to ensure the new employee’s activities are in compliance with legal obligations to the former employer. Even well written notice letters have a hidden downside: The new employer may ask the former employer to identify the trade secrets in issue,289 something the former employer may not be eager to do. Above all else, when a valued employee departs, the former employer’s management should put together an action plan.290 This may include simply assigning someone to monitor the ex-employee’s activities; it may include a publicity campaign; it may include a prophylactic retention program, like giving contracts or raises to remaining employees; it may include litigation planning; or it may include all of the aforementioned. Indeed, in certain cases, where a departing executive or key employee is dissatisfied but not disloyal, the employer should seriously think about attempting to rehire the individual;291 after all, good people interference); Collincini v. Honeywell, Inc., 601 A.2d 292 (Pa. Super. Ct. 1991) (threatening letter to new employer resulted in $500,000 verdict, $400,000 of which was punitive damages); Voorhees v. Guyan Mach. Co., 446 S.E.2d 672 (W. Va. 1994) (ex-employer who tried to enforce non-compete lacked justification and therefore was liable for interference with new employment, resulting in $75,000 in compensatory damages and $75,000 in punitive damages); Lucio Guerrero, Man Falsely Accused as Sex Predator Sues: Winnetka Resident Claims His Former Boss Spread Lies, CHI. SUN-TIMES, Oct. 11, 2000, at 10 (reporting recently filed Illinois case in which ex-employee sued former employer for defamation for posting fliers saying ex-employee was a convicted sexual predator, allegedly because former employer was angry that ex-employee joined a competitor following a pay dispute). 287. See Mangren Research, 87 F.3d 937 (affirming punitive damages and attorney’s fees awards against defendant for willful and malicious trade secret misappropriation); Miles, Inc. v. Cookson Am., Inc., 1994 WL 676761, at *1 (Del. Ch. Nov. 15, 1994) (awarding plaintiff’s fees under Delaware version of UTSA for willful and malicious misappropriation where defendants used plaintiff’s trade secrets despite notice letters); Tower Oil & Tech. Co. v. Buckley, 425 N.E.2d 1060 (Ill. App. Ct. 1981) (punitive damages assessed against new employer that ignored former employer’s notice letter). 288. See Buckley, 425 N.E.2d 1060 (rejecting laches defense where defendant advised plaintiff he was taking steps to comply with his restrictive covenant in response to plaintiff’s notice letter). 289. See Glenayre Elecs. v. Sandahl, 830 F. Supp. 1149 (C.D. Ill. 1993) (noting plaintiff sent a letter to defendant reminding him of his confidentiality agreement; defendant responded with a letter of his own, stating he possessed no such information and requesting plaintiff to identify the information he possessed). 290. See Anurag Sharma & Idalene F. Kesner, When an Executive Defects, 75 HARV. BUS. R. 18 (1997) (discussing comprehensive planning for company responding to key employee defections to competitors). 291. SEE GREGORY ZUCKERMAN, CS FIRST BOSTON LURES DEFECTING EXECUTIVES BACK FROM BARCLAYS, WALL ST. J., Feb. 22, 2001, at C1 (describing announced departure

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are hard to find, and keeping them from the competition may be worth the risk—but it is a risk, one which some employers prefer to avoid by immediately ushering unhappy employees out the door.292 From a legal standpoint, the most important thing to remember in creating an action plan is that emergency injunction litigation must be given the highest priority. Courts are reluctant enough as it is to restrict employee mobility; they are rarely willing to grant injunctive relief to a former employer that sleeps on its rights. In this context, the passage of a few weeks or months may mean the difference between success and failure when it comes to injunctive relief.293 The former employer should also consider obtaining an evidence preservation order as early as possible,294 if not a site inspection order295 or even an ex parte civil search and seizure order.296 Apart from proceeding as quickly as possible against ex-employees, a former employer has to decide whether to join a new employer in the same action or to sue the new employer in a separate action. The law is unclear in many jurisdictions as to whether the new employer is an indispensable party. If so, this may complicate matters by defeating diversity jurisdiction or by bringing in a deep pocket that is better able and sudden return of forty CS First Boston senior bond executives when CS First Boston topped Barclays Bank’s competing offers). 292. See Gates Rubber Co. v. Bando American, 798 F. Supp. 1499, 1503 n.1 (D. Colo. 1992) (noting employer had policy of asking employees who sought competitive employment to immediately clear out their office). 293. See Cortland Line Co., Inc. v. Vincent, 48 U.S.P.Q. 2d (BNA) 1684 (N.D.N.Y. 1998) (plaintiff’s delay of six months after learning defendant intended to use trade secrets required denial of injunctive relief); Samuel Bingham Co. v. Maron, 651 F. Supp. 102 (N.D. Ill. 1986) (plaintiff’s delay of three months after learning defendant violated his employment non-compete required denial of injunctive relief); Electronic Support Sys., Inc. v. Schattke, 388 N.E.2d 63 (Ill. App. Ct. 1979) (plaintiff’s delay of five months, after sending cease and desist letter concerning defendant’s employment non-compete violation, required denial of injunctive relief); William Lynch Schaller, Some Preliminary Thoughts About Preliminary Injunctions, 85 ILL. B. J. 12 (1997) (noting danger of undue delay in seeking interim injunctive relief). 294. See Mpct Solutions Corp. v. Methe, 1999 WL 495115, at *1 (N.D. Ill. July 2, 1999) (ex parte evidence preservation order granted at outset of case). 295. See Gates Rubber Co. v. Bando Chem. Indus., Ltd., 167 F.R.D. 90 (D. Colo. 1996) (discussing massive site inspection order in employee trade secret misappropriation case); Chemfab Corp. v. Integrated Liner Techs, Inc., 693 N.Y.S. 2d 752 (N.Y. App. Div. 1999) (noting stipulated inspection of both parties’ manufacturing facilities by an independent expert who concluded no trade secrets had been appropriated), 296. See Vector Research, Inc. v. Howard & Howard Attorneys, PC, 76 F.3d 692 (6th Cir. 1996) (attorneys were federal agents for Bivens purposes in executing ex parte search and seizure order in copyright case previously reversed in First Tech. Safety Sys., Inc. v. Depinet, 11 F.3d 641 (6th Cir. 1993)); American Can Co. v. Mansukhani, 742 F.2d 314 (7th Cir. 1984) (reversing ex parte search and seizure order in trade secret case); John Flynn Rooney, Judge to Sit Out 3 Months: Ethics Panel, CHI. DAILY L. BULLETIN, April 2, 2001, at 1 (describing three-month suspension of state trial court judge for improperly granting a preliminary injunction, barring seizure of property, without including required findings of fact).

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to fight the litigation. A separate tortious interference action against the new employer may make sense in some instances from tactical and jurisdictional perspectives.297 For example, attorney fees incurred in successfully prosecuting former employees in one suit may count as damages in a later tortious interference action against the new employer, a calculation that is difficult to make in a single suit against both.298 There is no right answer here. Nonetheless, the ex-employer should not throw caution to the wind. Litigation is expensive and intrusive, and it might even result in inadvertent disclosure of trade secrets or confidential information through the litigation process itself.299 In addition, unsuccessful litigation against one employee may bar the employer from proceeding against other employees, a risk that may counsel in favor of settlement in some cases.300 Moreover, some parts of an action plan—like publicity—may succeed in the marketplace but backfire in the courthouse,

297. Cf. Desnick v. American Broad. Co., 233 F.3d 514, (7th Cir. 2000) (noting employer sued former employee in state court for defamation and obtained a judgment, and then sued ABC television network in federal court for subsequent expose´ involving employee); Revere Transducers, Inc. v. Deere & Co., 595 N.W.2d 751 (Iowa 1999) (former employer sued ex-employees in Connecticut federal court and their customer in Iowa state court). 298. See Phil Crowley Steel Corp. v. Sharon Steel Corp., 702 F.2d 719 (8th Cir. 1983) (attorneys’ fees incurred in underlying breach of contract action were recoverable in subsequent tortious interference action against third party); National Wrecking Co. v. Coleman, 487 N.E.2d 1164 (Ill. App. Ct. 1985) (same holding). 299. See Cacique, Inc. v. Robert Reiser & Co., Inc., 169 F.3d 619 (9th Cir. 1999) (barring discovery directed to non-party’s trade secrets); Hoechst Diafoil Co v. Nan Ya Plastics Corp., 174 F.3d 411 (4th Cir. 1999) (discussing impact of inadvertent trade secret disclosure in public court filing); Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655 (4th Cir. 1993) (noting reluctance of plaintiff’s president to reveal trade secrets during crossexamination by defense counsel at trial); Brown Bag Software v. Symatec Corp., 960 F.2d 1465 (9th Cir. 1992) (discussing risk of inevitable though inadvertent trade secret disclosure by in-house counsel in a protective order setting); Crane Plastics Co. v. LouisianaPacific Corp., 119 F. Supp. 2d 749 (S.D. Ohio 2000) (discussing standard rules governing whether and under what circumstances confidential information may be shared during litigation); Simon Property Group, L.P. v. mySimon, Inc., 194 F.R.D. 639 (S.D. Ind. 2000) (establishing protective order protocol, including appointment of an independent expert serving as an officer of the court, for reviewing employees’ deleted computer files in trademark action); Jerold S. Solovy and Robert Byman, Discovery: An Ounce of Prevention, NAT’L L.J., March 19, 2001, at A12 (general discussion of trade secret disclosure risks posed by litigation); William Lynch Schaller, Protecting Trade Secrets During Litigation: Policies and Procedures, 88 ILL. B. J. 260 (2000) (general discussion of trade secret disclosure risks posed by litigation); Robert J. Jacobson, Protecting Discovery By Copyright, 71 J. PAT. & TRADEMARK OFF. SOC’Y. 483 (1989) (discussing availability of copyright protection to prevent “discovery sharing” when courts refuse to provide sufficient trade secret protective order relief). 300. See Service Sys. Corp. v. Van Bortel, 528 N.E.2d 378 (Ill. App. Ct. 1988) (federal court finding that employer had no protectible interest to justify employee non-compete collaterally estopped employer from pursuing non-compete injunction against another, similarly situated employee).

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as is often the case when a business tries to put a positive spin on employee defections.301 Pursuing criminal charges is a final consideration for the former employer. Many states have criminal statutes governing trade secret theft, and federal criminal trade secret legislation emerged in 1996 with the passage of the Economic Espionage Act.302 Computer crimes and ordinary theft charges are also available, as are many other potential charges like wire fraud, mail fraud, and interstate transportation of stolen property.303 However, criminal proceedings are no panacea; prosecutors usually take their time, and the ex-employer’s trade secrets may be further jeopardized by defense requests for extensive disclosure in the criminal case.304 Criminal proceedings may also result in defendants asserting their Fifth Amendment rights or seeking a stay of civil proceedings pending the outcome of the criminal case.305 Furthermore, 301. See Calvin Klein Trademark Trust v. Wachner, 198 F.R.D. 53 (S.D.N.Y. 2000) (attorney-client privilege did not cover communications between law firm and public relations firm, and work product doctrine did not cover public relations advice to the extent it revealed strategy for dealing with effects of litigation on client’s customers); Charles P. Young v. Leuser, 485 N.E.2d 541 (Ill. App. Ct. 1985) (employer’s publicity campaign, stating that loss of sixteen employees to competitor would not affect employer’s operation, showed lack of irreparable harm in injunction case); Mark Pendergrast, How To Keep a Corporate Secret, WALL ST. J., Feb. 20, 2001, at A22 (describing Kentucky Fried Chicken’s trade secret lawsuit against Cherry Stucker, who found fried chicken recipe that turned out not to be the original Colonel Harland Sanders’ recipe, and attendant negative publicity); Joseph T. Hallinan, Conseco Is Suing Investment Officer After He Resigned, WALL. ST. J., Oct. 16, 2000, at B20 (employer publicly announced departing employee’s replacement, only to see replacement resign as well); Lee Gomes, Oracle Ex-President Criticizes Former Employer, WALL ST. J., Aug. 24, 2000, at B12 (reporting Oracle ex-president Ray Lane’s harsh criticism of Oracle following his abrupt departure); William M. Carley, Ties That Bind: CEO Gets Hard Lesson in How Not to Keep His Top Lieutenants; International Paper’s Chief, Frustrated by Poaching, Pushed Non-Compete Pact, WALL ST. J., Feb. 11, 1998, at A1 (front-page negative publicity over fallout within International Paper and related lawsuit, referenced in footnote 124 supra, over non-competes signed by executive Mark Suwyn and others). 302. See FBI Sting Captures New York Man Who Stole Trade Secrets from MasterCard and Offered Them for Sale to Visa, ⬍http://www.cybercrime.gov/Estrada.htm⬎ (visited April 2, 2001) (federal government press release announcing arrest of Fausto Estrada for allegedly stealing MasterCard secrets, including a business alliance proposal valued in excess of $1 billion); San Francisco Man Arrested on Charges of Trade Secret Theft, ⬍http://cybercrime.gov/morch.htm⬎ (visited Dec. 1, 2000) (federal government press release announcing arrest of Peter Morch, a citizen of Canada and Denmark, for trade secret theft while serving as a software engineer at Cisco Systems in California). 303. See Martin, 228 F.3d 1 (upholding convictions for wire fraud, mail fraud, conspiracy to steal trade secrets and conspiracy to transport stolen property in interstate commerce). 304. See United States v. Hsu, 155 F.3d 189 (3d Cir. 1998) (remanding defense request for trade secret information in Economic Espionage Act case), on remand, 185 F.R.D. 192 (E.D. Pa. 1999) (extensive discussion of how to review and redact trade secret documents); Frances A. McMorris, Corporate-Spy Case Rebounds on Bristol, WALL ST. J., Feb 2, 1998, at B7 (because Bristol-Myers Squibb’s real trade secrets were used as bait in FBI sting operation, district court ordered prosecutors to turn over to defendants and their lawyers the very documents the defendants were accused of stealing). 305. See United States v. Kordel, 397 U.S. 1 (1970) (Fifth Amendment privilege is waived when party fails to invoke it in civil proceedings); LaSalle Bank Lake View v.

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unsuccessful criminal charges may result in malicious prosecution charges by defendants.306 B. New Employer’s Considerations Not surprisingly, the new employer’s planning is the mirror image of the old employer’s planning. It goes without saying that the new employer should immediately exercise control over contested employees to prevent them from making admissions or threats307 and to prevent them from destroying evidence.308 It also goes without saying that a new employer should demand a copy of any contractual restrictions before hiring an employee. In addition, the new employer should secure representations and warranties that the employee will comply with all preexisting obligations owed to former employers. If contractual restrictions are broad and binding, the new employer should consider contacting the old employer to negotiate carve outs. If contractual restrictions are limited to nondisclosure or trailer clause obligations, the new employer should consider clean-room procedures so that the new employer can prove that no trade secrets were stolen, no restricted customers were contacted, inventions were developed solely at the new firm, and the like.309 Proving a negative is always difficult, yet it is an Seguban, 54 F.3d 387 (7th Cir. 1995) (noting availability of stay of civil proceedings pending criminal proceedings); Trustees of Plumbers and Pipefitters v. Transworld Mech., Inc., 886 F. Supp. 1134 (S.D.N.Y. 1995) (staying civil case pending criminal case alleging same wrongful conduct); Joseph N. Hosteny and Ronald C. Kamp, Corporate Espionage: Protecting Trade Secrets, ACCA DOCKET, Vol. 17, No. 1, at 18 (Jan./Feb. 1999) (noting risk of civil case being stayed when parallel criminal litigation is ongoing). 306. See Swick v. Liautaud, 662 N.E.2d 1238 (Ill. 1996) (malicious prosecution claim following dismissal of theft charges against ex-employee). 307. See Hamer Holding Group v. Elmore, 560 N.E.2d 907 (Ill. App. Ct. 1990) (employee threatened to advise clients of employer wrongdoing and told employer he was “prepared to go down in flames and take everyone else with him”). 308. See Ill. Tool Works, Inc. v. Metro Mark Prods., Ltd., 43 F. Supp. 2d 951 (N.D. Ill. 1999) (granting sanctions request for violation of computer evidence preservation order in trade secret misappropriation case); Lexis-Nexis v. Beer, 41 F. Supp. 2d 950 (D. Minn. 1999) (discussing computer evidence preservation order violation by ex-employee); Mpct Solutions Corp., 1999 WL 495115, at *1 (granting preliminary injunction as sanction for ex-employee’s violation of computer evidence preservation order); Gates Rubber, 167 F.R.D. 90 (employee evidence destruction resulted in years of satellite litigation and millions of dollars in fees). 309. See Sega Enters. Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1993) (describing “clean room” procedures with respect to software disassembly, where programmers are provided only with the functional specifications for the desired program); DSC Communications Corp. v. DGI Techs., Inc., 898 F. Supp. 1183 (N.D. Tex. 1995) (describing software “clean room” procedure involving two teams of developers, with one team disassembling the code and functional aspects, and the other using descriptions of functional aspects of the code to write a competing product’s code); Agrimerica v. Mathes, 557 N.E.2d 357 (Ill. App. Ct. 1990) (finding tortious interference against new employer based, in part, upon new employer’s failure to direct new employee not to call ex-employer’s customers covered by non-solicitation covenant); G. Gervaise Davis, III, Scope of Protection of Computer-Based Works: Reverse Engineering, Clean Rooms and Decompilation, 370 PLI/PAT 115, 151 (1993) (emphasizing use of a lawyer as a filter between those doing disassembly and those writing a new program, including the lawyer’s role in documenting “clean room” procedures for later use as evidence).

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important defense to employee wrongful competition claims, especially trade secret inevitable disclosure charges.310 “Superficial and inadequate” steps will not suffice, as the Second Circuit emphasized in Autodesk.311 Another consideration is hiring counsel or, more precisely, separate counsel for defendants. Presenting a unified front in court through a single attorney is preferable but not always possible or practical. Separate counsel may be required if actual or potential conflicts exist between the employee and the new employer. This costly step may be necessary if the new employer suspects the employee has pilfered secrets, for instance, or it may be necessary if the new employer wants to keep open its option to terminate the employee as part of a settlement with the ex-employer.312 Separate counsel may also be necessary to negotiate an indemnity/defense agreement between the new employer and the employee, unless such an agreement is already in place. Adding to the uncertainty is the fact that in some jurisdictions a new employer’s offer to pay indemnity or defense is itself suspect if not a form of tortious interference.313 To be sure, separate counsel should be retained if the employer thinks criminal charges may be lurking under state or federal laws;314 separate deals may need to be made with pros-

310. See Computer Assoc. Int’l v. Altai, 982 F.2d 693 (2d Cir. 1992) (new employer’s failure to monitor new employee’s software development activities supported inference of constructive notice of employee’s misappropriation of former employer’s trade secrets); Union Carbide Corp v. UGI Corp., 731 F.2d 1186 (5th Cir. 1984) (inevitable disclosures of trade secrets established in part by new employer’s failure to take precautions to keep targeted ex-employee from attending key meetings concerning his ex-employer). 311. Vermont Microsystems, Inc. v. Autodesk, Inc., 88 F.3d 142, 145 (2d Cir. 1996) (quoting district court’s criticism of new employer’s response to trade secret misappropriation notices from competitor). 312. See Vencor, Inc. v. Webb, 33 F.3d 840 (7th Cir. 1994) (noting new employer terminated employee after former employer initiated non-compete litigation, but holding that termination did not moot litigation). 313. See National Bus. Servs., Inc. v. Wright, 2 F. Supp. 2d 701 (E.D. Pa. 1998) (new employer’s indemnification of employee minimized employee’s loss and thus was a factor in favor of enforcing non-compete); Curtis 1000, Inc. v. Pierce, 905 F. Supp. 898 (D. Kan. 1995) (indemnification promise supported tortious interference claim concerning employee non-compete); Texlon v. Hoffman, 720 F. Supp. 657 (N.D. Ill. 1989) (new employer’s indemnification of employee minimized employee’s potential loss and thus was a factor in favor of ex-employer’s injunctive relief request); Ecolab, Inc. v. K.P. Laundry Mach., Inc., 656 F. Supp. 894 (S.D.N.Y. 1987) (new employer’s indemnification agreement and large salaries were used to encourage employees to violate their non-compete duties to ex-employer); In re Jotan, Inc., 229 B.R. 218 (M.D. Fla. 1998) (new employer’s indemnity agreement influenced court’s decision to enjoin new employer from raiding bankrupt competitor’s key employees); Saforo & Assoc., Inc. v. Porocel Corp., 991 S.W.2d 117 (Ark. 1999) (presence of indemnity agreement supported finding that trade secret misappropriation was willful); Melo-Tone Vending, Inc. v. Sherry, Inc., 656 N.E.2d 312 (Mass. App. Ct. 1995) (indemnification agreement supported tortious interference charge against competing firm). 314. See Steven Kowal, When Government Agents Take Aim: How to Handle an “Ambush,” 30 BRIEF 8 (Winter 2001) (noting that corporate attorneys should consider whether executives’ constitutional rights may be at risk during criminal investigation interviews by government agents).

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ecutors depending on who turns out to be the target defendant and who turns out to be the flipper.315 The new employer and the challenged employees should also consider filing a declaratory judgment action in a friendly forum, like California, if possible. Notice letters can create a sufficient threat to justify a preemptive strike, and parallel actions may result in a favorable venue.316 International Business Machines v. Bajorek317 and Application Group, Inc. v. Hunter Group, Inc.318 plainly illustrate this strategy, albeit with mixed results. Mirror-image declaratory judgment actions are not favored,319 and federal district courts have discretion to dismiss them,320 but trial courts frequently invoke the first-filed rule even if in error.321 Hence, a race to the courthouse should be considered in the absence of a contractual forum-selection clause.322 In addition, a preemptive declaratory judgment may make sense to deflect inevitable disclosure charges.323 The defense may also be able to force the exemployer to litigate in multiple proceedings if personal or subject matter jurisdiction is lacking.324 315. See Martin, 228 F.3d 1 (upholding Economic Espionage Act conviction where an indicted employee testified for the government that she passed company secrets to an outsider). 316. See EMC Corp. v. Norand Corp., 89 F.3d 807 (Fed. Cir. 1996) (patentee’s threat to pursue legal recourse if it was not satisfied with the outcome of licensing negotiations created a reasonable apprehension of litigation that justified anticipatory declaratory judgment action); Phillips Plastics Corp. v. Kato Hatsujou Kabushiki Kaisha, 57 F.3d 1051 (Fed. Cir. 1995) (defendant carefully refrained from threatening patent infringement suit in attempting to open license negotiations, and thus no controversy existed to justify anticipatory declaratory judgment action); Millennium Products, Inc. v. Gravity Boarding Co., Inc., 127 F. Supp. 2d 974 (N.D. Ill. 2000) (trademark holder’s threat to initiate litigation within seven days if a license could not be agreed upon justified anticipatory declaratory judgment action); Application Group, Inc. v. Hunter Group, Inc., 72 Cal. Rptr. 2d 73 (Cal. Ct. App. 1998) (declaratory judgment action based in part on noncompete notice letters); Arthur Young & Co. v. Bremer, 554 N.E.2d 671 (Ill. App. Ct. 1990) (dismissing Illinois restrictive covenant enforcement action in favor of California declaratory judgment action filed by twelve ex-employees who joined rival). 317. 191 F.3d 1033 (9th Cir. 1999). 318. 72 Cal. Rptr. 2d 73. 319. See Tempco Elec. Heater Corp. v. Omega Eng’g, Inc., 819 F.2d 746 (7th Cir. 1987). 320. See Wilton v. Seven Falls Co., 515 U.S. 277 (1995). 321. See Stewart Title Guar. Co. v. Cadle Co., 74 F.3d 835 (7th Cir. 1996) (reversing district court’s summary dismissal of case pursuant to first-filed rule). 322. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) (enforcing forum selection clause calling for litigation in Florida); M/S Bremen v. Zapata Offshore Oil Co., 407 U.S. 1 (1972) (enforcing forum selection clause calling for litigation in a foreign forum); Design Strategy Corp. v. Nghiem, 14 F. Supp. 2d 298 (S.D.N.Y. 1998) (upholding New York forum selection clause, but then enforcing arbitration clause in computer consultant’s employment contract in action brought by former employer against Toronto computer consultant/employee). 323. See Robert Manor, Court Asked to OK New OMC Chief, CHIC. SUN-TIMES, Sept. 27, 1997, at 30 (describing preemptive declaratory judgment action brought by David Jones, a 20-year employee who was fired as president of a Brunswick division and then offered CEO position at rival Outboard Marine six weeks later). 324. See Cleveland Hair Clinic, Inc. v. Puig, 200 F.3d 1063 (7th Cir. 2000) (affirming sanctions award arising out of forum shopping between state and federal courts); Gold-

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The new employer should also examine its insurance coverage and promptly notify its carriers when sued. Business tort claims may be covered under defamation or advertising injury clauses.325 An insurer’s duty to defend is typically fairly broad; all claims may be covered for defense purposes if just one is.326 Employee unfair-competition claims can be quite expensive to defend, and shifting the defense burden can bring welcome financial relief, though choice of counsel may present issues. If the new employer plans to counterclaim against the former employer—say for abuse of process, sham litigation, or monopolization327 —a deal may need to be struck with the insurer to allocate fees and costs between defense and counterclaim expenses. C. New Employee’s Considerations Employees caught between warring employers may have their own agendas, though for the most part they overlap with the new employer’s position. Ex-employees may find it wise to settle on their own, as the employees did for $60,000 in Revere Transducers, Inc. v. Deere & Co.,328 thereby avoiding the $1,000,000 hit later taken by third-party-interfering Deere. Employees faced with significant exposure may also wish to pursue personal bankruptcy to escape contractual liabilities, though non-compete injunctions and other non-contractual liabilities may not go away.329 Alternatively, they may need asset-protection

man Marcus, Inc. v. Goldman, No. 99 CIV. 11130, 2000 WL 297169, at *1 (S.D.N.Y. March 21, 2000) (court had subject matter jurisdiction over software copyright and trade secret claims, but supplemental jurisdiction did not cover common law mismanagement and fraud claims arising out of the same business breakup that triggered the software and trade secret claims); CIC Corp., Inc. v. AIM Tech Corp., 32 F. Supp. 2d 425 (S.D. Tex. 1998) (pre-departure fiduciary duty claims and post-departure Lanham Act claims against ex-employee did not arise out of common nucleus of operative facts; federal court therefore lacked subject matter jurisdiction over pre-departure claims). 325. See Crum & Forster Corp. v. Resolution Trust Co., 620 N.E.2d 1073 (Ill. 1993) (ex-employer’s business tort claims, for unfair competition in connection with its agents establishing their own business, were not covered by agent’s professional liability insurance policy); Winklevoss Consultants, Inc. v. Fed. Ins. Co., 991 F. Supp. 1024 (N.D. Ill. 1998) (insured software developer’s advertising injury policy did not cover trade secret misappropriation); Merchants Co. v. American Motors Ins. Co., 794 F. Supp. 611 (S.D. Miss. 1992) (insurer had duty to defend trade secret claim); McDonald’s Corp. v. American Motorists Ins. Co., 2001 WL 488824 (Ill. App. Ct. May 2, 2001); Blanketing Intellectual Risk, CFO MAGAZINE, at 16 (May 2000) (describing AON Corp.’s new “risk-transfer service” that offers blanket protection of intellectual property assets). 326. See David A. Gauntlett, Insurance Coverage of Intellectual Property Assets, §§ 6.01–6.03 (exhaustive discussion insurer’s duty to defend). 327. See WorldCom, Inc. v. Transcend Allegiance, Inc., 1998 Dist. LEXIS 2693 (N.D. Ill. March 4, 1998) (dismissing monopolization, sham litigation, and unfair competition counterclaims arising out of lawsuit to enforce employee non-competes). 328. 595 N.W.2d 751 (Iowa 1991). 329. See In re Udell, 18 F.3d 403 (7th Cir. 1993) (permitting injunctive relief to enforce bankrupt employee’s non compete); In re Frain, 230 F.3d 1014 (7th Cir. 2000) (interpreting § 523(a)(4) of the Bankruptcy Code as precluding debtor discharge only for traditional fiduciary duties recognized in advance of a breach); In re Brown, 237 B.R. 740

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advice,330 as exemplified by the employee who lost a fiduciary duty competition claim in E.J. McKernan Co. v. Gregory331 but then protected his house from attachment in subsequent proceedings.332 Apart from protecting their own interests in negotiating indemnity and criminal matters, employees may also have wrongful discharge, discrimination, or other claims against their former employers that new employers may not be interested in funding. The reverse may also be true: Employees may have claims against new employers for fraudulent hiring or breach of contract. Of course, an employee may really own inventions or software, making arm’s-length negotiations between the employee and new employer imperative. A final practical consideration is voluntary arbitration. At times, pre-dispute arbitration clauses can be beneficial.333 At other times, predispute arbitration clauses, which were inserted in the employee’s contract during a friendlier time, may later prove troublesome. Although the Supreme Court recently held in Circuit City Stores, Inc. v. Adams334 that most employment claims can be arbitrated under the Federal Arbitration Act, excessive procedural costs may void arbitration of employment claims in some situations.335 A question may also arise as to whether courts or arbitrators are empowered to issue injunctive relief.336 (C.D. Cal. 1999) (state court judgment finding ex-employee guilty of “evil motive” in intentional trade secret theft case constituted non-dischargeable debt under § 523(a)(4) of the Bankruptcy Code). 330. See United States v. Lee, 232 F.3d 556 (7th Cir. 2000) (holding that wife could assert innocent owner defense to government’s forfeiture action with respect to Florida home wife and convicted husband held in tenancy by the entirety). 331. 623 N.E.2d 981 (Ill. App. Ct. 1993). But see Premier Property Management, Inc. v. Chavez, 728 N.E.2d 476 (Ill. 2000) (discussing current status of Illinois law governing tenancies by the entirety and fraudulent transfers and noting that Gregory has been superceded by statute). 332. See id. (Illinois home held in tenancy by the entirety could not be attached to satisfy judgment against employee/home owner). 333. See Peoples Security Life Ins. Co. v. Monumental Life Ins. Co., 991 F.2d 141 (4th Cir. 1993) (arbitral award of $9,700,000 upheld in employee raiding/trade secret case). 334. 2001 WL 273205, at *1 (U.S. Mar. 21, 2001). 335. See Green Tree Financial Corp. v. Randolph, 121 S. Ct. 513 (2000) (noting the possibility that significant arbitration costs could preclude a litigant from vindicating federal statutory rights); McCoy v. Superior Court, 104 Cal. Rptr. 2d 504 (Cal. Ct. App. 2001) (law firm could not enforce arbitration agreement against former file clerk, since file clerk was required to pay half of arbitration costs, which could require $400 per hour and a deposit of $8,000). 336. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lauer, 49 F.3d 323 (7th Cir. 1995) (a district court may compel arbitration only if arbitration, as agreed by the parties, is to be held in the judicial district where the court is located); QAI, Inc. v. Sprint Communications Co., 120 F. Supp. 2d 1218 (C.D.Cal. 2000) (when an arbitration agreement designates the site for arbitration, the proper venue for an application seeking injunctive relief pending arbitration is the district where arbitration will take place); Vascular and Gen. Surgical Assoc. v. Loiterman, 599 N.E.2d 1246 (Ill. App. Ct. 1992) (because American Arbitration Association rules authorized arbitrators to provide equitable relief, and be-

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In addition, even when arbitrators are authorized to issue injunctive relief, the arbitration provision may fail to provide for judicial injunctions pending arbitration, leaving the employer at risk until an arbitration panel can be convened.337 Even if the arbitration clause addresses this contingency, it may still be problematic to the extent that the employer is entitled to seek judicial relief while the employee is not.338 Furthermore, discovery is not a given unless the arbitration clause provides for it, 339 yet extensive discovery is often critical when an employee’s misconduct has been carefully concealed. Finally and especially important, a pre-dispute arbitration provision with the employee may not require the new employer to arbitrate, leaving the old employer to fight on two fronts.340 Thus, a post-dispute arbitration clause, voluntarily negotiated among all three parties (the former employer, the new employer, and the employee) with appropriate discovery and injunctive relief language, is the optimal approach, but good luck getting it: The parties will likely not be on friendly terms. The complexity of these considerations and the uncertain outcomes they can produce can be seen in the bitter battle between Capsonic Group and Andrew Swick, a former employee, in the related decisions in Capsonic Group v. Swick341 and Swick v. Liautaud.342 Capsonic de-

cause parties incorporated AAA rules in non-compete provision, arbitrator properly enforced two-year covenant running from the day of relief). 337. Compare Merrill Lynch, Pierce, Fenner & Smith v. Salvano, 999 F.2d 211 (7th Cir. 1993) (allowing pre-arbitration injunction to maintain the status quo); SG Cowen Secs. Corp. v. Messih, 224 F.3d 79 (2d Cir. 2000) (injunctive relief is permitted to maintain the status quo, if the movant satisfied traditional preliminary injunction criteria); American Express Fin. Advisors, Inc. v. Scott, 955 F. Supp. 688 (N.D. Tex. 1996) (following Salvano) with Merrill Lynch, Pierce, Fenner & Smith v. Hovey, 726 F.2d 1286 (8th Cir. 1984) (holding that pre-arbitration preliminary injunction is not available as a matter of law). 338. See Armendariz v. Foundation Health Psychcare Servs., Inc., 6 P.3d 669 (2000) (agreement giving employer, but not employee, choice to pursue arbitration was void); Stirlen v. SuperCuts, Inc., 60 Cal. Rptr. 2d 138 (1997) (agreement allowing employer to seek judicial relief to protect intellectual property and to enforce high-level executive’s non-compete, while giving executive no right to avoid arbitration, was void); Robert Half Int’l, Inc. v. Thompson, 1999 WL 138849, at *1 (N.D. Ill. March 5, 1999) (discussing tension between arbitration clause and judicial injunction clause in employee noncompete agreement). 339. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) (limited discovery is a component of the simplicity, informality and expedition of arbitration); Sean T. Carnathan, Discovery in Arbitration? Well, It Depends, 10 BUS. L. TODAY 22 (March/April 2001) (collecting cases for and against discovery in arbitration). 340. Cf. Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th Cir. 2000) (plaintiff brought arbitration claim against defendant contract party and state court tortious interference claim against non-contract parties; non-contract parties successfully compelled plaintiff to sue them in a single arbitration with defendant contract party, requiring dismissal of court action against non-contract parties). 341. 537 N.E.2d 1378 (Ill. App. Ct. 1989). 342. 662 N.E.2d 1238 (Ill. 1996).

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signed automation systems to manufacture insert molding, a then relatively new process by which metal inserts were molded into plastic bodies to create one solid piece—a process Capsonic had sought to protect in prior litigation against other former employees in Capsonic Group v. Plas-Met Corp.343 Swick signed a two-year non-compete when he joined Capsonic in 1985 as a maintenance engineer, and Swick rose through the ranks to become manager of Capsonic’s automation department in 1987. Swick had substantial responsibilities for designing automated production systems and had substantial contact with customers. A headhunter approached Swick in 1988 on behalf of Altair, a Capsonic competitor, and Swick accepted in October 1988. Instead of immediately resigning, Swick engaged in egregious espionage, photographing Capsonic machinery and keeping possession of Capsonic parts, designs, and documents outside of Capsonic’s offices. Capsonic learned of Swick’s activities, and Swick returned the photographs on November 9, 1988, but kept a second set for himself. During several meetings with his Capsonic supervisors, Swick falsely denied having accepted another position. On November 10, at the request of Capsonic, the local police obtained a warrant and searched Swick’s home. The police found blueprints, drawings, and parts relating to Capsonic’s machinery and materials. The police were unable to recover all of the documents, the remainder of which Swick would later destroy. The state’s attorney charged Swick with theft of property several days later, and Capsonic initiated civil litigation on November 14. The trial court granted a temporary restraining order on November 15, barring Swick from working for Altair or from revealing Capsonic business information. Following a four-day evidentiary hearing, the trial court on December 14 denied a preliminary injunction and dissolved the temporary restraining order, and the Illinois Appellate Court subsequently affirmed this ruling. In the meantime, the state’s attorney decided not to prosecute Swick and nol-prossed the charges, which was a type of voluntary dismissal that would allow the state’s attorney to reopen the case at a later time but did not, in and of itself, signify a finding of guilt or innocence by the state’s attorney. Non-action by the state’s attorney opened the door to malicious prosecution and other charges by Swick against Capsonic and its officers; Swick filed the litigation on January 23, 1989, a few weeks after he had joined Altair. Swick did not deny the misconduct outlined above but instead sought to excuse it through a series of non-sequiturs, including the following: (1) after the police had searched Swick’s home, he finally admitted to Capsonic he had accepted another job; (2) Cap343. 361 N.E.2d 41 (Ill. App. Ct. 1977) (profit sharing forfeiture-for-competition clause could not be used to support injunctive relief).

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sonic’s officers then threatened Swick that he would never work in the industry again, that he would not be able to get a job, and that Swick’s name would be in the press; (3) Capsonic retaliated against him for taking another job by having the state’s attorney pursue theft charges; and (4) Capsonic made him sign a confession stating he had taken the photographs without authorization, knowing the equipment he had been photocopying represented trade secrets and intellectual property. Swick also defended his actions with additional non-sequiturs by claiming that (1) he had told several Capsonic co-workers—but obviously not Capsonic’s officers—that he had accepted Altair’s employment offer; (2) there was no company rule prohibiting taking pictures; (3) other employees routinely took home drawings and other documents; and (4) there was no company procedure to keep track of who had which documents. In other words, Swick argued that his preposterous lack of common sense justified his overwhelming misconduct, and it worked: The jury awarded Swick $5,000 in compensatory damages as well as $250,000 in punitive damages against Capsonic and $400,000 in punitive damages against one of Capsonic’s officers. The Illinois Supreme Court affirmed in part and reversed in part. The court found that Swick had failed to prove malicious prosecution, because he had relied solely on the nol-pros without proving the reasons for it, but remanded the issue for further proof. The court also reversed the trial court’s directed verdicts in favor of the defense on Swick’s false light and defamation charges arising out of newspaper stories concerning the criminal and civil charges Capsonic had brought, holding these were viable claims based upon a written statement Capsonic had given to the press. The court did, however, reject Swick’s tortious interference with contract and tortious interference with lawful competition claims on the ground that Swick had started work with Altair on the agreed date at the agreed salary. Finally, the court rejected Swick’s claim for intentional infliction of emotional distress, which rested on Swick’s alleged fear of Capsonic’s threats because Capsonic had made good on similar threats against others—an apparent reference to Capsonic’s 1977 Plas-met litigation against other employees. The court noted that no evidence suggested Capsonic had referenced this unrelated litigation in making its threats against Swick. As the Swick case shows, jumping-ship claims and counterclaims can lead to protracted proceedings with unpredictable results. Former employers, new employers, and employees caught between can drown in oceans of criminal and civil proceedings ending in ruined reputations and huge damage awards. Even with careful planning, events can spiral out of control, leaving everyone worse for the wear. Such disasters are almost guaranteed when emotions run high and crucial actions are taken quickly, as in Swick. Still, quick action is imperative, placing all concerned on the horns of a dilemma in these cases. Copyright 2001 American Bar Association

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V. Conclusion Even though the novelty of high tech firms has warn off for many investors,344 there is no denying that the unique nature of high tech business networks encourages employees to routinely jump ship. Just because high tech work is new and novel, it does not follow that the law provides some kind of high tech safe harbor; indeed, quite the opposite can be true, as exemplified by the recent Napster, MP3.com, and Reimerdes decisions.345 The most that can be said for high tech employees is that in some instances the rapid evolution and obsolescence of information and technology provides an opening to defend on the ground that the material in question has lost its competitive value and hence deserves little or no legal protection. This is often a difficult and expensive defense to mount, and it is unlikely to prevail if the circumstances otherwise show wrongdoing on an employee’s part. Courts have properly emphasized that employees are humans who need to earn a living, but corporate employers have rights, too. After all, as Judge Posner once reminded in another context, “[a] corporation is not a thing; it is a network of human beings.”346 It is precisely because fundamental but competing interests are at stake that these cases are difficult to assess and even more difficult to resolve. Thus, employers and employees in high tech industries must pay careful attention to well settled employee unfair competition principles because they apply with full force in this setting. To ignore or overlook these rules can be a catastrophic error.

344. See Scott Thurm, Multiple Exposure: The Broader Slowdown Isn’t the Only Cause of Tech Industry’s Ills: After Decade as Avid Buyers, Big Customers Now Face Less Pressure to Upgrade, WALL ST. J., March 21, 2001 (arguing that high tech stock market collapse is due to fundamental market conditions and not just the bursting of the high tech bubble); Greg Ip, Silver Lining: Amid Devastation, Many Still See Gains In Burst Tech Bubble, WALL ST. J., March 20, 2001, at A1 (commenting that billions of dollars have been lost as a result of high tech stock market collapse); E.S. Browning & Greg Ip, Reality Check: Here Are Six Myths that Drove the Boom in Technology Stocks, WALL. ST. J., Oct. 16, 2000, at A1 (arguing high tech companies are subject to same market forces as other firms). 345. See A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001) (affirming preliminary injunction against Napster prohibiting copyright infringement relating to MusicShare program allowing users to locate digital copies of sound recordings on the Internet); UMG Recordings Inc. v. MP3.com Inc., 56 U.S.P.Q.2d (BNA) 1376 (S.D.N.Y. 2000) (awarding approximately $118 million for willful copyright infringement for copying and distribution of music files); Universal City Studios Inc. v. Reimerdes, 111 F. Supp. 2d 294 (S.D.N.Y. 2000) (granting permanent injunction against on-line journalist who posted a program designed to decrypt digital versatile disks containing copyrighted movies). 346. Louis Vuitton, 875 F.2d at 590.

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How the Americans with Disabilities Act’s Prohibition on Pre-Employment-Offer DisabilityRelated Questions Violates the First Amendment Tung Yin* I. Introduction In October 1992, John Otero applied for a job in the nighttime receiving department of a Wal-Mart store in Las Cruces, New Mexico. Otero had lost his right arm below the elbow, but this was not immediately apparent.1 During Otero’s interview, he was asked, “ ‘What current or past medical problems might limit your ability to do a job?’ ”2 When Otero replied that he was missing part of his arm, the interviewer asked him “how he lost his arm, how much of his arm he had left, and [whether] he was able to still use his arm.”3 Wal-Mart subsequently declined to hire Otero, ostensibly on the ground that he had been “rude” during his interview.4 Otero responded with a suit under the Americans with Disabilities Act (ADA),5 alleging discrimination on the ground that he was disabled.6 The jury agreed with Otero and awarded him $7,500 in compensatory damages and $50,000 in punitive damages for unlawful discrimination. Additionally, the jury awarded to Otero $100,000 in punitive damages in compensation for the questions Wal-Mart asked during the interview; the mere asking of the questions violated section 12112(d)(2) of the ADA.7 In its post-trial motions, Wal-Mart argued that punitive damages were not warranted for the asking of the questions because the inter* Tung Yin is an associate at Munger, Tolles & Olson LLP in Los Angeles, California. He received a J.D. in 1995 from the University of California at Berkeley. He thanks Joe Lee and Eugene Volokh for their helpful comments on earlier drafts; any errors or omissions are his, and the views expressed in this article should not be imputed to anyone else. 1. See EEOC v. Wal-Mart Stores, Inc., 11 F. Supp. 2d 1313, 1317, 1328 (D.N.M. 1998); see also Scott Sandlin, Wal-Mart Loses Disability Lawsuit, ALBUQUERQUE J., Feb. 25, 1997, at C3. 2. Wal-Mart Stores, 11 F. Supp. 2d at 1317. 3. Id. at 1320–21. 4. Id. at 1321. 5. 42 U.S.C. § 12101 et seq. (1994). 6. Wal-Mart Stores, 11 F. Supp. 2d at 1317. 7. See 42 U.S.C. § 12112(d)(2) (1994); 29 C.F.R. §§ 1630.13(a), 1630.14(a), (b) (2000).

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viewers were not its agents, that there had been no evidence of injury to support an award of exemplary damages, that the amount of punitive damages was excessive, and that there had been no evidence of actual damages.8 The district court considered and rejected each of these arguments. As to the last argument—that Otero had failed to prove damages resulting from the asking of the prohibited questions—the court held, “Since the asking of an unlawful inquiry would rarely result in serious damage to an interviewee, a requirement of compensatory damage as a prerequisite to awarding punitive damages would render meaningless the ADA’s prohibition against pre-employment medical inquiries.”9 What Wal-Mart did not argue, however, was that section 12112(d)(2) was an invalid infringement of its First Amendment rights.10 This omission was odd, considering that Wal-Mart was penalized twice as much for asking the disability-related question as it was in punitive damages for the act of discrimination. Could the First Amendment have saved Wal-Mart $100,000? Certainly, the district court would have had to explain how speech that “rarely result[s] in serious damage” could have been restricted under the First Amendment.11 Curiously, while scholars have endlessly debated whether Title VII’s prohibition on sexually harassing speech violates the First Amendment,12 remarkably little has been said about the ADA’s pro-

8. Wal-Mart Stores, 11 F. Supp. 2d at 1324, 1326. 9. Id. at 1326; see also Cossette v. Minn. Power & Light, 188 F.3d 964, 969 (8th Cir. 1999); Fredenburg v. Contra Costa County Dep’t of Health Servs., 172 F.3d 1176, 1182 (9th Cir. 1999) (“[P]laintiffs need not prove that they are qualified individuals with a disability in order to bring claims challenging the scope of medical examinations under the ADA.”); Griffin v. Steeltek, Inc., 160 F.3d 591, 595 (10th Cir. 1998) (holding that the “applicant need not make a showing that he or she is disabled or perceived as having a disability” to prevail). But see Armstrong v. Turner Indus., Inc., 141 F.3d 554, 558 (5th Cir. 1998) (finding that “in the context of this case, Armstrong has not demonstrated any injury redressable by damages, and he lacks standing to seek declaratory and injunctive relief” under 42 U.S.C. § 12112(d)(2)). 10. Employers almost never seem to raise such free speech defenses in employment harassment cases, and this case was no exception. See, e.g., Eugene Volokh, Freedom of Speech and Appellate Review in Workplace Harassment Cases, 90 NW. U. L. REV. 1009, 1029 & n.85 (1996). 11. Wal-Mart Stores, 11 F. Supp. 2d at 1326. 12. See, e.g., WALTER K. OLSON, THE EXCUSE FACTORY: HOW EMPLOYMENT LAW IS PARALYZING THE AMERICAN WORKPLACE 250–51, 259 (1996); Kingsley R. Browne, Title VII as Censorship: Hostile-Environment Harassment and the First Amendment, 52 OHIO ST. L.J. 481 (1991); Jules B. Gerard, The First Amendment in a Hostile Environment: A Primer on Free Speech and Sexual Harassment, 68 NOTRE DAME L. REV. 1003 (1993); Suzanne Sangree, Title VII Prohibitions Against Hostile Environment Sexual Harassment and the First Amendment: No Collision in Sight, 47 RUTGERS L. REV. 461 (1995); Marcy Strauss, Sexist Speech in the Workplace, 25 HARV. C.R.-C.L. L. REV. 1 (1990); Nadine Strossen, Regulating Workplace Sexual Harassment and Upholding the First Amendment-Avoiding a Collision, 37 VILL. L. REV. 757 (1992); Eugene Volokh, Thinking Ahead About Freedom of Speech and Hostile Work Environment Harassment, 17 BERKELEY J. EMP. & LAB. L. 305 (1996); Eugene Volokh, How Harassment Law Restricts

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hibition on the asking of disability-related questions.13 This is all the more strange when one considers the volume of writing devoted to attacking the ADA.14 This article suggests that, while the issue is by no means certain, there is a real likelihood that section 12112(d)(2) violates the First Amendment. Section 12112(d)(2) restricts a certain class of speech by employers—disability-related questions during interviews—and punishes employers who violate the restriction without regard to whether the employer actually discriminated against the applicant. To analyze the nature of the conflict, it is necessary to consider a number of subissues: (1) What type of speech is a disability-related question in the context of a job interview? (2) Depending on the type of speech, what level of protection does the First Amendment accord? (3) What are the interests behind the ADA? (4) Do these interests justify the ADA’s restriction on free speech? (5) Does the prohibition on disability-related questions fall within an exception to the First Amendment? This article proposes a new approach that should further the ADA’s goal of reducing or eliminating discrimination against the disabled while at the same time expressing more deference to First Amendment principles. An employer should not be prohibited from asking any disability-related questions; however, an employer’s asking of disability-related questions is admissible as evidence that the employer may have discriminated against the plaintiff.

Free Speech, 47 RUTGERS L. REV. 563 (1995); Amy Horton, Comment, Of Supervision, Centerfolds and Censorship: Sexual Harassment, The First Amendment, and the Contours of Title VII, 46 U. MIAMI L. REV. 403 (1991); Jessica M. Karner, Comment, Political Speech, Sexual Harassment, and a Captive Workforce, 83 CALIF. L. REV. 637 (1995); Eugene Volokh, Comment, Freedom of Speech and Workplace Harassment, 39 UCLA L. REV. 1791 (1992) [hereinafter Volokh, Workplace Harassment]. 13. One recent student comment was published in 1999, but it did not analyze the First Amendment implications of Section 12112(d)(2). See Natalie R. Azinger, Comment, Too Healthy to Sue Under the ADA? The Controversy Over Pre-Offer Medical Inquiries and Tests, 25 J. CORP. L. 193 (1999). 14. RICHARD A. EPSTEIN, FORBIDDEN GROUNDS: THE CASE AGAINST EMPLOYMENT DISCRIMINATION LAWS 492–93 (1992) (arguing that the ADA benefits some disabled workers at the expense of others); PHILIP K. HOWARD, THE DEATH OF COMMON SENSE: HOW LAW IS SUFFOCATING AMERICA 144 (1994) (criticizing the ADA for giving disabled persons a potential claim to sit in the emergency exit row of airplanes); OLSON, supra note 12, at 87 (“Far from being any rational step toward integrating this group into the productive economy, ADA was a venture into freelance social reconstruction inspired by the kind of overwrought identity politics that ran wild in the 1970s and 1980s.”); Steven B. Epstein, In Search of a Bright Line: Determining When an Employer’s Financial Hardship Becomes “Undue” Under the Americans with Disabilities Act, 48 VAND. L. REV. 391, 397 (1995); Sue A. Krenek, Beyond Reasonable Accommodation, 72 TEX. L. REV. 1969, 1971–73 (1994); Christopher J. Willis, Title I of the Americans with Disabilities Act: Disabling the Disabled, 25 CUMB. L. REV. 715 (1994–1995); Janelle Carter, Eastwood Blasts “Frivolous” ADA Suits, L.A. DAILY J., May 19, 2000, at 4 (describing actor Clint Eastwood’s efforts to urge Congress to amend the ADA).

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II. Background on Section 12112(d)(2) of the ADA A. Overview of the ADA Enacted in 1990, the ADA is a direct descendant of the Rehabilitation Act of 1973, which prohibits discrimination against a “qualified individual with a disability,”15 including those regarded as disabled, but applies only to federal agencies,16 recipients of federal funds,17 and federal contractors (and subcontractors).18 The Rehabilitation Act also requires certain federal contractors to implement affirmative action programs to benefit the disabled.19 However, the Rehabilitation Act does not reach private employers who do not conduct business with the federal government. Moreover, the act does not provide a private right of action against federal contractors who violate its provisions.20 The ADA was enacted to address these perceived gaps in the protection of the disabled, whom Congress concluded were “a discrete and insular minority who have been faced with restrictions and limitations, subjected to a history of purposeful unequal treatment, and relegated to a position of political powerlessness in our society.”21 The former President Bush lists the enactment of the ADA among his greatest domestic accomplishments.22 Like the Rehabilitation Act, the ADA protects from discrimination all qualified individuals with disabilities. A qualified individual with a disability is a person “with a physical or mental disability who, with or without reasonable accommodation, can perform the essential functions of the position that he or she holds or desires.”23 The ADA defines a disability as a “physical or mental impairment that substantially limits one or more of the major life activities.”24 A reasonable accommodation is defined as (A) making existing facilities used by employees readily accessible to and usable by individuals with disabilities; and (B) job restructuring, part-time or modified work schedules, reassignment to a vacant position, acquisition or modification of equipment or devices, appropriate adjustment or modifications of examinations, 15. 29 U.S.C. § 794 (1994). 16. 29 U.S.C. § 791 (1994). 17. 29 U.S.C. § 793 (1994). 18. 29 U.S.C. § 794. See generally Robert E. Rains, A Pre-History of the Americans with Disabilities Act and Some Initial Thoughts as to Its Constitutional Implications, 11 ST. LOUIS U. PUB. L. REV. 185 (1992). 19. 29 U.S.C. § 793; 41 C.F.R. § 60–741.1 (2000). 20. See Johnston v. Horne, 875 F.2d 1415, 1420–21 (9th Cir. 1989). 21. 42 U.S.C. § 12101(a)(7). 22. See, e.g., OLSON, supra note 12, at 99, 101. 23. RICHARD J. SIMMONS, EMPLOYMENT DISCRIMINATION AND EEO PRACTICE MANUAL § 10.4(c)(1), at 394 (6th ed. 1999). 24. 42 U.S.C. § 12102(2) (1994); 29 C.F.R. § 1630.2(i) (2000).

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training materials or policies, the provision of qualified readers or interpreters, and other similar accommodations for individuals with disabilities.25

Thus, a person who suffers from a physical or mental disability that substantially impairs a major life activity, but who can nevertheless perform the essential functions of the job, cannot be denied the job or promotion that he or she seeks because of the disability. B. The ADA’s Framework for Asking Disability-Related Questions As noted earlier, section 12112(d)(2) of the ADA specifically prohibits employers from asking disability-related questions during interviews.26 The purpose of this prohibition is, as the Equal Employment Opportunity Commission (EEOC) has stated, to “ensure that an applicant’s possible hidden disability (including a prior history of a disability) is not considered before the employer evaluates an applicant’s nonmedical qualifications.”27 Thus, the employment application framework contemplated by the ADA—and implemented by the EEOC—consists of three stages: (1) interview, (2) post-offer, and (3) employment. At the interview stage, the employer may not ask any disabilityrelated questions.28 However, the employer is allowed to ask questions “about an applicant’s ability to perform specific job functions” and “may ask applicants to describe how they would perform job tasks.”29 For example, if a wheelchair-bound person applies for a position as a firefighter, the employer is entitled to ask the applicant to describe how he will perform the job task of rescuing victims from a burning building. If the employer wants to ask disability-related questions, it must make a conditional offer, and it may not single out a particular applicant for such questioning; rather, all applicants given conditional offers must be asked the same questions.30 A conditional job offer is one that is real but contingent on the applicant’s response to disability-related questions or the results of a medical examination.31 To ensure that such an offer is not illusory, the EEOC has mandated that the employer must have “evaluated all relevant non-medical information which it reasonably could have obtained and analyzed prior to giving the offer.”32 25. 42 U.S.C. § 12111(9) (2000). 26. 42 U.S.C. § 12112(d)(2); 29 C.F.R. §§ 1630.13(a), 1630.14(a), (b). 27. EEOC, ADA Enforcement Guidance: Preemployment Disability-Related Questions and Medical Examinations, at 2 (Oct. 10, 1995) [hereinafter ADA Enforcement Guidance]. 28. The employer is also barred from conducting medical examinations at this preoffer stage, but that is an issue outside the scope addressed in this article. 29. ADA Enforcement Guidance, supra note 27, at 2 (emphasis in original). 30. Id. at 12. 31. Id. 32. Id. at 11.

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Once employed, the employee is again protected from being asked disability-related questions.33 What is a disability-related question? The EEOC defines it as a question “that is likely to elicit information about a disability.”34 For example, the question “Do you suffer from a physical or mental impairment that substantially impairs a major life activity?” is obviously likely to elicit information about a disability. However, the ADA provision is not so limited in scope. A question that is “closely related to disability” is also prohibited.35 A question is not disability-related “if there are many possible answers to a question and only some of those answers would contain disability-related information.”36 What is a question that is closely related to disability? At the extremes, it is clear when a question is closely related to disability. For example, asking whether an applicant is infected with HIV obviously would run afoul of the ADA provision because an affirmative response would indicate that the applicant suffers from HIV, which is a disability.37 Similarly, the question “Do you have a high school diploma?” is obviously not likely to elicit information about a disability because the only answers it would elicit are “yes” or “no,” neither of which provides any insight into potential disabilities. In between those two extremes, however, is a wide range of questions that may be likely to elicit information about conditions; the question is, which of the conditions, if any, constitutes a disability. Unfortunately, the EEOC has provided little guidance on this point. Careful scrutiny of the EEOC’s guidance is as likely to engender confusion as enlightenment. According to the EEOC, an employer may lawfully ask an applicant, “ ‘How well can you handle stress?’ ” and “ ‘Do you work better or worse under pressure?’ ”38 However, the same employer will be in trouble if it asks the following series of questions: (1) “Do you ever get ill from stress?” (2) “Does stress affect your ability to be productive?” and (3) “Have you ever been unable to ‘cope’ with work-related stress?”39 The latter series of questions, the EEOC has explained, “is likely to elicit information as to whether an applicant has a substantially limiting psychological impairment.”40 Yet, the EEOC has also explained 33. See 42 U.S.C. § 12112(d)(4)(A); 29 C.F.R. § 1630.14(c). 34. ADA Enforcement Guidance, supra note 27, at 2. 35. Id. 36. Id. 37. See Bragdon v. Abbott, 524 U.S. 624, 641 (1998). 38. See Frank C. Morris, Jr. et al., Equal Employment Opportunity Commission’s Enforcement Guidance: Preemployment Disability-Related Inquiries and Medical Examinations Under the ADA, C932 ALI-ABA 375, 378 (July 21, 1994) (discussing the EEOC’s May 19, 1994 enforcement guidance). 39. Id. 40. Id.

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that the earlier set of questions is not likely to elicit information as to whether an applicant has a substantially limiting impairment because “many individuals who do not handle stress/pressure well do not have a disability.”41 There is no apparent rationale to explain what is substantively different about the two sets of questions. Further analysis of the ADA’s definition of a disability yields more questions. A major life activity must be substantially impaired in order for the person to have a disability.42 However, it is hard to assess what is a major life activity. According to the EEOC, major life activities include “ ‘caring for oneself, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, working,’ . . . sitting, standing, lifting, reaching,” thinking, concentrating,43 interacting with others, sleeping, and eating.44 Various courts have held or suggested that major life activities include reproducing45 and even running!46 The list is so long and definitive that one wonders whether there are any activities that do not constitute major life activities. Yet, in that regard, there are. “[C]aring for others” is not a major life activity47 nor is “get[ting] a good night’s sleep.”48 Furthermore, driving and shopping are not major life activities.49 Traveling by airplane is not a major life activity,50 but traveling is.51 The end result must be confusing to employers. There appears to be a presumption that an activity is a major life activity, and as to those activities that are not, there is no easy explanation as to why they are not. C. Self-Identification for Affirmative Action Purposes Because the ADA was enacted for the purpose of helping disabled workers, it contains an affirmative action provision. Under this provision, an employer can invite applicants to volunteer to identify themselves as having disabilities, provided that the information is used to benefit such applicants.52 Employers may choose to benefit applicants 41. Id. 42. 42 U.S.C. § 12102(2). 43. But see Pack v. Kmart Corp., 166 F.3d 1300, 1305 (10th Cir. 1999). 44. See 29 C.F.R. § 1630.2(i) & Appendix; EEOC Compl. Man. (BNA) § 902.3(b), at 15; EEOC, EEOC Enforcement Guidance on the Americans with Disabilities Act and Psychiatric Disabilities 4 (Mar. 25, 1997); EEOC, Instructions for Field Offices: Analyzing ADA Charges After Supreme Court Decisions Addressing “Disability” and “Qualified” 8 (1999). 45. Bragdon, 524 U.S. at 638. 46. See Sutton v. United Airlines, Inc., 527 U.S. 471, 487 (1999) (dicta). 47. Krauel v. Iowa Methodist Med. Ctr., 95 F.3d 674, 677 (8th Cir. 1996). 48. Sarko v. Penn-Del Directory Co., 968 F. Supp. 1026, 1034 n.8 (E.D. Pa. 1997). 49. Colwell v. Suffolk County Police Dep’t, 158 F.3d 635, 642 (2d Cir. 1998). 50. Schultz v. Spraylat Corp., 866 F. Supp. 1535, 1538 (C.D. Cal. 1994) (applying the California analog of the ADA). 51. See Kralik v. Durbin, 130 F.3d 76, 79 (3d Cir. 1997). 52. ADA Enforcement Guidance, supra note 27, at 12.

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with disabilities for two reasons: (1) there is an applicable federal, state, or local law requiring such affirmative action; or (2) the employer is voluntarily benefiting such applicants. In other words, a question that would ordinarily be prohibited under the ADA—such as “Do you have a disability that requires a reasonable accommodation?”—would instead be permissible if it is asked with a particular purpose in mind: affirmative action, as opposed to curiosity or discrimination. As will be demonstrated later, this affirmative action provision has important consequences for the defensibility of section 12112(d)(2). III. The First Amendment and the ADA A. Categorizing Disability-Related Questions The first step in analyzing whether section 12112(d)(2) violates the First Amendment is to determine what category of speech is affected by the restriction. The spectrum of speech, in terms of level of protection accorded by the First Amendment, range from low-value/unprotected speech, such as obscenities and fighting words, to commercial speech to normal, non-commercial speech. Low-value speech can be heavily regulated with little interference from the First Amendment.53 Disabilityrelated questions that do not fall within any of these categories should be sufficiently uncontroversial such that no analysis is necessary.54 Most of the time, disability-related questions during employment interviews are characterized as commercial speech, which is speech that does “ ‘no more than propose a commercial transaction.’ ”55 A prototypical example of commercial speech is an advertisement in which the advertiser proposes to sell a service or a product at a certain price.56 The fact that the interviewer is asking a question, as opposed to making a statement, does not strip the speech of First Amendment protection. The view that presupposes that the First Amendment protects only the making of assertions as opposed to inquiries has not been 53. See Chaplinsky v. N.H., 315 U.S. 568, 572 (1942) (explaining fighting words); Miller v. Cal., 413 U.S. 15, 24 (1973) (describing obscenity); Brandenburg v. Ohio, 395 U.S. 444, 446–47 (1969) (citing advocacy of illegal action); Milkovich v. Lorain Journal Co., 497 U.S. 1, 18 (1990) (depicting defamation). But see R.A.V. v. City of St. Paul, Minneapolis, 505 U.S. 377, 384 (1992) (holding that such speech can be regulated, but not on a content-based discrimination “unrelated to [its] distinctively proscribable content”). 54. To the extent that someone with an exceptional imagination could perhaps come up with a disability-related question that could rise to the level of, say, obscenity, such a hypothetical question would be so far outside the norm that little can be inferred from the fact that it could possibly be suppressed constitutionally. 55. Virginia State Bd. v. Virginia Citizens Consumer Council, 425 U.S. 748, 762 (1976). But see Rodney A. Smolla, Rethinking First Amendment Assumptions About Racist and Sexist Speech, 47 WASH. & LEE L. REV. 171, 186–87 (1990) (arguing that transactional speech should be accorded little or no constitutional protection). 56. See Virginia State Bd., 425 U.S. at 761.

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accepted by courts. For example, a district court has held that oncampus military recruitment, including the process of conducting job interviews, is commercial speech.57 The court reasoned, “[T]he purpose of recruiting is to reach an agreement under which services will be exchanged for compensation.”58 Similarly, the Fifth Circuit has held that a desire by attorneys to interview jurors about their just-completed trial was “not without First Amendment significance.”59 Although the court ultimately concluded that this First Amendment interest was insufficient to warrant infringing the jurors’ interest in privacy,60 the court was apparently untroubled by the fact that the lawyers intended only to ask questions. More generally, the Supreme Court has suggested in dicta in Branzburg v. Hayes that the act of news gathering, as opposed to news reporting, is protected by the First Amendment: “[W]ithout some protection for seeking out the news, freedom of the press would be eviscerated.”61 It is difficult to generalize the Branzburg decision, as the central issue in that case was whether professional journalists could claim a privilege not to disclose the identities of confidential sources before a grand jury; the asserted basis was that such disclosure would make the journalists’ informants “refuse or be reluctant to furnish newsworthy information in the future.”62 Moreover, the First Amendment interests involving journalists were no doubt weightier than those involving employers in the context of job interviews.63 Nevertheless, the essence of the interest is similar. In each, the inquirer’s ultimate goal is to speak on some protected topic: public discourse in the case of the journalist, commercial speech in the case of the interviewer. In order to reach that goal, the inquirer must first ask questions to obtain needed information. Thus, a disability-related question during an employment interview is, at a minimum, commercial speech. It is part of the process of proposing the commercial transaction of employment, which consists of the employee’s offer of labor in exchange for the employer’s offer of compensation. Put another way, just as the question “Will you buy X for $Y?” is functionally equivalent to the statement “I will sell X for $Y,” a disability-related question can be an attempt to gauge the quality of labor being offered by the applicant. 57. Nomi v. Regents for Univ. of Minn., 796 F. Supp. 412, 417 (D. Minn. 1992), vacated as moot, 5 F.3d 332 (8th Cir. 1993). 58. Id. 59. Haeberle v. Texas Int’l Airlines, 739 F.2d 1019, 1022 (5th Cir. 1984). 60. Id. 61. 408 U.S. 665, 681 (1972). 62. Id. at 682. 63. Gibson v. Florida Legislative Investigation Comm’n, 372 U.S. 539, 546 (1968) (stating that strict scrutiny is the proper standard of government action that affects freedom of the press).

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This is not to say that disability-related questions never rise above commercial speech. Speech that rises above commercial transactions is accorded full First Amendment protection despite its commercial context. For example, in the landmark case of New York Times Co. v. Sullivan,64 the Supreme Court held that the First Amendment required public officials alleging defamation to prove that the publisher acted with “actual malice”—notwithstanding the fact that the allegedly defamatory publication in question was an advertisement in the New York Times.65 With a little imagination, one can envision a context in which a disability-related question rises above a mere proposal for a commercial transaction. Suppose that an applicant asks an interviewer, “What are the greatest challenges facing the firm?” and the interviewer, having recently spent a large amount of money (or what the interviewer perceived to be a large amount of money),66 responds with something along the lines of I run a small business, I don’t have economies of scale, but this Americans with Disabilities Act imposes ridiculous burdens on me. I mean, if an applicant with some bizarre disability comes in, suddenly I have to spend thousands of dollars to make accommodations. I can’t tell if you have a disability; you look healthy. Do you have one? Never mind. That’s the greatest burden facing my business: complying with this micro-management by the government.

It is apparent that here, the disability-related question is not part of the interviewer’s commercial transaction proposal concerning the applicant’s labor, but rather is part of noncommercial speech—in this instance, the speech is about the desirability of this particular government regulation. B. Disability-Related Questions as Commercial Speech As noted above, a disability-related question posed during an interview will most often be characterized as commercial speech. Because commercial speech is deemed to be a lower value of speech than public discourse, the government can regulate it more easily than the latter type of speech.

64. 376 U.S. 254 (1964). 65. Id. at 256–57, 279–80. 66. However, according to the Job Accommodation Network (JAN), which is part of the President’s Committee on Employment of People with Disabilities, almost half of all accommodations for the disabled impose no costs on employers. See Ralph Black, Hiring Lawyers with Disabilities, CAL. LAW., June 1991, at 74. JAN’s information may only measure the cost of accommodations based on fiscal outlays, as opposed to lost revenue based on, for example, extended breaks or other impacts on productivity.

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Under Central Hudson Gas & Electric Corp. v. Public Service Commission,67 a three-part test is used to determine whether a prohibition on commercial speech is constitutionally valid. As a threshold matter, however, the reviewing court is to consider whether the proscribed speech is misleading or related to unlawful activity; if either, there is no general restriction on governmental power.68 If the speech is neither misleading nor related to unlawful activity, then a prohibition will be valid if it directly advances a substantial interest and the substantial interest would not “be served as well by a more limited restriction on commercial speech.”69 1. Misleading or Related to Unlawful Activity Articulating a rationale for why disability-related questions are misleading is, for all intensive purposes, an insurmountable task. Likewise, questions cannot be deemed illegal merely based on the fact that they are disability-related.70 One cannot defend the ADA prohibition on pre-offer disabilityrelated questions by asserting that such questions are themselves related to unlawful activity. While it would be unlawful to propose illegal activity such as discriminating on the basis of gender in the guise of commercial advertising, an issue essentially decided in Pittsburgh Press Co. v. Pittsburgh Commission on Human Relations,71 that holding cannot be applied to justify section 12112(d)(2). In Pittsburgh Press, the Supreme Court upheld a municipal ordinance that prohibited newspapers from carrying job advertisements in so-called sex-designated columns against a First Amendment challenge.72 Essentially, the newspapers were carrying job advertisements in entire columns that were designated for men only, for women only, or for either.73 The Court held that the job advertisements were “classic examples of commercial speech”74 and explained, Any First Amendment interest which might be served by advertising an ordinary commercial proposal and which might arguably out67. 447 U.S. 557 (1980). The long-term viability of this test was recently called into question by 44 Liquormart, Inc. v. R.I., 517 U.S. 484 (1996). In that case, a number of Justices indicated dissatisfaction with the Central Hudson test, although no majority emerged to abandon the test yet. 68. Central Hudson, 447 U.S. at 563–64. 69. Id. at 564. 70. By substituting “misleading” for “false,” one can use the analysis described earlier with regard to defamation in the form of opinions. In other words, a question could arguably be misleading if it implied inaccurate or misleading facts. However, in this context, it is difficult to see how a disability-related question could imply inaccurate or misleading facts. 71. 413 U.S. 376 (1973). 72. Id. at 387–89. 73. Id. at 381 n.7. 74. Id. at 385.

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This holding does not mean that the First Amendment has no bearing on the ADA, and it does not support a conclusion that disability-related questions can be restricted because they relate to an unlawful activity: discrimination against the disabled. First, Pittsburgh Press was predicated on an understanding that commercial speech had no First Amendment protection based on Valentine v. Chrestensen.76 Subsequent cases, however, have rejected that absolutist position and have instead accorded commercial speech some degree of First Amendment protection.77 More importantly, the nexus between the proscribed speech and the harm to be avoided is apparent in Pittsburgh Press. The prohibited speech invited the submissions of applications in a way that discriminated against women.78 If women had looked through all of the ads, they would have found that women accountants were worth $6,000 while male accountants were worth $10,000.79 Moreover, many women would likely not have searched through want ads designated solely for males and thus would have excluded themselves from applying for those jobs. Thus, the segregated job announcements achieved the effect of sex discrimination. For that reason, the Court analogized the ban to one forbidding newspapers from publishing “a want ad proposing a sale of narcotics or soliciting prostitutes.”80 The EEOC itself appears to understand this distinction, at least with regard to age discrimination claims under the Age Discrimination in Employment Act of 1967 (ADEA).81 It has explained that help-wanted notices that contain terms or phrases like “age 25 to 35” and “recent college graduate” can be discriminatory.82 The EEOC has stressed, however, that whether a job advertisement runs afoul of the ADEA is dependent on “an examination not only of the language used in the advertisement but also the context in which it is used to determine whether persons in the protected age group would be discouraged from applying.”83 In other words, an age-related question violates the ADEA if it 75. Id. at 389. 76. 316 U.S. 52, 54–55 (1942). 77. See, e.g., Rubin v. Coors Brewing Co., 514 U.S. 476, 481 (1995); City of Cincinnati v. Discovery Network, Inc., 507 U.S. 410, 422 (1993); Central Hudson, 447 U.S. at 564; Virginia State Bd., 425 U.S. at 762. 78. Pittsburgh Press, 413 U.S. at 387–88. 79. Id. at 392 (appendix). 80. Id. at 388. 81. 29 U.S.C. § 621 (1994). 82. 29 C.F.R. § 1625.4(a) (2000). 83. See EEOC, Policy Guide on Job Advertising and Pre-Employment Inquiries Under ADEA, 405 Fair Empl. Prac. Man. (BNA) 4027, 4028 (July 3, 1989) (emphasis added) [hereinafter ADEA Pre-Employment Inquiries].

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is likely to deter an older worker from applying for a job or a promotion, thereby effectively accomplishing discrimination, much in the same way that an employer can constructively discharge an employee by creating a hostile work environment so that the employee resigns.84 Thus, the type of commercial speech under analysis in Pittsburgh Press presented the same general issues as those presented by blackmail and other such crimes involving speech as conduct85 or speech for which specific subject matter is unlawful. Because disability-related questions do not necessarily raise any of those issues, Pittsburgh Press, to the extent that its holding remains good law, cannot justify the existence of section 12112(d)(2). This is true for a number of reasons. By itself, a disability-related question—even on an application form—does not automatically deter a person from applying for a position; the employer might be asking such a question, for example, so that it can implement an affirmative action program.86 If the question arises during a job interview, then the applicant has obviously not been deterred from applying for the position. Moreover, while an openly hostile disability-related question— something along the lines of “Are you a worthless cripple? ‘Cause we have no use for a cripple”—might dissuade an applicant from pursuing the position, it is difficult to see how an innocuous question such as “I noticed you’re wearing a cast on your leg. Hopefully it will heal all right. You’re not expecting any problems, are you?” would have such an effect. Yet, the latter question is one that the EEOC has identified as violating section 12112(d)(2).87 2. Substantial Government Interest The purpose of the ADA is to eliminate discrimination against qualified disabled workers.88 This is almost certainly a substantial gov84. A constructive discharge occurs when the employer creates such an intolerable and/or discriminatory work environment that any reasonable person would quit. See, e.g., Jordan v. Clark, 847 F.2d 1368, 1377 n.10 (9th Cir. 1988). 85. See generally Kent Greenawalt, Criminal Coercion and Freedom of Speech, 78 NW. U. L. REV. 1081, 1111–17 (1983); see also NRLB v. Gissel Packing Co., 395 U.S. 575, 618 (1969) (holding that “a threat of retaliation based on misrepresentation and coercion [is] without the protection of the First Amendment”); X-Men Sec., Inc. v. Pataki, 196 F.3d 56, 69 (2d Cir. 1999) (noting in dicta that threats of coercion are outside First Amendment protection); Rankin v. McPherson, 483 U.S. 378, 386–87 (1987) (noting in dicta that “a statement that amounted to a threat to kill the President would not be protected by the First Amendment”). 86. A job advertisement seeking “healthy” or “nondisabled” applicants, on the other hand, would have the effect of potentially deterring qualified disabled applicants from applying for the position. Cf. Dothard v. Rawlinson, 433 U.S. 321, 330–31 (1977) (noting that height and weight specifications may have discouraged females from applying from the jobs at issue). Title VII prohibits this type of advertising with regard to race, color, religion, sex, and national origin, except where justified as a bona fide occupational qualification. See 42 U.S.C. § 2000e-3(b) (1994). 87. See ADA Enforcement Guidance, supra note 27, at 5. 88. See, e.g., 42 U.S.C. § 12101(b)(1) (stating that the ADA was enacted “to provide a clear and comprehensive national mandate for the elimination of discrimination against

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ernment interest, considering the Supreme Court has held that there is substantial interest in the elimination of discrimination against various other subgroups.89 As former President Bush noted in reluctantly vetoing the 1990 Civil Rights Act, “ ‘Discrimination, whether on the basis of race, national origin, sex, religion, or disability, is worse than wrong. It is a fundamental evil that tears at the fabric of our society, and one that all Americans should and must oppose.’ ”90 To be sure, a disability may not be a suspect classification,91 notwithstanding Congress’s declaration that the disabled are “a discrete and insular minority”92 —a phrase obviously intended to evoke the famous footnote four of United States v. Carolene Products Co.93 Regardless, the requirement that there be a substantial interest is not difficult to satisfy, which is apparent when one considers other interests that have been deemed substantial: helping parents control how children learn about birth control,94 reducing the demand for gambling by local residents (but not tourists),95 preventing visual blight,96 and preventing brewers from engaging in “strength wars.”97 It is difficult to believe that an interest in eliminating discrimination against the disabled would not be deemed substantial if it were compared to those interests. 3. Direct Advancement of the Substantial Interest The next part of the commercial speech test is that the commercial speech restriction must “directly advance” the asserted government interest.98 Thus, for the ADA to be valid, the prohibition on disabilityrelated questions during interviews must directly advance the goal of eliminating discrimination against the disabled.

individuals with disabilities”); H.R. REP. NO. 101–485 (II), at 22–23 (1990), reprinted in 1990 U.S.C.C.A.N. 303, 304. 89. See Ohio Civil Rights Comm’n v. Dayton Christian Schools, Inc., 477 U.S. 619, 628 (1986) (gender); Alfred L. Snapp & Son, Inc. v. P.R., ex rel. Barez, 458 U.S. 592, 609 (1982) (foreign temporary laborers); Bob Jones Univ. v. U.S., 461 U.S. 574, 595 (1983) (race). 90. EPSTEIN, supra note 14, at 3 (quoting Veto message of President George H.W. Bush, Oct. 22, 1990). 91. See e.g., City of Cleburne v. Cleburne Living Ctr., Inc., 473 U.S. 432, 450 (1985) (holding that mental retardation was not a suspect classification). 92. 42 U.S.C. § 12101(a)(7). 93. 304 U.S. 144, 153 n.4 (1938). This footnote is widely regarded as the most famous footnote in constitutional law and as the basis for the current multi-tier approach to varying levels of scrutiny of alleged deprivations of the right to equal protection of the laws. See generally ROBERT H. BORK, THE TEMPTING OF AMERICA 58–61 (1990); JESSE H. CHOPER, JUDICIAL REVIEW AND THE NATIONAL POLITICAL PROCESS 75 (1980); JOHN HART ELY, DEMOCRACY AND DISTRUST 75–77 (1980). 94. Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 70 (1983). 95. Posadas de P.R. Assocs. v. Tourism Co., 478 U.S. 328, 342 (1986). 96. City of Cincinnati, 507 U.S. at 417. 97. Rubin, 514 U.S. at 483–84. 98. Central Hudson, 447 U.S. at 564.

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Whether a restriction directly advances a substantial interest has been determined in a number of different ways. In Edenfield v. Fane,99 the Supreme Court held that the government had to “demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree.”100 Thus, the Court struck down a Florida ban on in-person solicitation of prospective clients of certified public accountants on the ground that there was no evidence in the record (anecdotal or otherwise) showing that such solicitation “create[d] the dangers of fraud, overreaching, or compromised independence,” which were the asserted interests.101 Since there was no demonstrated causal connection between the type of speech that was restricted and the harms sought to be avoided, the regulation did not directly advance the interests.102 Similarly, in Bolger v. Youngs Drug Products Corp., the Supreme Court struck down a federal statute prohibiting the unsolicited mailing to contraceptive advertisements.103 The government had asserted that the statute directly advanced the interests of shielding “recipients of mail from materials that they are likely to find offensive” and of helping parents “control the manner in which their children become informed [about sensitive and important subjects such as] birth control.”104 The Court discounted the first interest but accepted the second as substantial.105 Nevertheless, the Court held that the statute “provide[d] only the most limited incremental support for the interest asserted.”106 On the other hand, in United States v. Edge Broadcasting Co., the Supreme Court upheld a congressional ban on all radio and television advertising of lotteries from radio or television stations in states that prohibited lotteries while allowing such advertisements if broadcasted by stations located in states that allowed lotteries.107 The respondent, a radio station located in a lottery-prohibited state but whose broadcast was largely received by citizens of a lottery state, challenged the restriction on an as-applied basis. The Court held that the Central Hudson “direct advancement” factor should have been considered on a facial basis, not as applied, in consideration of the regulation’s impact on the party, challenging it would be deferred to the last factor.108 By characterizing Congress’s interest as that of supporting the policies of lottery-prohibited states while not interfering with those of the 99. 100. 101. 102. 103. 104. 105. 106. 107. 108.

507 U.S. 761 (1993). Id. at 771. Id. Id. 463 U.S. at 60. Id. at 60. Id. at 70, 73. Id. at 73. 509 U.S. 418, 435–36 (1993). Id. at 427–28.

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lottery states, the Court was able to conclude that the regulation under challenge directly advanced both interests, especially since Congress could have simply banned all lottery advertising, even in lottery states.109 Edge, however, fails to provide much illumination for evaluating the constitutionality of section 12112(d)(2) because the decision in Edge rested principally on the fact that “[t]he statute was designed to regulate advertising about an activity that had been deemed illegal in the jurisdiction in which the broadcaster was located.”110 In other words, Edge can really be seen as a special application of Pittsburgh Press in a situation where an activity is legal in one state but illegal in a neighboring state. In that situation, where it may not be possible to craft a rule that satisfies the interests of both states with perfect accuracy, Congress is free to enact a rule that has some over-breadth but that fully supports the interest of the state that deems the activity illegal.111 Edge therefore has little application to section 12112(d)(2), which does not advertise illegal activity. Does the ADA restriction directly advance the substantial interest in eradicating discrimination against the disabled? The ADA prohibition on interview-stage disability-related questions does not, by itself, eliminate discrimination against the disabled, except to the extent that a particular interviewer otherwise uses such questions to harass the applicant.112 This justification succeeds only if there are a substantial number of interviewers who create hostile work environments through harassing disability-related questions. There are two ways, however, in which the prohibition may reduce discrimination against the disabled. First, by prohibiting the asking of disability-related questions, the ADA prevents employers from learning about some disabilities until after a conditional offer has been given. Of course, this benefit occurs only when the disability is one that is not readily apparent during an interview; for example, an employer can obviously detect that an applicant is disabled if the applicant is in a wheelchair.113 If the employer does not know that the applicant is disabled, then the employer will be unable to discriminate on the basis of that disability. In other words, section 12112(d)(2) may preserve the asymmetry of knowledge of a disability. 109. Id. at 428. 110. See 44 Liquormart, Inc., 517 U.S. at 509. 111. Edge Broadcasting, 509 U.S. at 435. 112. It is unsettled whether the ADA protects workers against disability-related harassment, as opposed to discrimination. See, e.g., Vollmert v. Wisconsin Dep’t of Transp., 197 F.3d 293, 297 (7th Cir. 1999) (assuming without deciding that it does); Cannice v. Norwest Bank Iowa N.A., 189 F.3d 723, 725 (8th Cir. 1999); Frank S. Ravitch, Beyond Reasonable Accommodation: The Availability & Structure of a Cause of Action for Workplace Harassment Under the Americans with Disabilities Act, 15 CARDOZO L. REV. 1475 (1994). 113. The wheelchair-bound applicant may also, however, have other disabilities that are not apparent and that would remain concealed from the employer.

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Second, the provision makes it easier for a disabled plaintiff to prove that he or she experienced discrimination. It does so by putting the employer in the position of having to eliminate all other reasons for declining to hire the applicant before asking questions that reveal disabilities. The EEOC explains, “If the employer rejects the applicant after a disability-related question . . . investigators will closely scrutinize whether the rejection was based on the results of that question.”114 After all, if the purported reason were the real reason for the rejection, why wouldn’t the employer reject the applicant on that basis earlier?115 In other words, section 12112(d)(2) provides a litigation advantage to ADA plaintiffs. A rational employer will perceive that the risk of an adverse verdict, if it discriminates against a disabled person, has increased because a jury will discount legitimate reasons for declining the applicant as pre-textual—otherwise, the employer would not have given a conditional offer. One expects that an employer, acting strictly out of rational motives, discriminates against a disabled person whenever the cost of reasonable accommodation exceeds the expected cost of discrimination.116 One might therefore argue that ADA prohibition on disabilityrelated questions advances the substantial interest of eliminating discrimination against the disabled by increasing the expected cost of discrimination. By making it more likely that the discriminating employer will be found liable in a lawsuit, the ADA provision correspondingly increases the expected cost of such discrimination, which in turn makes the rational employer willing to accept more expensive accommodations than without the provision. This in turn makes the employer less likely to discriminate against the disabled. However, it seems unlikely that section 12112(d)(2) would be viewed as directly advancing the goal of eliminating disability-based discrimination. Congress has adduced no evidence that the asking of disability-related questions by employers, in fact, results in discrimination against the disabled.117 While the litigation advantage described earlier might lead to decreased discrimination, the degree of decrease is unknown and hence has most likely not been demonstrated to be material or more than merely incremental.118 The com114. ADA Enforcement Guidance, supra note 27, at 2. 115. There is a significant exception where “an employer cannot reasonably obtain and evaluate all non-medical information at the pre-offer stage.” See ADA Enforcement Guidance, supra note 12, at 18. For example, the EEOC has noted that a law enforcement agency might not be able to administer polygraph tests to all applicants; it would therefore be entitled to give an offer conditioned on passing the polygraph exam. Id. 116. One should be careful to note that the cost of accommodation includes not only actual expenditure of funds, but also any decrease in productivity on the part of the disabled employee attributable to the accommodation. 117. See 44 Liquormart, 517 U.S. at 505 (“[W]ithout any findings of fact, or indeed any evidentiary support whatsoever, we cannot agree with the assertion that the [commercial speech restriction] will significantly advance the State’s interest”). 118. See Edenfield, 507 U.S. at 771; Bolger, 463 U.S. at 73.

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mercial speech precedents therefore strongly suggest that section 12112(d)(2) does not directly advance the goal of eliminating discrimination against the disabled. 4. End-Means Fit The final test for assessing the validity of a commercial speech regulation is whether there is a reasonable fit between the end and the means sought to reach the end. Alternatively, the Supreme Court will consider whether the regulation is no more extensive than necessary to further the asserted interest. Unfortunately, as with the previous factor, the Court’s opinions have not produced a clear and consistent understanding of how tight the fit must be to justify a regulation of commercial speech. For example, in City of Cincinnati v. Discovery Network, Inc.,119 the Court struck down a city ordinance that prohibited the posting of commercial handbills as applied to news racks of free magazines consisting mostly of advertisements for the publishers’ services.120 The city had asserted an interest in preventing visual blight, but the means chosen to implement that interest were insufficient. For one thing, the city did not attempt to regulate the size, shape, appearance, or number of news racks, which suggested that it had not “carefully calculated the costs and benefits associated with the burden on speech imposed by its prohibition.”121 More importantly, because the prohibition was applied only to magazines deemed to contain commercial, as opposed to newsworthy, content, the prohibition applied to only sixty-two news racks in the city, leaving 1,500 to 2,000 news racks containing newspapers untouched. The Court agreed with the lower courts’ characterizations of this benefit as “minute” and “paltry.”122 Significantly, the Court rejected the city’s argument that because “every decrease in the number of [news racks] necessarily effect[ed] an increase in safety and an improvement in the attractiveness of the cityscape,”123 the city could take an incremental, marginal step toward its asserted goal by selectively eliminating a small number of news racks containing commercial handbills. The city’s premise, the Court noted, was that “the fact that assertedly more valuable publications [were] allowed to use news racks [did] not undermine its judgment that its esthetic and safety interests [were] stronger than the interest in allowing commercial speakers to have similar access to the reading pub-

119. 120. 121. 122. 123.

507 U.S. at 410. Id. at 412. Id. at 410. Id. at 418. Id.

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lic.”124 This premise could not support the argument because it “seriously underestimate[d] the value of commercial speech.”125 Similarly, in Central Hudson Gas & Electric Co. v. Public Service Commission,126 the Supreme Court held that a state public utility commission’s prohibition on all advertising promoting the use of electricity was more extensive than necessary to further the asserted interest of conserving energy because the commission could have restricted the format or content of the advertising inserts that Central Hudson wanted to use. The burden, the Court held, was on the government to show that more limited regulations would be ineffective at achieving the asserted interest.127 In Rubin v. Coors Brewing Co.,128 the Supreme Court struck down a federal statute prohibiting beer labels from displaying the alcohol content of the beverage. The government asserted an interest in preventing brewers from waging a “strength war.”129 Coors pointed out that Congress could have (1) “directly limit[ed] the alcohol content of beers,” (2) “prohibit[ed] marketing efforts emphasizing high alcohol strength,” or (3) “limit[ed] the labeling ban only to malt liquors,” which were more susceptible to strength wars.130 The Court held that the availability of these other options, “all of which could advance the Government’s asserted interest in a manner less intrusive to respondent’s First Amendment rights, indicate[d] that [the regulation was] more extensive than necessary.”131 Not all cases, however, have held the government to such exacting standards. In United States v. Edge Broadcasting Co.,132 the Supreme Court held that only a “reasonable” fit was required, not a “perfect” one.133 Moreover, the Court would not “require that the Government make progress on every front before it can make progress on any front.”134 In Board of Trustees v. Fox, the Court explained that it would not require the government to show that the commercial speech was the least restrictive measure; rather, the test was whether the restriction was “substantially excessive, disregarding ‘far less restrictive and more precise means.’ ”135

124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135.

Id. at 419. 507 U.S. at 419. 447 U.S. at 557. Id. at 571. 514 U.S. at 476. Id. at 483–84. Id. at 490–91. Id. at 491. 509 U.S. at 418. Id. at 429. Id. at 434. 492 U.S. 469, 478 (1989).

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The variety of precedents makes it challenging to say with complete confidence whether section 12112(d)(2) violates the First Amendment.136 Nevertheless, the overarching principle that can be drawn from the cases is that a commercial speech restriction that is overinclusive to a significant degree will be struck down. The term overinclusive means that the restriction burdens speech not related to the asserted substantial interest.137 For example, the restriction in Rubin, which barred alcohol brewers from displaying the alcohol content of their beverages in the interest of preventing brewers from waging strength wars, was over-inclusive. The only speech relevant to the asserted interest would have been labels announcing alcohol content that was sufficiently high so as to attract drinkers based on the strength of the beverage. A beverage for which the label indicated that it was of low alcohol content, on the other hand, could hardly have been expected to lead to a strength war. Yet, this latter label was swept up within the statute’s ban. Because the statute indiscriminately banned such commercial speech that was unrelated to the asserted goal, it was predictably struck down. Similarly, in Central Hudson, the Public Service Commission had ordered electric utilities to stop advertising anything that “promot[ed] the use of electricity” in the interest of complying with the national policy of conserving energy. The Supreme Court concluded that this ban was severely over-inclusive, as it prohibited, among other things, advertising of energy-efficient products as well as services “that would consume roughly the same amount of energy as do alternative sources.”138 The order “reache[d] all promotional advertising, regardless of the impact of the touted service on overall energy use,” and it suppressed “information about electric devices or services that would cause no net increase in total energy use.”139 The Court held that there was no showing “that a more limited restriction on the content of promotional advertising would not serve adequately the State’s interest.” The statute in Bolger, which prohibited all unsolicited mailings of contraceptive advertisements in the interest of helping parents control when their children learned about birth control, was over-inclusive because it restricted the mailing of some advertisements that perhaps no 136. First Amendment scholar Robert Post has described this and other parts of the Central Hudson test as “astonishingly abstract.” See Robert Post, The Constitutional Status of Commercial Speech, 48 UCLA L. REV. 1, 48 (2000). 137. One would generally expect underinclusiveness alone not to justify the striking down of a commercial speech restriction, as the Court has indicated that a legislature need not address all aspects of a problem at once. Nevertheless, a severely underinclusive statute, such as the one in Discovery Network, may advance the asserted goal so little as to be struck down. But this is more of a failure to satisfy the third requirement of the commercial speech test—direct advancement of the asserted goal—and not so much a failure to demonstrate an end-means fit. 138. Central Hudson, 447 U.S. at 570. 139. Id.

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one would have objected to and some advertisements that certain parents would not have objected to and that could have been thrown away by parents who had objected to them.140 This statute was also struck down. Merely because a statute is over-inclusive does not mean that it will be struck down. Consider, for example, the restriction in Edge Broadcasting, which prohibited radio stations in lottery-prohibited states from carrying lottery advertisements for neighboring states.141 This statute was both over-inclusive and under-inclusive: Some listeners in lottery states were deprived of hearing lottery advertisements on some stations (those in lottery-prohibited states), while other listeners in lottery-prohibited states were able to be exposed to lottery advertisements on other stations (those in lottery states). This restriction was nevertheless upheld. The difference between Edge Broadcasting, on the one hand, and Rubin and Central Hudson, on the other hand, seems to be that the statute in the former actually minimized the overall degree of over- and under-inclusiveness with respect to the interests of both states. That is, a rule prohibiting any lottery advertisements in any state would be broadly over-inclusive because it would affect numerous persons in lottery states while only slightly improving the under-inclusiveness problem for persons in lottery prohibited states near the border of a lottery state. Similarly, a rule allowing any lottery advertisements would be significantly under-inclusive because it would fail to address the interests of the lottery-prohibited states. With that understanding in mind, consider the degree of overinclusiveness of section 12112(d)(2). In one way, the statute is grossly over-broad relative to the asserted goal of eliminating discrimination against the disabled because it completely suppresses all pre-offer disability-related questions even though the asking and answering of some of those questions could pertain to disability discrimination. Rubin and Central Hudson suggest that such a blanket ban would be unconstitutional, particularly when the asserted goal could be advanced without the restriction on speech—in the case of Rubin, by directly regulating the maximum alcohol content of beverages; in the case of the ADA, by making it unlawful to discriminate against the disabled. Yet, in another way, the statute is not terribly over-broad. It is a temporary blanket ban on disability-related questions, one that is lifted after the employer gives a conditional offer. With the other speech restrictions discussed earlier, the proscribed speech is completely forbidden at all times, and there is nothing that the would-be speaker can do to lift the restriction. This, however, is not the case with section 12112(d)(2). 140. Bolger, 463 U.S. at 60. 141. Edge Broadcasting, 509 U.S. at 435–36.

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Nevertheless, the fact that section 12112(d)(2) differs from the invalid statutes in this way does not mean that it is automatically valid. Section 12112(d)(2) is still a restriction on commercial speech that is more extensive than necessary. The interest in eliminating discrimination against the disabled would be served equally well if there were no damages available for a violation of section 12112(d)(2). Because this is so, the availability of damages for the asking of a disability-related question infringes a speaker’s First Amendment rights. To see how this is so, consider the following four scenarios. A.

APPLICANT NOT DISABLED

The first scenario consists of a non-disabled applicant who is asked a disability-related question. In some circuits, such an applicant can recover in this situation even though the applicant will be unable to make out a prima facie case for having been discriminated against in violation of the ADA.142 However, if the applicant is not disabled within the meaning of the ADA, then it is difficult to see how punishing the employer for asking the applicant a disability-related question serves the interest of eliminating discrimination against the disabled. Unlike a disabled applicant, a non-disabled person is not likely to make false statements in response to a disability-related question because the non-disabled applicant has no incentive but to respond truthfully to such inquiries. After all, not being disabled is, all things equal, likely to be perceived as preferable to being disabled—that being the central premise of the ADA. A disabled applicant, on the other hand, may fear that a truthful response to such an inquiry will lead the employer to discriminate against him or her. As a result, the disabled applicant may feel trapped into falsely answering the disability-related question. Later on, the employer might terminate the disabled employee ostensibly due to perceived misconduct in the form of the false answers.143 The non-disabled applicant, however, does not face this trap and therefore does not need to be protected from it.144 142. The Fifth Circuit recently became the first federal appellate court to hold that disability-related harassment, as opposed to outright discrimination, is prohibited by the ADA. See Flowers v. Southern Regional Physician Servs., Inc., 2001 WL 314603, at *1 (5th Cir. Mar. 30, 2001); Fox v. General Motors Corp., 2001 WL 369669, at *1 (4th Cir. Apr. 13, 2001). See also Cossette, 188 F.3d at 969; Griffin v. Steeltek, Inc., 160 F.3d 591, 595 (10th Cir. 1998). The Ninth Circuit’s opinion in Fredenburg, 172 F.3d at 1182, which allowed a non-disabled applicant to recover damages for having been forced to undergo an interview stage medical examination, suggests that it too would allow a non-disabled person to recover damages based being asked a disability-related question. 143. Cf. Downs v. Massachusetts Bay Transp. Auth., 13 F. Supp. 2d 130, 140–41 (D. Mass. 1998) (holding that a disabled applicant’s false responses to a disability-related question is not misconduct justifying denial of employment). 144. Cf. id. A possible exception occurs if the non-disabled person answered a disability-related question in such a way that the employer incorrectly concluded that the applicant was disabled. However, to the extent that the employer’s motive is at issue, this is the same as if the applicant were “regarded as disabled.” Depending on whether

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One might argue that the purpose of damages is to enforce the prohibition and that, without the provision of damages, the prohibition will be ineffective. This justification, however, applies the wrong analysis. Section 12112(d)(2) exists to achieve the goal of eliminating discrimination against the disabled; one manner is to deter the employer from engaging in discrimination.145 Deterring an employer from engaging in discrimination, however, is quite different from deterring an employer from merely asking disability-related questions. Thus, the proper inquiry is whether the absence of damages to enforce any violation of section 12112(d)(2) suffered by non-disabled applicants will render the ADA less effective. It is difficult to see how this will be so. If employers knew that they would not be subject to liability under section 12112(d)(2) if they were to ask disability-related questions of non-disabled applicants, they would hardly be expected to ask such questions of everyone because they would still have to factor in the consequences of asking such a question of a disabled person. Because many disabilities are not immediately apparent, an employer who asks a disability-related question of an apparently non-disabled person may learn, to the employer’s chagrin, that the applicant is indeed disabled. B.

APPLICANT DISABLED BUT HIRED

The second scenario consists of a disabled applicant who is asked a disability-related question but who successfully obtains the position sought. In this scenario, one would be hard-pressed to argue that the applicant was injured in any meaningful way by the asking of the question. How, one wonders, does allowing such an applicant to recover damages based on being asked a disability-related question help achieve the result of eliminating discrimination against the disabled? The incongruity of punishing such an employer is apparent when one considers that, had the same employer asked the same question with the express goal of implementing an affirmative action plan to benefit the disabled, the question could have been permissible.146 This demonstrates that, under the current structure of the ADA, the employer’s motive is crucial in establishing whether the asking of the question retards or advances the goal of eliminating discrimination against the disabled. If that is so, however, then the same goal is not advanced by punishing an employer who, while not asking the question with the intent of implementing an affirmative action plan, in fact does not discriminate in hiring a qualified disabled person.

the applicant were qualified with or without a reasonable accommodation for the perceived disability, this situation would be the same as one of the following three scenarios. 145. 42 U.S.C. § 12112(d)(2). 146. See supra Part II.C.

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Indeed, it is difficult to understand how section 12112(d)(2) could allow the recovery of damages against an employer who asks a disability-related question but nevertheless hires a disabled applicant, given that courts routinely hold that a decision maker who hires a person in a protected category and who shortly thereafter takes an adverse action against the person is presumed not to have discriminated against the person.147 These courts reason quite rationally that [o]ne is quickly drawn to the realization that “[c]laims that employer animus exists in termination but not in hiring seems irrational.” From the standpoint of the putative discriminator, “[i]t hardly makes sense to hire workers from a group one dislikes (thereby incurring the psychological costs of associating with them), only to fire them once they are on the job.”148

To be sure, one would expect very few instances in which a disabled person who is hired by an employer sues the employer for having asked a disability-related question. Nevertheless, the analytic incongruity of this scenario suggests that there is something seriously wrong with a reading of section 12112(d)(2) that allows recovery based on the mere asking of a disability-related question without regard to whether the applicant has actually suffered disability discrimination. More importantly, if one cannot defend the availability of damages under section 12112(d)(2) in this scenario, then one cannot do so in the previous or following scenario either. The crucial problem in all three of these scenarios is that the plaintiff is allowed to recover damages against an employer despite not having been discriminated against by the employer. The fact that there was no discrimination—whether the applicant was not disabled, was hired, or was not qualified—is immaterial. C.

APPLICANT DISABLED BUT NOT QUALIFIED WITH OR WITHOUT REASONABLE ACCOMMODATION

The third scenario consists of a disabled person who is not qualified for the position, either with or without a reasonable accommodation, and who is asked a disability-related question. A disabled applicant who is not qualified with or without a reasonable accommodation has not been discriminated against on the basis of a disability when the applicant suffers an adverse employment decision. Thus, the asking of a disability-related question of such an applicant during the interview is not the cause of the adverse decision. This is true even if the disability would have remained hidden if it had not been for the asking of the questions. For example, narcolepsy, 147. See, e.g., Bradley v. Harcourt, Brace & Co., 104 F.3d 267, 270–71 (9th Cir. 1996); Buhrmaster v. Overnite Transp. Co., 61 F.3d 461, 464 (6th Cir. 1995); Lowe v. J.B. Hunt Transp., Inc., 963 F.2d 173, 175 (8th Cir. 1992); Proud v. Stone, 945 F.2d 796, 797 (4th Cir. 1991). But see Waldron v. SL Indust., Inc., 56 F.3d 491, 495 n.6 (3d Cir. 1995). 148. Proud, 945 F.2d at 797.

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if untreated, is a disability that one would think disqualifies an applicant from being, among other things, an ambulance driver. The employer could ask the disability-related question after giving a conditional offer; given that the applicant in fact would not be qualified with or without a reasonable accommodation, the employer is justified in withdrawing the conditional offer. Moreover, the litigation advantage that section 12112(d)(2) normally provides to disabled plaintiffs is of no use to such an applicant. As discussed earlier, by requiring employers to delay their questions until after extending a conditional offer, section 12112(d)(2) allows the EEOC and subsequent fact finders to “closely scrutinize whether the rejection was based on the results of that question.”149 In this scenario, however, the employer can offer up front that the adverse decision was based on the disability, and section 12112(d)(2) is thus simply irrelevant. D.

APPLICANT DISABLED AND DISCRIMINATED AGAINST

The final scenario consists of a plaintiff like John Otero—that is, someone who was qualified with or without a reasonable accommodation but was not hired and was asked a disability-related question during his interview.150 Among all of the scenarios set forth, this one comes the closest to establishing a coherent theory of injury. The applicant may have been discriminated against on the basis of a disability, and worse yet, that discrimination may have been facilitated by the asking of the question. There are actually two permutations of this scenario. The first occurs when a plaintiff is able to prove that he or she was discriminated against and seeks to recover additional damages for the asking of the question.151 The second occurs when a plaintiff is unable to prove that he or she was discriminated against, although he or she might be able to do so if given the luxury of the litigation advantage that section 12112(d)(2) is designed to provide. i. Can plaintiffs prove discrimination without section 12112(d)(2)’s litigation advantage? A more difficult situation arises if the plaintiff is qualified for the position with or without a reasonable accommodation but is not hired. Proponents of section 12112(d)(2) contend that the prohibition is necessary for plaintiffs to be able to prove that they were discriminated against.152 Still, proponents are almost certainly overstating their position. When an employer violates section 12112(d)(2) by asking a disability-related question during an interview, the goal of preventing employers from learning about disabilities has been frustrated, and the 149. 150. 151. 152.

See ADA Enforcement Guidance, supra note 27, at 2. Wal-Mart Stores, 11 F. Supp. 2d at 1317. John Otero falls within this subcategory. ADA Enforcement Guidance, supra note 27; Azinger, supra note 13, at 193.

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applicant is denied the litigation advantage. Yet, plaintiffs can succeed in proving that they experienced discrimination despite the fact that they did not receive conditional offers and John Otero did. How do such plaintiffs go about proving that they experienced discrimination? They generally use the burden-shifting approach that was developed in McDonnell Douglas Corp. v. Green153 and was subsequently refined in Texas Department of Community Affairs v. Burdine154 and St. Mary’s Honor Center v. Hicks.155 Under this well known approach, the plaintiff in a Title VII discrimination case must prove a prima facie case. If the plaintiff succeeds in doing so, then the defendant must present a legitimate, nondiscriminatory justification for the adverse decision.156 If the defendant succeeds in doing that, the plaintiff must prove that the justification offered by the defendant was a mere pretext for discrimination.157 To prove a prima facie case, the plaintiff must prove (i) that he belongs to a [protected class]; (ii) that he applied and was qualified for a job for which the employer was seeking applicants; (iii) that, despite his qualifications, he was rejected; and (iv) that, after his rejection, the position remained open and the employer continued to seek applicants from persons of complainant’s qualifications.158

Obviously, this is not a rigid and inflexible formula; for example, the fourth prong need not be restricted to situations where the employer continued to seek applications. For the purpose of this article, it is significant that the Supreme Court explained, “The prima facie case serves an important function in the litigation: it eliminates the most common nondiscriminatory reasons for the plaintiff’s rejection.”159 This, of course, is the same reason used to justify section 12112(d)(2)’s prohibition on pre-offer disabilityrelated questions. Of course, the ADA plaintiff stands in a better position than a Title VII plaintiff because section 12112(d)(2), if obeyed by the employer, results in the ADA plaintiff being given a conditional offer. A racial discrimination plaintiff, on the other hand, does not have the luxury of having a conditional offer extended before the employer is allowed to ask questions that reveal the applicant’s race. Nevertheless, plaintiffs who raise discrimination claims other than disability have not been completely unable to prove or have unreasonable difficulty in proving 153. 411 U.S. 792 (1973). 154. 450 U.S. 248 (1981). 155. 509 U.S. 502 (1993). 156. Burdine, 450 U.S. at 248. 157. See, e.g., id. at 254. 158. McDonnell Douglas, 411 U.S. at 802. 159. Burdine, 450 U.S. at 253–54 (citing Teamsters v. United States, 431 U.S. 324, 358 & n.44 (1977)).

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that they were discriminated against on the basis of other protected classifications.160 The EEOC’s approach to age-related questions demonstrates that a greater sensitivity to free speech rights can be compatible with employee rights. As interpreted by the EEOC, the ADEA does not prohibit employers from asking an applicant for his birthdate, which in turn will reveal the applicant’s age.161 Rather, if such a question is asked and the applicant subsequently receives an adverse employment decision, the EEOC will scrutinize the decision to see if the applicant was impermissibly discriminated against on the basis of age.162 This is a far more sensible approach, as it focuses on the prohibited activity: age discrimination. It also suggests, if not demonstrates, that the EEOC does not need the litigation advantage of a conditional offer to establish that discrimination has occurred.163 Admittedly, the protected classification of age (i.e., those persons aged forty and older) is readily apparent once one moves away from the margin—the employer probably does not need to ask a sixty-five-yearold for his birthday to realize that the applicant is an older person. Thus, one could argue that a purpose of section 12112(d)(2) is to prevent employers from learning of hidden disabilities. Even that justification fails to explain why a person whose disability is obvious and apparent can recover for being asked a disability-related question. After all, as the First Circuit has noted, “[t]he ADA does not require an employer to wear blinders to a known disability at the pre-offer stage, but permits an ‘interactive process’ beneficial to both the employer and applicant.”164 There is no indication that the McDonnell Douglas burden-shifting approach is ineffective for the ADA.165 For example, in Gonzalez v. Sandoval County,166 the plaintiff alleged that he had been terminated as a sheriff’s deputy because he suffered from the Epstein-Barr virus and from chronic fatigue syndrome. The defendant argued that it had terminated the plaintiff because he was untruthful, insubordinate, and

160. See, e.g., Graber v. Litton Guidance & Control Systems, Case No. LC 031 387 (Aug. 11, 1998) ($2.21 million verdict for gender, ancestry, and religious discrimination); BARI-ELLEN ROBERTS & JACK E. WHITE, ROBERTS V. TEXACO: A TRUE STORY OF RACE AND CORPORATE AMERICA (1998) (documenting the development of a landmark classaction discrimination suit against Texaco). 161. ADEA Pre-Employment Inquiries, supra note 83, at 4032. 162. Id. 163. See also 29 C.F.R. § 1605.3(b) (2001) (setting forth the EEOC’s position regarding pre-offer questions that would reveal an applicant’s need for a religious accommodation; based on such questions, the EEOC will infer discrimination, to be rebutted by the employer). 164. Grenier v. Cyanamid Plastics, Inc., 70 F.3d 667, 676 (1st Cir. 1995). 165. McDonnell Douglas, 411 U.S. at 792. 166. 2 F. Supp. 2d 1442 (D.N.M. 1998).

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less than capable.167 The plaintiff was able to prove that these reasons were pre-textual by presenting evidence that contradicted the defendant’s assertions.168 Gonzalez, of course, is only an anecdote of a successful case by a plaintiff. The case does demonstrate, however, that there is nothing peculiar about the ADA that makes proving a prima facie case more difficult than proving one under Title VII or the ADEA. ii. Should a plaintiff have a cause of action for losing the litigation advantage? In some circumstances, a disabled applicant who might be unable to prove discrimination by using the McDonnell Douglas burdenshifting approach may argue that the employer’s violation of section 12112(d)(2) deprived him of the statute’s litigation advantage and that had he had the litigation advantage, he would have been able to prove that he had been discriminated against. Therefore, the applicant could argue that he should be entitled to recover for damages for the harm done to his ADA claim. The nearest analogs to this type of claim are the common law torts of negligent and intentional spoliation of evidence. A party that intentionally destroys evidence that could have been used in prospective litigation can be liable to the other party for intentionally interfering with that party’s opportunity to win the lawsuit.169 Similarly, a party that negligently destroys evidence “needed for prospective civil litigation” can be liable to the other party for negligent spoilation of evidence.170 Not all states, however, recognize these torts. There are, however, significant problems to justifying damages under section 12112(d)(2), based on either of those common law torts. First, to the extent that these torts are persuasive analogs, there is no reason that section 12112(d)(2), rather than the torts themselves, should be the basis for the recovery. An ADA plaintiff who believes that his chances of winning his suit were damaged by the employer’s violation of section 12112(d)(2) can simply add causes of action for intentional and negligent spoliation of evidence. As it is, allowing an ADA plaintiff to recover additional damages under section 12112(d)(2) essentially converts the common law torts to a strict liability regime, when an employer is automatically liable for allegedly damaging the plaintiff’s case, without any showing of intent, negligence, or causation. Second, as currently interpreted, section 12112(d)(2), as an analog to the spoliation of evidence torts, allows for double recovery. The measure of damages in spoliation of evidence torts is what the plaintiff 167. Id. at 1445. 168. Id. 169. See, e.g., Smith v. Superior Court, 198 Cal. Rptr. 829, 837 (Cal. Ct. App. 1984). 170. See, e.g., Velasco v. Commercial Bldg. Maintenance Co., 215 Cal. Rptr. 504, 506 (Cal. Ct. App. 1985).

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would have recovered in the suit, if it had been successful.171 This corresponds to the particular scenario discussed in this subsection: the ADA plaintiff who cannot prove his case but might have been able to with the litigation advantage. Section 12112(d)(2) contains no such limitation. John Otero, for example, was able to prove that he had been discriminated against, recovering damages for the discrimination; however, he also recovered $100,000 in punitive damages under section 12112(d)(2).172 The latter recovery cannot correspond in any meaningful way to damages for spoliation of evidence because Otero suffered no harm in his ability to prove his case as a result of losing the section 12112(d)(2) litigation advantage. Finally, the most compelling reason not to extend the spoliation of evidence analogy to section 12112(d)(2) is that, at the time that an employer asks a disability-related question of an applicant, no litigation is in existence yet. It is one thing to impose a duty on a litigant to preserve evidence relevant to an existing dispute with an adverse party, but it is an altogether different matter to impose such a duty before any dispute has arisen. E.

SUMMARY OF THE END-MEANS FIT

A close examination of the various situations in which section 12112(d)(2) apparently allows for recovery for being asked disabilityrelated questions demonstrates the serious infirmities with the statute, as interpreted by the Eighth, Ninth, and Tenth Circuits. By allowing non-disabled plaintiffs, unqualified disabled plaintiffs, and hired disabled plaintiffs to bring suit, these courts have divorced section 12112(d)(2) from the goals of the ADA. Section 12112(d)(2) thereby fails to satisfy the Central Hudson test.173 5. Other Constitutional Speech Restrictions Because it appears that section 12112(d)(2) cannot be justified as a constitutional restriction on commercial speech, it is likely invalid unless it can be justified under general speech restrictions. Typically, these restrictions apply to regular, non-commercial speech; however, if such restrictions can be validly applied to non-commercial speech, which receives more protection than commercial speech, then they can be validly applied to commercial speech as well. 171. Smith is not entirely clear on this point, but it seems to be a reasonable inference from the fact that the court allowed the cause of action to proceed simultaneously with the underlying action, rather than subsequently, on the ground that there would be less duplication of effort and waste of judicial resources. See Smith, 198 Cal. Rptr. at 837. This suggests that the spoilation of evidence claim would fall away if the plaintiffs won the underlying case. Indeed, that would seem to be a necessary result, since the plaintiff would then have suffered no injury or harm from the destruction of the evidence. 172. Wal-Mart Stores, 11 F. Supp. 2d at 1328. 173. Central Hudson, 447 U.S. at 557.

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The most common speech restrictions are time, place, or manner regulations. These are restrictions that “ ‘are justified without reference to the content of the regulated speech, that . . . are narrowly tailored to serve a significant government interest, and that . . . leave open ample alternative channels for communication of information.’ ”174 A typical such regulation is one that limits the volume of one’s public message regardless of the content of the message.175 For example, in Ward v. Rock Against Racism, the Supreme Court upheld a city’s “sound amplification guideline” whereby the city provided “high quality sound equipment” and had hired “an independent, experienced sound technician” to operate the equipment for all concerts at a city-owned “bandshell.”176 The guideline was designed to control noise levels, not artistic control, and hence satisfied the test articulated earlier. Section 12112(d)(2) has some characteristics of a time, place, or manner regulation. It serves a significant government interest—eliminating discrimination against the disabled—and it probably leaves ample alternative channels since the employer can ask a disabilityrelated question after making a conditional offer to the applicant.177 However, section 12112(d)(2) is not content-neutral, which disqualifies it from being a time, place, or manner restriction. As the Court stated in Pacific Gas & Electric Co. v. Public Utility Commission, a constitutionally “permissible time, place, or manner restriction” may not be based on either the content or subject matter of speech.178 Quite obviously, the ADA selectively suppresses a single category of speech defined by its content: disability-related questions. It does not matter if the employer asks the question politely, rudely, loudly, or obnoxiously. Whether a question subjects an employer to liability under section 12112(d)(2) is determined solely based on the content of the question. Questions that concern disabilities are covered by section 12112(d)(2); others are not. Attempts to extend the time, place, or manner doctrine to arguably content-based regulations universally rely on City of Renton v. Playtime Theatres, Inc.,179 in which the Supreme Court upheld a suburban ordinance that banned adult theaters from opening “within 1000 feet of any residential zone, single or multiple-family dwelling, church, park, 174. See, e.g., Ward v. Rock Against Racism, 491 U.S. 781, 791 (1989). 175. See generally Kovacs v. Cooper, 336 U.S. 77, 82–83 (1949) (suggesting in dicta that the government could regulate the use of sound trucks in residential neighborhoods if it did so regardless of the content of the message). 176. Ward, 491 U.S. at 784–85. 177. It is difficult to find a case analogous to this situation. Somewhat on point is Madsen v. Women’s Health Clinic, 512 U.S. 753, 772 (1994), in which the Court upheld a state court order that restrained abortion protesters from making excessive noise within earshot of patients before 7:30 a.m. and noon on Mondays through Saturdays. Presumably, the fact that the protesters could carry on at all other times offered them ample alternative channels with which to press their position. 178. 475 U.S. 1, 19 (1986). 179. 475 U.S. 41 (1986).

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or school.”180 Although the ordinance was facially content-based, the Court nevertheless applied the time, place, or manner test because the predominate intent of the ordinance was to combat the “secondary effects” associated with adult theaters—such as crime, decreased property values, and decline in the quality of nearby neighborhoods.181 However, Renton does not support the argument that the ADA provision is a time, place, or manner restriction aimed at the secondary effects of disability-related questions—namely, discrimination against the disabled. Reading Renton so broadly is unsound. If the government could address “secondary effects” indirectly through direct regulation of speech, then the government could drastically curtail speech. For example, suppose the government had concluded that the secondary effect of investigative journalism in the political arena increased cynicism among the electorate with a concurrent decline in voter turnout. Can one really believe that the Supreme Court would allow the government to regulate such investigative journalism as a means of addressing the secondary effect of low voter turnout? Indeed, the secondary effects that Renton addresses cannot flow from the communicative impact of the speech. In Boos v. Barry,182 the Court explained that “[r]egulations that focus on the direct impact of speech on its audience present a different situation” from that in Renton and that “[l]isteners’ reactions to speech are not the type of ‘secondary effects’ we referred to in Renton.” That is precisely the case with section 12112(d)(2). The reason that the ADA seeks to prevent employers from asking disability-related questions prior to making a conditional offer is that the employer might learn something from the applicant’s answer that the employer could then use to discriminate against the applicant. In other words, the concern is that the asking of the disability-related question may induce the applicant to communicate information to the employer. However, because the concern involves communicative impact, it cannot involve secondary effects. A second justification for speech limitations is that the speech in question consists of both speech and conduct elements, and there is a “sufficiently important governmental interest in regulating the nonspeech element” to “justify incidental limitations on First Amendment freedoms.”183 In practice, the test used to determine the constitutionality of conduct regulations that have an incidental burden on speech is equivalent to the time, place, or manner test.184 Thus, in United 180. 181. 182. 183. 184. (1984).

Id. at 43. Id. at 49–52. 485 U.S. 312, 321 (1988). United States v. O’Brien, 391 U.S. 367, 376 (1968). See, e.g., Clark v. Community for Creative Non-Violence, 468 U.S. 288, 298 n.8

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States v. O’Brien, the Court upheld the conviction of a defendant who had violated a federal statute prohibiting the destruction or mutilation of draft cards. Although the defendant argued that his actions had been a means of protesting the draft and the Vietnam war, the Court held that Congress’s interest in regulating the nonspeech/conduct aspects of the registration notice and that proof was valid and sufficed to overcome the defendant’s free speech claim.185 Like the time, place, or manner doctrine, the incidental burden requires that the regulation be aimed at conduct, not the content of speech.186 In that regard, as discussed earlier, section 12112(d)(2) is in fact aimed at a particular kind of speech, based on its content: disabilityrelated questions. Moreover, to the extent that the ADA seeks to regulate conduct in the form of disability-based discrimination, the ADA’s prohibition of discrimination because of disability already does so. Thus, section 12212(d)(2) differs materially from the draft cardburning case, and the incidental burden doctrine does not apply to pre-offer disability-related questions. IV. Harmonizing the ADA and the First Amendment If the central thesis of this article is correct—that is, that the recovery of damages against an employer who asks a disability-related question without any showing of discrimination by that employer violates the First Amendment—then a question remains: Does the First Amendment prohibit all regulation of disability-related questions? Certainly not. For example, Pittsburgh Press suggests that the Supreme Court would permit Congress to prohibit advertising such as “Are you 100 percent healthy? If so, we want you to apply!”187 Similarly, nothing in the First Amendment prohibits a jury in an ADA case from considering an employer’s disability-related questions as evidence of discriminatory intent. In fact, this is the approach that Congress and the EEOC have adopted for age- and religion-based questioning of job applicants. If there were evidence that an interviewer had asked an applicant a series of questions about the applicant’s background, only to lose interest after having asked a single disability-related question—such as “Are you disabled?”—then the jury would obviously be entitled to use the fact that the question had been asked as proof that the interviewer had discriminatory motives. In fact, evidence that the interviewer asked such questions of non-disabled applicants might further support a disabled plaintiff’s case. Of course, non-disabled applicants would have no basis to bring suit themselves. It does not violate the First Amendment to use speech as evidence of discriminatory conduct because the defendant is being punished for 185. O’Brien, 391 U.S. at 367. 186. See, e.g., Texas v. Johnson, 491 U.S. 397, 406–07 (1989). 187. See 413 U.S. 376 (1973).

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the conduct, not the speech. In Wisconsin v. Mitchell,188 the Supreme Court held, The First Amendment, moreover, does not prohibit the evidentiary use of speech to establish the elements of a crime or to prove motive or intent. Evidence of a defendant’s previous declarations or statements is commonly admitted in criminal trial subject to evidentiary rules dealing with relevancy, reliability, and the like.189

Accordingly, the Court saw no constitutional impediment to the fact that “evidence of the defendant’s prior speech or associations may be used to prove that the defendant intentionally selected his victim on account of the victim’s protected status,” which resulted in an enhanced criminal sentence.190 If a criminal sentence can be enhanced based on speech, then there seems to be no problem with civil verdicts based on speech, considering that the U.S. court system accords greater protections to criminal defendants than civil defendants. Mitchell is not an anomaly. In Street v. New York,191 the Court explained that there was no constitutional problem presented when “words have been introduced to prove some element of [the] offense.” In Price Waterhouse v. Hopkins,192 a plurality of the Court concluded that, in a gender discrimination case, the fact that a decision maker had made “stereotyped remarks” about gender “can certainly be evidence that gender played a part” in the adverse employment decision. The context of the disability-related question is, of course, key. As courts have noted, the ADA does not require employers to ignore known or obvious disabilities; rather, the ADA encourages an “interactive process” involving applicant and employer.193 Thus, these courts understand that disability-related questions, in and of themselves, are not the problem. Rather, an employer who is honestly assessing whether a disabled applicant is qualified for the job must consider whether the person can perform the essential functions with or without a reasonable accommodation. This in turn requires that the employer understand, to some extent, the limitations (if any) imposed by the applicant’s disability as well as the possible accommodations that would alleviate those limitations. One disabled attorney has suggested that the ADA—specifically, section 12112(d)(2)—actually create barriers for the disabled: I might be talking to a prospective employer about my professional experiences or how I would attract clients. But they seem to look right

188. 189. 190. 191. 192. 193.

508 U.S. 476 (1993). Id. at 489. Id. at 488. 394 U.S. 576, 594 (1969). 490 U.S. 228, 251–52 (1989). See, e.g., Grenier, 70 F.3d at 676.

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17 THE LABOR LAWYER 107 (2001) through me. No doubt they are thinking about what might happen if I’m hired. “Will we have to have the library stacks lowered? Will she need a specially modified computer or an assistant? . . . Will she sue us if she can’t play on the firm’s softball team?” An easy solution to this problem would be for the employer to ask me such questions. I would not be offended and would welcome the chance to explain my situation. Yet the [ADA] makes such questions illegal. . . . By inhibiting free discussion between interviewer and interviewee, the [ADA] also makes it difficult for me to determine whether I want to work for a particular firm or whether a prospective employer is a prejudiced, ignorant jerk. I would find this out if the interviewer were allowed to ask, “How can you do anything in a wheelchair, much less represent clients in court?”194

Notice that the employer and the applicant are both confronted with incomplete information. Only together do they have enough information to answer the question of whether a disabled applicant can perform the essential job functions with a reasonable accommodation. The employer knows whether a given accommodation will be feasible (financially and otherwise) and hence reasonable. This is because the employer is in a position to know about the impact of a particular accommodation on the business. However, the employer will generally not be in a position to know whether a given applicant needs a particular accommodation. Of course, if the nature of the disability is obvious, such as the need for a wheelchair, the employer may be able to determine whether a particular accommodation is necessary. For such an applicant, however, the prohibition on disability-related questions provides no protection because the applicant cannot hide his or her disability. When the disability is hidden, is there any reason why this interactive process should be deferred to a subsequent, post-offer stage? If an employer were acting in good faith, then it would seem desirable to have the interactive process begin as soon as possible. Otherwise, the employer and the applicant must expend additional time and resources merely to conduct a post-offer interview to discuss the scope of the disability and the potential accommodations. The employer may suffer further inconvenience in that it may be unable to make offers to other applicants while it holds the offer open for the disabled applicant.195 Similarly, the applicant, in pursuing the conditional job offer, may forego other positions for which the applicant would be qualified with or without a reasonable accommodation; after discovering that he is 194. Julie Hofius, ADA Creates Barriers to Jobs for the Handicapped, L.A. DAILY J., Aug. 31, 2000, at 6. 195. Federal judges, for example, can appreciate the potential problems in having to keep clerkship offers open for any extended period of time; other desirable applicants may accept clerkships with other judges while this judge awaits a decision from the person to whom an offer has been given.

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not qualified for the position for which he has received a conditional offer, the applicant may find that the other positions have been filled. Of course, the employer is not prohibited from asking nondisability-related questions during the pre-offer interview. For example, the employer can ask the applicant how he or she would perform the essential functions of the position. However, if the disability were hidden, the employer would have no reason to ask the applicant unless the employer were to ask every applicant such a question. It is absurd to expect employers to ask every applicant such questions merely in anticipation that some applicants may have hidden disabilities that potentially impact their ability to perform the essential functions of the job. Thus, the ultimate issue is whether juries are capable of assessing the context in which a disability-related question is asked and of determining whether the employer acted in good faith or with discriminatory intent. As discussed earlier, juries are often called upon to make that very determination in race, gender, and age discrimination claims, and there is no indication that they are unable to do so. This is true because this inquiry essentially requires the jury to assess the credibility of the interviewer’s explanation for why he asked a disabilityrelated question. As the Supreme Court has noted, making such credibility determinations is a task that “ ‘belongs to the jury, who are presumed to be fitted for it by their natural intelligence and their practical knowledge of men and the ways of men.’ ”196 If that is so, then the entire premise underlying section 12112(d)(2) is faulty; there is no need for employers to be forced to give conditional offers before asking disability-related questions in order to enable applicants to prove that they were discriminated against on the basis of a disability. The ADA and the First Amendment can be harmonized by eliminating section 12112(d)(2) and by simply allowing the jury to consider any disabilityrelated question asked as potential evidence of discriminatory intent. V. Conclusion The ADA, without question, addresses legitimate societal concerns on behalf of the disabled. However, in its zeal to follow through on its noble intentions, Congress neglected to analyze the full effect of this anti-discrimination statute. This is not to say that section 12112(d)(2) is so clearly unconstitutional as to be indefensible. Indeed, the burden that it places on the First Amendment is temporal rather than absolute. Nevertheless, the pages of United States Reports are filled with examples of seemingly minimal burdens on speech that were eviscerated by the First Amend196. See United States v. Scheffer, 523 U.S. 303, 313 (1998); see also SAUL M. KASSIN & LAWRENCE S. WRIGHTSMAN, THE AMERICAN JURY ON TRIAL 67–70 (1988).

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ment. Cohen, for example, could have made his anti-draft point with less colorful language than he used, perhaps something along the lines of “the draft is evil” or even “the draft sucks”; but the Supreme Court considered even that minimal euphemization of Cohen’s speech to be intolerable.197 Although section 12112(d)(2) would be evaluated under a more lenient test than that used in evaluating Cohen’s message, even that more lenient test suggests that the provision is unconstitutional. This is not to say that it would be a good idea, in the absence of section 12112(d)(2), for employers to ask disability-related questions of applicants during pre-offer interviews. In fact, it generally would not be a good idea since the answer to such a question could put the employer on notice of a hidden disability, thereby laying the foundation for an ADA claim; whereas if the employer does not know of a disability, however, it cannot be held liable for violating the ADA. Nevertheless, the First Amendment does not and should not exist to protect employers from asking unwise questions. The root problem, apparently unconsidered by Congress, is that section 12112(d)(2) is simply not necessary to serve the interests advanced by the ADA. The conflict between the First Amendment and the ADA could be harmonized simply by eliminating section 12112(d)(2) and allowing juries to consider the asking of disability-related questions as potential evidence of discriminatory motives and possibly as negligent spoliation of evidence. It may be that these suggestions have the same practical effect as the current interpretation of section 12112(d)(2). Nevertheless, if the same results can be reached without disrupting the First Amendment, there is no reason not to implement the suggestions.

197. Cohen v. California, 403 U.S. 15, 25–26 (1971) (holding that the First Amendment protected a draft protester’s wearing, in a courthouse, a jacket reading “Fuck the Draft”).

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Accommodating the Employment Disabled Douglas L. Leslie* I. Introduction The Americans with Disabilities Act (ADA) forbids an employer from discriminating against employees or applicants with disabilities by “not making reasonable accommodations” to the disabled person unless the employer “can demonstrate that the accommodation would impose an undue hardship on the operation of the business.”1 A recurring issue under the ADA is what constitutes a “reasonable accommodation.” The issue has not proved tractable. Judge Posner writes, It is understood in [negligence] law that in deciding what care is reasonable the court considers the cost of increased care. (This is explicit in Judge Learned Hand’s famous formula for negligence. United States v. Carroll Towing Co., 159 F.2d 169, 173 (2d Cir. 1947).) Similar reasoning could be used to flesh out the meaning of the word “reasonable” in the term “reasonable accommodations.” It would not follow that the costs and benefits of altering a workplace to enable a disabled person to work would always have to be quantified, or even that an accommodation would have to be deemed unreasonable if the cost exceeded the benefit however slightly. But, at the very least, the cost could not be disproportionate to the benefit . . . The employee must show that the accommodation is reasonable in the sense both of efficacious and of proportional to costs.2

Two thoughtful scholars, arguing that order may emerge from chaos, write, [T]he ADA calls for a far more individualized process of fitting individuals to jobs than the anti-discrimination and affirmative action principles of Title VII. While it is certainly possible that this case-bycase approach to enforcement could deteriorate into purely ad hoc judicial decision making, precedent counteracts this tendency, both at the level of formal legal doctrine and by providing the parties with

* Mr. Douglas L. Leslie is the Charles O. Gregory Professor of Law at the University of Virginia. 1. Americans with Disabilities Act § 102(b)(5)(A), 42 U.S.C. § 12 112(b)(5)(A) (1990). In this essay, I do not deal with the question of what an “undue hardship” for the employer might mean. In the absence of a defensible meaning of “reasonable accommodation,” qualifying that term with “undue hardship” does not help the analysis. The survey of cases described infra disclosed no cases in which unreasonable hardship was an issue. 2. Vande Zande v. State of Wis. Dep’t of Admin., 44 F.3d 538, 542–43 (7th Cir. 1995).

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17 THE LABOR LAWYER 143 (2001) templates of reasonable accommodation for settlement and compromise. Accommodations imposed, or approved, in prior cases simplify the process of later negotiations over accommodations for other employers and employees. With the accumulation of decisions, the adequacy of any particular accommodation will become both better known to the parties and more easily evaluated by a court. 3

Accommodation issues in employment arise in a variety of contexts. For example, a warehouseman with arthritis may be able to perform his job only with a piece of equipment, a dolly, that is not ordinarily provided by the employer. The warehouseman asks the employer to supply a dolly. Second, the warehouseman with arthritis may be able to do all aspects of his job except lift boxes of cigarettes from a palate to storage shelves. The warehouseman asks his employer to reassign that task. This may have only a small impact on other employees. Third, a sight-impaired warehouseman requests to work on the day shift because his impairment precludes his driving a car to work, and there is no public transportation to the plant at night. This request requires that a more senior warehouseman be reassigned from the preferable day shift to the night shift. Fourth, a sight-impaired warehouseman who cannot read the labels on many of the boxes in the warehouse asks that a reader (an assistant who is not sight-impaired) be supplied to him at the employer’s expense.4 II. Disabled Workers in Competitive Labor Markets In the idealized competitive labor market, at any point in time many firms are matched with many workers. When adjusted for differences in location, working conditions, and the like, wages reach equilibrium. Any individual firm has ample workers available to it at the equilibrium wage. Workers have numerous job opportunities at the equilibrium wage. Real labor markets contain substantial transaction costs, but it is useful to explore the concept of reasonable accommodations in the context of a perfectly competitive market. Suppose that workers in some groups in a competitive labor market are perceived by employers to be less valuable to the employer than average workers. I call these workers PLVs—perceived as less valu3. Pamela S. Karlan & George Rutherglen, Disabilities, Discrimination, and Reasonable Accommodation, 46 DUKE L.J. 1, 21 (1996). 4. It is possible that under section 504 of the Rehabilitation Act and the cases applying the Rehabilitation Act the use of assistants may be required accommodations. See Nondiscrimination on the Basis of Handicap in Programs or Activities Receiving Financial Assistance, 34 C.F.R. § 104.12(b) (Feb. 6, 2001) (“Reasonable accommodation may include: . . . (2) . . . the provision of readers or interpreters, and other similar actions.”); see also Overton v. Reilly, 977 F.2d 1190, 1195 (7th Cir. 1992) (stating that an assistant to speak on the phone may be a required accommodation for an individual unable to communicate effectively by phone); Arneson v. Sullivan, 946 F.2d 90, 93 (8th Cir. 1991) (requiring that a reader must be provided as an accommodation); Nelson v. Thornburgh, 567 F. Supp. 369, aff’d, 732 F.2d 146 (3rd Cir. 1984) (holding that the hiring of readers is a required accommodation for blind employees).

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able. These groups can include, and have historically included, racial minorities, women, and disabled persons. At the equilibrium wage, PLVs will not be hired, whether they are, in fact, less valuable or not. In the idealized competitive market, PLVs will underbid the equilibrium wage. Some firms will hire them at this lower wage. Over time, if the PLVs are in fact as valuable as other workers, the firms that hire them will prosper. Other firms will follow suit and compete for these workers. This process will eliminate discrimination if discrimination means the refusal to hire a worker because of a false perception that the worker is less valuable. Suppose that because of a legal rule, such as the ADA or Title VII, or a strong social norm, managers are not permitted to hire PLVs at less than the equilibrium wage. PLVs will not be able to underbid the equilibrium wage and so will not be hired. Even a manager who does not believe these workers to be in fact less valuable will not hire them as long as the manager believes there is a risk that they are less valuable. There is no reason for the firm to take this risk in the face of an ample supply of workers who do not carry the risk. Only if there were an upside possibility that the PLVs were in fact more valuable would they be hired. It becomes clear why a government which legislates that PLVs be paid the equilibrium wage must also legislate that firms hire them. To do otherwise will condemn PLVs to be unemployed. Disabled persons fall into two categories: those who are incorrectly perceived as less valuable and those who are in fact less valuable. Disabled workers who require an accommodation to be fully productive are less valuable than those who do not—less valuable by the cost of the accommodation. In a competitive labor market, the disabled person underbids the equilibrium wage in order to be hired. The amount of the underbid is dictated by the cost of the accommodation and any amount necessary to overcome the firm’s perception that the disabled worker is less productive, notwithstanding accommodation. If the latter perception is false, the market will eliminate this component of the underbid wage. The result is that the disabled person will absorb the costs of his or her disability. In summary, if legal rules and/or social norms do not permit disabled workers requiring accommodation to be paid less than the equilibrium wage, these workers will not be hired (absent compulsion). This makes all the relevant parties worse off. III. Efficient Accommodations Legal rules forbid firms from refusing to hire disabled workers and from hiring them at less than the equilibrium wage. The rules require firms to make reasonable accommodations to disabled workers unless the accommodation entails an “undue hardship.” A possible meaning Copyright 2001 American Bar Association

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of reasonable accommodation is that firms must only make accommodations that carry “de minimus” costs.5 This suggests a transactions costs analysis. The labor market is not frictionless. Firms fail to notice trivial changes, such as a small fan for an employee who suffers from Multiple Sclerosis, that make a disabled worker fully valuable. A judge uses the statute to correct the flawed market outcome, but the change must be nearly costless, or else it is hard to explain why managers failed to notice it. Alternatively, reasonable accommodations might entail a cost/ benefit analysis. If this means comparing the costs to the firm of making the accommodation to the benefits the firm derives from the nowproductive disabled worker, the analysis will produce only de minimus accommodations, at best. A cost-effective major accommodation is only consistent with a belief that at the equilibrium wage accommodated disabled workers are more productive than other workers and that employers are ignorant of this fact. Moreover, if the accommodation is de minimus, legal compulsion is often unnecessary. The disabled worker who needs a dolly to do his job is well advised to buy one out of his own pocket. The only theory supporting a finding that the cost of a dolly is substantial to the disabled employee but de minimus to his employer is some version of deep pockets. Where a defendant is a large-scale firm, any accommodation is reasonable on a deep pocket theory. For those who believe the enactors of Title VII had more than de minimus accommodations in mind when they required reasonable accommodations, the task is to find an analytical framework for determining which accommodations are reasonable. One candidate is to compare the costs to the firm of an accommodation to the benefit realized by the accommodated disabled worker. When the benefits to the worker exceed the costs to the firm, they have the flavor of Kaldor-Hicks efficiency: changes that benefit some people more than they cost others so that the gainers can fully compensate the losses and still come out ahead. The compensation is not actually paid, thus distinguishing Kaldor-Hicks efficiency from Pareto efficiency.6 5. This is the rule when workplace accommodations of religious beliefs are at stake. See Trans World Airlines, Inc. v. Hardison, 432 U.S. 63 (1977). 6. Thomas S. Ulen, Book Review, Law’s Order: What Economics has to do with Law and Why it Matters, 41 SANTA CLARA L. REV. 643 n.9 (2001) (stating, Kaldor-Hicks efficiency stands in contrast to Pareto efficiency, which is the more fundamental economic concept of efficiency. An allocation of goods and services is ‘Pareto efficient’ if it is impossible to reallocate the current holdings among the current holders so as to make one or more people better off (in their own estimation) without making someone else worse off (again in his or her own estimation). That is, under Pareto, efficiency reallocations must be consensual—the losers must be compensated by the winners so that there is a clear net gain from any reallocation. An allocation that cannot be consensually altered is said to be ‘Pareto efficient’ or ‘Pareto optimal.’ ‘Kaldor-Hicks efficiency’ is an easier standard under which to reallocate goods and services.

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Often it is easy to quantify the costs of an accommodation to the firm. When the firm constructs a ramp to allow a worker in a wheelchair to gain access to a part of the plant, the cost of accommodation is the cost of the ramp. The costs of a reader to help a sight-impaired worker are the reader’s wages and benefits. However, costs to the firm are not as easy to quantify where the interests of other employees are concerned. If a disabled worker needs to work the day shift and this requires a more senior employee to lose her shift preference, in theory the cost can be measured by the amount of money necessary to persuade the senior employee to give up the day shift. Whether the senior employee’s price can actually be measured is a different story, unless the firm in fact makes the offer. As accommodations become more complex, calculating the employer’s costs is more difficult. Examples include organizational rearrangements, such as giving the employee permission to work from his home. Calculating the benefit to the worker is difficult, perhaps impossible. Take the easiest case: Bill is disabled, but if it were not for his disability, he could do the work of a repairman B at a local electronics factory. The position pays $30,000 per year. What is the benefit to him of an accommodation that permits him to fill the position? One needs to know the value to Bill of his next best job. The difference between the value to Bill of the repairman B job and his next best job is the benefit to him of the accommodation. Knowing the value of Bill’s next best job will not be easy, and often there will be no hard data. Moreover, it is incorrect to calculate the difference between repairman B and Bill’s next best job merely by using salary figures. Even assuming that the salary differentials perfectly take into account differences in working conditions, it is not accurate to assume that salary differentials accurately measure the value of a particular job in terms of a worker’s self-esteem. For instance, take law professors: Some law professors gain considerable self-esteem from the position; others gain less or none. Market salaries may reflect the self-esteem value of a position (by producing lower salaries than if the position did not carry prestige), but there is no occasion actually to convert the self-esteem to dollar values. Professors who gain the self-esteem may stay in the profession; those who do not may stay or go depending on other factors. Comparing the difference in value between Bill of the repairman B position and Bill’s next best job requires such a calculation, and it cannot be done with any confidence. Under the Kaldor-Hicks criterion a reallocation is superior if the winners could have compensated the losers, but they do not have to do so. In essence, this criterion recommends changes on the basis of a cost-benefit analysis: if the benefits of a reallocation exceed the costs, then the reallocation is KaldorHicks efficient.)

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Even if repairman B were Bill’s only job prospect, the calculation would not be easy. At some wage, Bill prefers to stay at home. Thus the cost to the employer of the accommodation will have to be compared to the value to Bill of the repairman B position, including the value of the self-esteem Bill enjoys by being a member of the workforce, less the wage at which Bill prefers to stay at home. There is a situation in which an accommodation that an employer ordinarily does not make is efficient in a Kaldor-Hicks sense. Assume that six disabled applicants could perform jobs in the plant if an entry ramp were built, and the benefit of the ramp-accommodation to the group of six is greater than the cost of constructing it. Absent a legal rule or social norm requiring the ramp to be built by the employer, it may not be. The value of the ramp to any single employee may be less than the cost of construction. The difficulties of collecting contributions toward ramp construction from the disabled workers are serious. There are the familiar hold-out problems, and they are exacerbated by the fact that the precise identity of the disabled persons who will be successful job applicants will not be known in advance of the building of the ramp. In addition, some disabled beneficiaries of the ramp will come to the firm after the initial beneficiaries leave. The employer will not build the ramp absent compulsion so long as it is assumed that the disabled workers will not be more productive after the ramp is built than are workers who need no ramp. Requiring the employer to build the ramp is Kaldor-Hicks efficient under these conditions, and measurement costs will not necessarily be insuperable. What is required is a finding that the cost of the ramp (certainly knowable) is less than the estimated benefit to present and future disabled beneficiaries of the ramp. The latter calculation, in theory, requires a comparison of the value of this job to each beneficiary’s next best job; but because the net gain is summed over all present and future beneficiaries, I may be more confident that even an inexact approximation produces a surplus when the gain to the beneficiaries is multiplied by their numbers.7 IV. Normative Conclusions It is little wonder that courts and commentators alike have no theory for what constitutes a reasonable accommodation under the ADA. If such a theory is grounded on a cost-benefit analysis, a calculation will be impossible when the accommodation of a single employee’s disability is at stake, not because the cost to the employer of the accommodation is unknowable but because the gain to the disabled worker is. 7. This suggests that public accommodations of the disabled requires an analysis different from the analysis of employment accommodations. Collective action problems are common in public accommodations (could disabled bus riders collectively pay for wheelchair-accessible buses?); they arise much less frequently in employment.

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This essay suggests these candidates for justifiable accommodations: • A court-ordered accommodation is justifiable if the cost to the employer is de minimis, the gain to the disabled employee is positive, and the employee cannot secure the accommodation on his own. This does not include providing a dolly or a reader, but it might include shifting some job tasks from a disabled worker to a fully able worker. The disabled worker may not be able to accomplish a shift of tasks without the employer’s assistance. • A court-ordered required accommodation is justifiable when it benefits many disabled workers, and collective action problems prevent the disabled workers from paying for the accommodation. This might include a ramp; it does not include a dolly or a reader. Neither a dolly nor a reader is a collective good. A final point deserves mention. If those who are not disabled are generally benefited by workplace accommodations of disabled workers, should these benefits count in any cost/benefit calculation? I cannot refute the claim, nor do I wish to, that many derive psychic benefits from seeing disabled persons perform dignified jobs in the workplace. Moreover, assigning the costs of accommodations over employers is generally not a bad way to spread the costs since it approximates the population generally. The problem is that these benefits are not quantifiable. Of the 200 million people in the United States over age eighteen, what annual dollar amount ought to be assigned as the average increase in well-being experienced by the fully able in observing disabled workers accommodated in the workplace? These benefits may be real, but the magnitude is purely speculative. Their inclusion in a particular decision of whether to compel an accommodation does not yield predictable or consistent outcomes. V. Outcomes in the Courts To gain a sense of how courts treat the accommodation issue under the ADA, I read fifty federal courts of appeals opinions and fifty federal district court opinions from 1999. Each case raised ADA issues in an employment context.8 I made several interesting discoveries. Of seventy-two ADA appellate cases, fifty were unpublished and twentytwo were published.9 This may be some evidence that the courts of 8. This sort of empirical research runs the risk that cases which produce opinions do not accurately reflect the legal landscape. For example, the majority of ADA law suits may be settled favorably to plaintiffs, with only the particularly weak claims requiring a court adjudication and opinion. Were that the case, a sampling of opinions would indicate a low success rate for plaintiffs, whereas in fact the success rate was high. 9. I read seventy-two in order to get fifty that could be reviewed. The twenty-two that I rejected were unpublished, so I summarize in form that the facts could not be discerned.

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appeals do not take the issues raised by a typical ADA employment case very seriously. There were few accommodation issues. In only eighteen of the one hundred cases were accommodation issues raised.10 The employer won on the merits in thirteen of those cases while the plaintiffs won none, and five were sent to a fact finder for disposition. The employers’ success rate in defending accommodation claims was matched by the employers’ overall success rate in defending ADA claims. Of the one hundred cases, the employer won outright in seventy-four. Meanwhile, the employee won outright in three cases and thirteen were sent to a fact finder. The most common ADA issue was whether the plaintiff was disabled and otherwise qualified to do the job. The courts often treat these two conceptually distinct questions as the same issue. For example, a plaintiff discharged for repeated tardiness may allege that a sleep disorder prevents him from regularly arriving to work on time. The court is likely to rule along the following lines: “We have considerable doubt that the disorder interferes with a major life activity, but even if it does, the ability to arrive at the workplace on time is an essential element of the job.” The disabled/otherwise-qualified issue was dispositive in sixty-two of the one hundred cases. In another thirty cases, the court was willing to assume the plaintiff was disabled and otherwise qualified, and the issue was therefore whether the disability was the cause of the plaintiff’s discharge.11 My conclusion from the cases is that courts see the ordinary ADA employment case as a wrongful discharge case. Instead of a discharged employee alleging lack of good cause, as she may under a collective bargaining agreement, or alleging that the discharge violated public policy, as she might in an appropriate at-will employment state, she alleges that the discharge was because of a disability. The statistics from past cases suggest that the ADA plaintiff has a very poor chance of success. 10. The requested accommodations included (i) two requests for part-time work; (ii) six requests for job reassignment; (iii) one request for restrictions on lifting and overhead work; (iv) two requests for a helper (such as a sign-language interpreter); (v) one request for a device (such as a large magnifying glass); (vi) five requests were not specifically requested by the employees; (vii) three requests for an extended leave of absence; and (viii) one request for more time to get to work. The list is longer than the number of cases because in some cases more than one accommodation was suggested. 11. In four cases, the issue was whether the employer had retaliated against the employee for raising an ADA claim.

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Another purpose of surveying the cases was to determine what percentage of the accommodation cases included an accommodation request that would benefit employees in addition to the individual making the request. Only one of eighteen accommodation cases involved a request for an accommodation that would benefit a group of workers. In EEOC v. Rockwell International Corp., the EEOC sued to prevent an employer from refusing to hire applicants because they failed a nerve conduction test.12 The case was not decided on the merits. In no other case was an accommodation requested that would benefit any employee other than the one making the request.13 VI. Summary of the Data Defining reasonable accommodation is an issue in comparably few ADA cases. In cases where it is an issue, the employer ordinarily prevails. Most ADA cases raise issues of causation and whether the plaintiff is “otherwise qualified.” Usually, accommodations of trivial cost are not worth a lawsuit by either side. If the refused accommodations were to produce a collective good, they would not be found in the litigated cases. Dispositions on the merits Employer Plaintiff Fact Finder14

74 3 19 Types of issues

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12. 36 F. Supp. 2d. 1056 (N.D. Ill. 1999). 13. A typical case would be one in which a plaintiff, suffering from asthma, requests a transfer to a different job where the effects of the working conditions on the asthma will be lessened. The first issue is whether the employee’s asthma impairs a major life activity. This is an individual determination because not all asthma sufferers are equally afflicted. If the plaintiff prevails on this issue, the question will be whether the transfer to a different job is reasonable. This will turn on a host of issues, such as whether there is a formal seniority system that the plaintiff seeks to avoid, whether there is another job open (or whether another employee must be bumped), and so forth. It could be argued that the asthma sufferer, who successfully establishes his disability status and gains the job transfer, sets a precedent that will be enjoyed by future asthma sufferers at this employer; thus, the accommodation benefits a class larger than the individual employee. Looking at the cases, I do not treat this precedent-setting argument as carrying force. The cases turn on the facts of the individual claim. (A counterexample may be the asymptomatic HIV-positive worker. If that worker is found to be disabled, then presumably all asymptomatic HIV-positive workers are also disabled, as nothing distinguishes one asymptomatic individual from another.) 14. By fact finder, I mean that neither side gained a summary judgment.

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Retail Industry Picketing and Hand Billing: Access Rights of Non-Employee Union Representatives, Striking, and Off-Duty Employees to Shopping Malls, Parking Fields, Stores, and Other Private Property Laurie Nicole Robinson and Evan J. Spelfogel* I. Introduction Collective bargaining is a cornerstone of national labor policy. In order to gain bargaining rights, a union must first gain access to employees, and those employees need to be able to communicate their union sentiments to others. Union representatives often attempt to organize retail store employees on an employer’s premises—either inside or near a store entrance, in the parking lot, or on the sidewalks in and around a store or shopping mall. Unions often seek to enlist the support of on-duty and off-duty employees in these efforts. Tactics may include distributing union literature and consumer hand billing. Employees may be asked to cease work and customers to cease doing business with the targeted employer because either the employer is non-union or it allegedly pays its employees substandard wages and benefits. Sometimes unions protest alleged unfair labor practices by an employer or unsafe or dangerous work conditions. Although section 7 of the National Labor Relations Act (NLRA) guarantees to employees the right to organize and join unions for their mutual aid and benefit (or to refrain from such activities),1 employers have certain property rights inherent in their capital investment, as well as the right to maintain production and discipline. Over the years, * Evan J. Spelfogel is a partner in the New York office of Epstein Becker & Green, P.C., and a fellow of the College of Labor and Employment Lawyers. Laurie Nicole Robinson was an associate in the New York office of Epstein Becker & Green, P.C., when this article was prepared and is now an associate in the New York office of Seyfarth Shaw, where she specializes in labor and employment matters. 1. National Labor Relations Act § 7, 29 U.S.C. § 157 (1998).

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the clash between employee and employer rights has been the subject of numerous administrative and judicial attempts at achieving the proper balance necessary to harmonize the divergent principles. II. Non-Employees’ Rights A. Babcock & Wilcox Access rules pertaining to non-employees have traceable origins to the U.S. Supreme Court’s 1956 decision in NLRB v. Babcock & Wilcox Co.2 In Babcock, the Court addressed whether an employer could deny non-employee union organizers access to its property. Here, the employer had refused to permit non-employee union organizers onto the company parking lot to distribute literature to its employees. The National Labor Relations Board (NLRB) had found that the organizers had no practical alternative to entering company property to hand bill employees because the plant’s physical location made solicitation from public property impossible. The employer defended its refusal on the grounds that its rule against permitting strangers on its private property had been consistently applied and that the distribution would have littered its property. The NLRB held that the employer had violated section 8(a)(1) of the NLRA because the union’s alternative opportunities to reach the employees—personal contact in the community or at home, by telephones, letters or advertised meetings—were “less effective” than communications at the work site.3 Because no employees were engaged in the solicitation, it was not the employees’ section 7 right to speak that was at issue, but their section 7 right to hear. The NLRB balanced the employees’ right to hear against the employer’s property right to secure its plant from strangers and found against the employer. The Supreme Court reversed the NLRB’s decision. The Court laid down the basic principle that an employer could always prohibit access to its premises by non-employees, provided “reasonable” alternative channels of communication were available and the employer’s policy did not discriminate between protected union and nonunion activities (such as community fundraising).4 Babcock set out the following standards: • The “employer may validly post [its] property against nonemployee distribution of union literature if reasonable efforts by the union through other available channels of communication will enable it to reach the employees with its message.”5 2. 351 U.S. 105 (1956). 3. National Labor Relations Act § 8(a)(1), 29 U.S.C. § 158(a)(1)(1998) (making it “an unfair labor practice for an employer to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed” them by section 7 to join unions or act in concert for mutual aid and protection). 4. Babcock, 351 U.S. at 112. 5. Id. at 112.

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• The employer’s posting of its property must not “discriminate against the union by allowing other distribution.”6 • “The right of self-organization [under the NLRA] depends in some measure on the ability of employees to learn the advantages of self-organization from others.”7 • These self-organizational rights under the NLRA and the preservation of private property rights are both guaranteed by the federal government.8 • There must be an accommodation between these two sets of rights “with as little destruction of one as is consistent with the maintenance of the other,” with the proper balancing between the two sets of rights to be made by the NLRB.9 • “[W]hen the inaccessibility of employees makes ineffective the reasonable attempts by non-employees to communicate with [employees] through the [normal] channels, the [employer’s] right to exclude [non-employees] from [the employer’s] property [must] yield to the extent needed to permit communication of information [to the employees] on the right to organize.”10 After the Babcock & Wilcox decision, unions argued that their representatives should have access to company premises if solicitation on public property near the plant was impractical or if employee homes were scattered throughout a large metropolitan area. However, the NLRB ruled against a right of access for union organizers in these circumstances.11 B. Logan Valley, Tanner, and Hudgens In the ensuing years, the NLRB and the courts have tussled back and forth in an attempt to balance retail business and shopping center private property rights with employee section 7 rights. In earlier decisions, the NLRB allowed access to outside organizers based on constitutional freedom of speech. In Logan Valley Plaza, the U.S. Supreme 6. Id. 7. Id. at 113. 8. Id. at 112. 9. Id. 10. Babcock, 351 U.S. at 112. 11. See Dexter Thread Mills, Inc., 199 N.L.R.B. 543, 81 L.R.R.M. (BNA) 1293 (1972) (involving a union attempt to organize retail store employees. The employer’s property was accessible only by means of a public highway adjacent to the parking lot, with a speed limit of 60 m.p.h. A ten-foot wide, tree-filled public easement separated company property from this highway. The union challenged the employer’s refusal to permit organizers to distribute handbills on the company parking lot and argued that efforts to obtain employee names and addresses and to make home visits had been unsuccessful. The NLRB upheld the employer’s right to exclude the organizers because it would have been relatively easy and safe for the union organizers to stand on the public easement between the lot and the highway and copy the license numbers of cars entering the lot. Hence, union organizers could easily obtain the names and addresses of employees and communicate with them at their homes).

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Court held that peaceful picketing in a location that was generally open to the public, such as a shopping center, was protected by the First Amendment.12 In this case, the union picketed inside a large shopping center. Its target was a tenant of the shopping center: a retail store employing a non-union staff. The pickets carried signs and complained that the retail store’s employees were not receiving union wages and other union benefits. The Supreme Court of Pennsylvania held that picketing inside the shopping center was trespassing and issued an injunction that required the union to limit picketing to public roads outside the shopping center.13 The U.S. Supreme Court vacated the injunction order.14 In a prior decision in Marsh v. Alabama, the Court had held that a town in Alabama, which was completely owned by a private corporation, had contained all the characteristics and functions of a typical American town and, therefore, was quasi-public.15 Following Marsh, the Court in Logan Valley held that shopping center picketing was constitutionally protected, notwithstanding its occurrence on private property.16 Four years after Logan Valley, the Supreme Court in Lloyd Corp. v. Tanner held that a group of young people who had entered a shopping center to distribute handbills protesting the ongoing military operations in Vietnam were not protected by the First Amendment.17 The Court declined to overturn Logan Valley but distinguished it on the grounds that the communications in Logan Valley related to a store in a shopping center and that the pickets had no other reasonable opportunity to reach their intended audience. In Hudgens v. NLRB, the Supreme Court went full circle and overruled Logan Valley.18 The NLRB in Hudgens tried to have it both ways—depriving an owner of his property rights on both constitutional and section 7 grounds. The case involved union picketing at a store inside a shopping center. The pickets left when threatened with arrest and the union filed a section 8(a)(1) unfair labor practice charge. The Supreme Court held that there was no constitutional right for a union to picket on private property and expressly overruled Logan Valley on the constitutional issue. However, it did not resolve the section 7 issue. On the section 7 point, the NLRB continued to rule in favor of granting union access. In Giant Food Markets, Inc., for example, the NLRB permitted area standards picketing and hand billing at the en12. Amalgamated Food Employees Union Local 590 v. Logan Valley Plaza, Inc., 391 U.S. 308 (1968), abrogated by Hudgens v. NLRB, 424 U.S. 507 (1976). 13. Logan Valley Plaza, Inc. v. Amalgamated Food Employees Local 590, 227 A.2d 874 (Pa. 1967). 14. 391 U.S. 308. 15. 326 U.S. 501, 508 (1946). 16. Logan Valley Plaza, Inc., 391 U.S. at 319–20. 17. 407 U.S. 551 (1972). 18. 424 U.S. 507.

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trance to a grocery store that shared a building with K-mart.19 Giant’s former workforce was unionized, but the store was closed and the employees were terminated. When Giant reopened with a nonunion workforce, the union picketed and hand billed the store on private shopping center property, asking the public to boycott the store because its employees received substandard wages and benefits. The property owner demanded that the pickets vacate the property, and when they refused, the owner obtained a state court injunction prohibiting trespassory area standards activity. The union thereafter filed a section 8(a)(1) charge. The NLRB found that the balance weighed in favor of granting the union access for the following reasons: (1) the area standards activity was protected under section 7; (2) the property in question was shared by at least one other business; and (3) the union’s principal intended audience was potential customers. Accordingly, the board held that requiring the picketing and hand billing to be conducted on public property at the parking lot entrances, some 250 feet from the store entrance, “would too greatly dilute the union’s message for it to be meaningful.”20 The Sixth Circuit refused to enforce and vacated the NLRB’s decision.21 C. Jean Country After the Hudgens and Giant Food decisions, a number of cases came before the NLRB in which it attempted to balance private property rights with union access rights, generally finding for the unions. On appeal and review, however, the courts were not sympathetic to the board. In Jean Country, the NLRB tried to clarify its balancing test in light of these court rejections and the principles of Babcock & Wilcox and Hudgens.22 Jean Country involved a retail clothing store that was owned and operated by a tenant in a shopping mall. The shopping mall included two large department stores and over one hundred smaller specialty stores generally clustered together and grouped in aisles in the middle of the mall. Union representatives carried signs in the mall, informing the public that store employees were not represented by the union and asked customers not to patronize Jean Country. The union’s goal was to persuade customers to shop at other stores in the mall, whose em19. Giant Food Mkts, Inc., 241 N.L.R.B. 727, 100 L.R.R.M. (BNA) 1598 (1979), vacated, 633 F.2d 18 (6th Cir. 1980). 20. 241 N.L.R.B. at 729. An interesting sidelight of the Giant Food decision was that the state court initially granted, then vacated, and then reinstated its injunction. After the NLRB decision in favor of the union, the state court injunction was again vacated on preemption grounds. 21. 633 F.2d 18 (6th Cir. 1980). 22. 291 N.L.R.B. 11, 129 L.R.R.M. (BNA) 1201 (1988), abrogated by Lechmere, Inc. v. NLRB, 502 U.S. 527 (1992). The test announced in Jean Country replaced the NLRB’s earlier test in Fairmont Hotel Co., for non-employee union access. 282 N.L.R.B. 139, 123 L.R.R.M. (BNA) 1257 (1986), overruled in part by Jean Country, 291 N.L.R.B. 11.

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ployees were represented by the union. The mall owner and Jean Country requested the police to remove the pickets from the premises. In its Jean Country ruling, the NLRB changed its standard for access cases. Based on its interpretation of Supreme Court precedent,23 the board declared that in all access cases, the degree to which section 7 rights were impaired through denial of access should be balanced against the degree to which private property rights would be impaired if access had been granted. In addition, the availability of reasonable and “effective” alternative means of communication was to be considered “especially significant” in this balancing process.24 Applying this test, the NLRB found that (1) the picketing was for organizational purposes and to discourage customers from shopping at Jean Country and (2) these purposes were on the weaker end of the spectrum of section 7 rights.25 Notwithstanding, the board found the picketing to be within the protection of section 7. In so finding, the board examined the possibility of the union’s reaching customers in a non-trespassory manner but dismissed this as a viable alternative. It was unreasonable, said the NLRB, to require the union to undertake a mass media campaign, particularly because the union would thereby incur great costs and its message would be removed from the “situs.”26 Moreover, the board opined, the union message could not be adequately conveyed from the public entrances of the mall. The alternatives would not only dilute the union message, but would also not allow the union effectively to reach “impulse shopper[s].”27 The only way for the union to “effectively” identify and communicate with potential customers would be to picket inside the mall closer to the store. Moreover, the board concluded that private property rights would not be meaningfully impaired. 28 Until the U.S. Supreme Court decision in Lechmere, discussed later, the NLRB had consistently applied the Jean Country analysis to grant union access. In most of these cases, the board had determined that the relative ineffectiveness and impracticability of alternative means of communication outweighed the private property interests. In 1992, in Lechmere, Inc. v. NLRB, the Supreme Court overturned Jean Country and criticized the NLRB for failing to adhere to the principles of Babcock & Wilcox and Hudgens.29 D. Lechmere In Lechmere, the Supreme Court addressed the issue of access by non-employee union organizers to an employer’s private property. Lech23. 24. 25. 26. 27. 28. 29.

See Babcock & Wilcox, 351 U.S. 105; Hudgens, 424 U.S. 507. Jean Country, 291 N.L.R.B. at 14. See id. at 18. Id. at 20 Id. at 18. Id. at 19. 502 U.S. 527 (1992).

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mere arose out of an attempt by Local 919 of the United Food and Commercial Workers Union to organize Lechmere employees at a retail store located in a shopping plaza in Newington, Connecticut. Lechmere also owned part of the plaza’s parking lot, a section of which was designated as the employees’ parking lot. Union representatives entered the parking lot and placed handbills on the windshields of cars parked in the employees’ section. Lechmere removed the handbills and denied the union organizers access to the lot on several occasions. The union representatives then relocated themselves to a public strip of land adjacent to the parking lot and continued their organizing efforts by distributing handbills, picketing, and recording the license plate numbers of cars parked in the employee area of the lot. The union filed an unfair labor practice charge with the NLRB, alleging that Lechmere had violated the NLRA by barring the nonemployee organizers from the property. An administrative law judge found for the union. The board affirmed, relying on the balancing test set forth in Jean Country. The U.S. Court of Appeals for the First Circuit enforced the NLRB’s order.30 On appeal, however, the U.S. Supreme Court reversed and held that the non-employee union organizers could be barred entirely from private shopping center premises unless they could show no reasonable alternative means of communicating their message.31 The Court concluded, based on Babcock & Wilcox, that Lechmere did not commit an unfair labor practice by barring non-employee union organizers from the property for the following reasons: • An employer could not be compelled to allow non-employee organizers on its property; • As stated in Babcock & Wilcox, section 7 “does not protect nonemployee union organizers except in the rare case where ‘the inaccessibility of employees makes ineffective the reasonable attempts by non-employees to communicate with them through the usual channels’ ”;32 and • The facts did not justify the Babcock & Wilcox inaccessibility exception. The Supreme Court expressly rejected the NLRB Jean Country approach, saying that the board had misconstrued and misapplied Babcock & Wilcox.33 Henceforth, the Supreme Court said that where there 30. 914 F.2d 313 (1st Cir. 1990). 31. Lechmere, Inc., 502 U.S. at 541. 32. Id. at 537 (quoting Babcock & Wilcox, 351 U.S. at 112.) 33. Id. at 538. Justice White, in dissent, argued that the NLRB correctly made an “accommodation” of the competing section 7 interest and the private property interest under the Babcock & Wilcox and Hudgens rulings. Moreover, the dissent argued that there are cases in which access to private property must be granted under section 7 and that this access should not be limited solely to instances when reasonable alternative access is infeasible. Rather, Justice White asserted that under previous cases, the Court

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were any alternative means of communication with employees, regardless of how effective those means might be, the union was not entitled to access private shopping mall or store property for organizational or recognition purposes. The Court further stated that in large metropolitan areas, newspapers, radio, and television almost always provided reasonable alternative access; the availability of public sidewalks and a public way less than 500 feet from the target store was itself a reasonable alternative access. Furthermore, the Court held that alternative access may have been reasonable even if it was more expensive or less effective for the union.34 III. Employees’ Rights So far we have discussed non-employees’ rights of access. Different rules apply to employees’ access to private store property to assist in union objectives. Moreover, there is an entirely separate body of law that has developed, and it involves the rights of employees to engage in union related solicitation and distribution of union materials in the workplace. For example, in Seattle-First National Bank, the NLRB applied a balancing approach and ruled that section 7 rights of employees on strike outweighed an owner’s property rights.35 In this case, a restaurant’s striking employees picketed and hand billed in the foyer of the restaurant until they were ordered to leave the building. The board reasoned that the union’s message could not have been effectively communicated unless the pickets had access to the employer’s property. Restaurant customers, the board said, became identifiable only as they entered the restaurant. Therefore, access to the restaurant entrance and premises was essential for employees to deliver the message to the intended audience. A. Solicitation and Distribution Generally, cases involving solicitation and distribution by employees are fairly straightforward. In recognition of the fact that employers have an interest in maintaining production and discipline inside the workplace, the NLRB allows restrictions on workplace solicitation by an employer’s own employees during working time. Moreover, because of the special difficulties with litter that distribution often creates, an employer may restrict the distribution of literature in working areas of a facility both on and off the employees’ working time. These rules are

viewed reasonable alternative means as “an important factor in finding the least destructive accommodation between § 7 and property rights.” Id. at 545. Finally, Justice White argued that the Court failed to give proper deference to the board’s interpretation of section 7. 34. Id. at 539. 35. 243 N.L.R.B. 898, 101 L.R.R.M. (BNA) 1537 (1979).

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applied to test the legality of an employer’s restrictions in the absence of a showing of special circumstances. However, a rule valid on its face may be rendered illegal by disparate application. The adoption by employers of rules limiting solicitation and distribution first received Supreme Court attention in Republic Aviation Corp. v. NLRB.36 In that case, an employee had been discharged for violating the following employer rule, which existed well before the commencement of any union activity at the plant: “[S]oliciting of any type cannot be permitted in the factory or offices.”37 The Supreme Court held that an employer could not prohibit employee distribution of union organizational literature on company property in non-working areas or union solicitation during non-working time, absent a showing that such a ban was necessary to maintain plant discipline or production. The rationale was, essentially, that while working time was for work, non-working time was the employee’s to use without unreasonable restraint, even though the employee was on company property and “on the clock.” In Our Way, Inc., the NLRB subsequently clarified that working time meant periods of actual work and excluded coffee breaks, meals, restroom breaks, wash-ups, and other down time, even though “on the clock.”38 The board held that an employer restriction using the term working time was presumptively valid—absent evidence of discrimination—while a restriction using the term working hours was presumptively invalid. Under the Supreme Court’s special circumstances exception in Republic Aviation, the employer carries a heavy burden of proof. Special circumstances, however, may be found on selling floors of a retail department store where close contact with the store’s customers and crowded inventory might justify a more restrictive rule or where there is a highly inflammable environment. Following Republic Aviation, employers in retail stores have been permitted by the NLRB to ban union solicitation in all store selling areas during both employees’ working and nonworking time (a ban that absent special circumstances would normally be invalid).39 B. Off-Duty Employees’ Rights The determination of the rights of an off-duty employee depends on whether the off-duty employee is on the interior or exterior of the employer’s property. The general rule is that an employer’s no-access 36. 324 U.S. 793 (1945). 37. Id. at 795. 38. 268 N.L.R.B. 394, 115 L.R.R.M. (BNA) 1009 (1983). 39. See Famous-Barr Co., 59 N.L.R.B. 976, 15 L.R.R.M. (BNA) 173 (1944), enf’d sub nom. NLRB v. May Dep’t Stores Co., 154 F.2d 533 (8th Cir. 1946); May Dep’t Stores Co., 136 N.L.R.B. 797, 49 L.R.R.M. (BNA) 1862 (1962), set aside by May Dep’t Stores Co. v. NLRB, 316 F.2d 797 (6th Cir. 1963).

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rule that denies off-duty employees entry to the exterior—parking lots, gates, and other outside nonworking areas—is invalid, except where justified by special business reasons.40 An employer’s no-access rule may be valid so long as it “(1) limits access solely with respect to the interior of the plant and other working areas; (2) is clearly disseminated to all employees; and (3) applies to off-duty employees seeking access to the plant for any purpose and not just to those employees engaging in union activity.”41 Thus, the NLRB holds that off-duty employees, unlike on-duty employees, are not permitted to engage in union organizing activities inside the workplace, even in non-work areas such as an employee lounge or the company cafeteria. IV. The Impact of Lechmere on Access Cases One of the access issues remaining after Lechmere is whether its holding applies to employees as well as non-employees. In a series of NLRB decisions and the decisions of the NLRB’s general counsel after Lechmere, the board has held that the underlying rationale and principles enunciated by the Supreme Court in Lechmere and Babcock & Wilcox apply to every union purpose and to striking employees as well as non-employee union organizers. For example, in Leslie Homes, Inc., the NLRB considered for the first time how Lechmere affected an employer’s right to exclude from its property non-employee union representatives engaged in area standards handbilling.42 Finding for the employer, the board ruled that Lechmere applied to area standards picketing and hand billing because the interests of non-employee union protesters should not have received more protection than derivative section 7 interests of non-employee union organizers. In Loehmann’s Plaza, the NLRB applied Lechmere to a consumer boycott by non-employees.43 In Stepherson’s Big Star, employees stood near the doors of a freestanding grocery store through which customers and employees entered and peacefully attempted to distribute handbills. The NLRB’s general counsel, in an advisory opinion, concluded that this case was not the appropriate vehicle in which to advance the arguments that “despite the Supreme Court’s Lechmere decision, a distinction should be drawn between the access rights of striking employees versus those of non-employees . . . [and] that offduty or striking employees should have greater access rights than non40. Tri-County Medical Center, Inc., 222 N.L.R.B. 1089, 91 L.R.R.M. (BNA) 1323 (1976). 41. Id. at 1089 (emphasis added); see also NLRB v. Pizza Crust Co. of Pa., Inc., 862 F.2d 49 (3d Cir. 1988) (employer’s rule against off-duty employee distribution of union literature in plant parking lot is an unfair labor practice). 42. 316 N.L.R.B. 123, 148 L.R.R.M. (BNA) 1105 (1995). 43. 316 N.L.R.B. 109, 148 L.R.R.M. (BNA) 1116 (1995).

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employees to appeal to the public.”44 In Weingarten Realty Investors, the NLRB’s general counsel ruled broadly that the rationale of Lechmere covered access to all private shopping center property by striking employees as well as non-employees.45 The union and the employees, the general counsel said, had reasonable alternative means of conveying their message from the public way at the perimeter of the shopping center 500 feet from the target AppleTree store and by radio advertisements. Thus, the employer and the property owner had the right to bar the strikers from the property completely. Subsequently, the NLRB extended Lechmere to apply to nonemployee union consumer boycott activities in Oakland Mall, Ltd., and Sears, Roebuck & Co.46 Although this case involved application of Lechmere to a secondary employer’s right to bar non-employee union representatives from engaging in secondary consumer boycotting and hand billing on the employer’s private property, its teaching concerning Jean Country and Scott Hudgens is instructive. The board acknowledged that in Jean Country it had stated, “Generally it will be the exceptional case where the use of newspapers, radio, and television will be feasible alternatives to direct contact.”47 The board in Oakland Mall then stated, In light of Lechmere, we find it necessary to reconsider the comment in Jean Country quoted above. Newspaper, radio, and television are certainly part of “the ordinary flow of information that characterizes our society.” . . . [T]he General Counsel must show that the use of the mass media (such as newspapers, radio, and television) would not be a reasonable alternative means for the Union to communicate its message.48

The board in Oakland Mall concluded, “The General Counsel ha[d] failed to carry his heavy burden of proving ‘unique obstacles’ to the Union’s attempt to communicate its consumer boycott message to Sears’s customers.”49 Further, in Galleria Joint Venture, the NLRB vacated its earlier decision and order after reconsideration in light of Lechmere. 50 Although this case also involved non-employee access, the board characterized the Jean Country standard as the “now rejected” Jean Country

44. Case 26-CA-14841, 1992 WL 83509, at *1–2 (N.L.R.B.G.C. Feb. 28, 1992). Although the picketing employees were removed from the storefronts, they were allowed to remain in the adjacent private parking fields by agreement with the employer and the property owner. 45. Case 16-CA-15665, 1993 WL 142608, at *1 (N.L.R.B.G.C. Mar. 31, 1993). 46. 316 N.L.R.B. 1160, 149 L.R.R.M. (BNA) 1017 (1995), review denied, 74 F.3d 292 (D.C. Cir. 1996). 47. Jean County, 291 N.L.R.B. at 13. 48. 316 N.L.R.B. at 1163. 49. Id. at 1164. 50. 317 N.L.R.B. 1147, 149 L.R.R.M. (BNA) 1320 (1995).

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standard.51 Citing its several month’s old decision in Oakland Mall, the board held that picketing and hand billing on the public property sidewalk outside the shopping mall as well as mass-media communication were reasonable alternatives to trespassing. On the other hand, the Supreme Court’s failure to define in Lechmere what constitutes “disparate” or “discriminatory” application of an otherwise valid limitation has allowed the NLRB and some courts to require union-related access if an employer grants access to its property to various charitable organizations (e.g., Girl Scouts, Salvation Army, United Way, or Red Cross). This point is illustrated in Victory Markets, Inc.52 In Victory, non-employee union representatives engaged in hand billing on Victory’s property to protest allegedly nonunion and substandard wages paid to employees by contractors remodeling one of Victory’s stores. Concord, the manager of the mall in which the Victory store was located, asked the police to arrest the hand-billers for trespassing if they did not leave. Nonprofit and charitable organizations, however, had been given access to the property for fundraising and public awareness programs. The NLRB found, “Concord repeatedly permitted the use of its property for a wide range of charitable activity, and even some commercial activity, unrelated to the operation of the mall itself.”53 Thus, the board held that barring union hand billing was discriminatory and unlawful. The U.S. Courts of Appeals for the Fourth, Six, and Ninth Circuits have disagreed with the NLRB’s premise that permitting charitable solicitation while excluding non-employee union activities requires a finding of discrimination. For instance, in Cleveland Real Estate Partners v. NLRB, the court defined discrimination very narrowly.54 In this case, the union began a do-not-patronize handbill campaign against Marc’s, a retail store located in a strip mall managed by Cleveland. After its requests to leave went unheeded, Cleveland contacted the police to remove the hand-billers. The ensuing unfair labor practice proceeding resulted in the board’s adoption of an administrative law judge’s finding of discrimination. The court, reversing the NLRB’s decision, found that the strip mall manager had not engaged in an unfair labor practice by forbidding the union’s informational handbilling of mall customers on mall premises, even though it allowed solicitation of mall customers by several charitable organizations. The court stated its belief that the board had misinterpreted Babcock & Wilcox: 51. 317 N.L.R.B. at 1149. 52. 322 N.L.R.B. 17, 153 L.R.R.M. (BNA) 1177 (1996). 53. Id. at 24. 54. 95 F.3d 457 (6th Cir. 1996), disagreed with by Meijer, Inc. v. NLRB, 130 F.3d 1209 (6th Cir. 1997).

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To discriminate in the enforcement of a no-solicitation policy cannot mean that an employer commits an unfair labor practice if it allows the Girl Scouts to sell cookies, but is shielded from the effect of the Act if it prohibits them from doing so. . . . the term “discrimination” as used in Babcock means favoring one union over another, or allowing employer-related [anti-union] information while barring similar union-related information.55

The court held, “No relevant labor policies are advanced by requiring employers to prohibit charitable solicitations in order to preserve the right to exclude non-employee distribution of union literature when access to the target audience is otherwise available.”56 In NLRB v. PayLess Drug Stores Northwest, Inc., non-employee union representatives picketed in front of the PayLess store to publicize its nonunion status and to urge the public not to patronize the store.57 PayLess, along with Wandermere (the owner of the strip shopping mall in which PayLess was located), had the pickets removed by the police. The NLRB found that the ejection of the union from the property constituted discrimination because of prior access that had been granted to certain other groups for use of the mall unrelated to the business of the mall. The Ninth Circuit rejected the position that PayLess and Wandermere had engaged in disparate treatment of the union and denied enforcement of the board’s order. It held, “A business should be free to allow local charitable and community organizations to use its premises, whether for purely altruistic reasons or as a means of cultivating good will, without thereby being compelled to allow the use of those same premises by an organization that seeks to harm that business.”58 Similarly, in Riesbeck Food Markets, Inc. v. NLRB, the Fourth Circuit upheld Riesbeck’s prohibition of non-employee union pickets and hand-billers from distributing do-not-patronize literature on Riesbeck’s property, even though Riesbeck “permitted all kinds of civic and charitable solicitation for a total of almost [two] months a year.”59 The NLRB had found that Riesbeck’s solicitation policy was “inherently discriminatory” against union solicitation, noting that the screening process for allowing group activities was problematic because it involved a practice by which Riesbeck reviewed and evaluated each message sought to be distributed.60 The Fourth Circuit refused to enforce the board’s order. Discrimination claims require that an employer treat similar conduct differently. Here, the court found, there was a legally significant difference 55. 56. 57. 58. 59. 60.

Id. at 465 (citation omitted). Id. 57 F.3d 1077, 1995 U.S. App. LEXIS 13443, at *3 (9th Cir. May 25, 1995). Id. (citation omitted). 91 F.3d 132, 1996 U.S. App. LEXIS 17693, at *4 (4th Cir. July 19, 1996). Id. at *5.

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between charitable solicitations and a union’s do-not-patronize solicitation.61 The court was not especially concerned with union animus; rather, it emphasized, “[A]n employer must have some degree of control over the messages it conveys to its customers on its private property.”62 Furthermore, the court distinguished the union’s message from the charitable solicitations by the fact that the former directly undermined Riesbeck’s purposes (the sale of goods and services), while the latter encouraged business activity. In sum, the NLRB and the courts currently disagree whether an employer may exclude non-employee union representatives from its property where it allows access by charitable and civic groups. The courts permit denial of access as long as the union has a reasonable alternative means of access to employees. While the NLRB is bound to follow court decisions within a circuit, it is free to ignore them in cases arising in other circuits that have not ruled on the issue. V. Conclusion Over the years, the NLRB and courts have grappled with balancing section 7 rights of employees and private property rights of employers. Lechmere and its progeny teach that non-employee union representatives may be barred under trespassing laws from shopping centers, malls, and parking fields regardless of their purpose. Various other board and court cases have upheld the right of employers to adopt carefully worded rules to limit, but not entirely bar, union-related solicitation and distribution by employees during their working time and in working areas. Whether and to what extent property owners or stores may bar off-duty or striking employees from their private property is not entirely clear and requires careful attention. Changing factual patterns, new strategies, and turnover on the five-member NLRB have resulted in and may still continue to result in modifications of positions and unsettled law.

61. Id. at *2. 62. Id. at *13.

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Organizing Contingency Workers: Community of Interest v. Consent Nancy Schiffer* I. Introduction When the National Labor Relations Board (NLRB) issued its decision in M.B. Sturgis, Inc.,1 the ruling was both hailed and condemned. The Labor Policy Association criticized the NLRB for “[i]gnoring [twenty-seven] years of precedent,”2 and its general counsel predicted the board’s ruling would “create chaos.”3 Management attorneys complained of the “elimination of this [consent] weapon from employers’ arsenals,” explaining that pre-Sturgis, employers could “use the ‘consent’ requirement offensively or defensively and, at times, do so to thwart a union’s organizing efforts.”4 In contrast, AFL-CIO President John J. Sweeney praised the ruling as “an important step in addressing the rights of contingent workforce employees, who have too often been relegated to second-class status and rights—if any” and predicted that the decision would “boost the ability of millions of workers to have a voice on the job.”5 So which is it? Does it eliminate twenty-seven years of precedent? Is it designed to help unions organize? Will it create chaos? Will it extend to temporary workers a voice at work, which was previously denied to them? Before such questions can be answered, the term contingent worker must be defined. The term encompasses a wide variety of different employment schemes, including agency temporary workers, direct-hire temps, on-call workers, day laborers, contract company workers, independent contractors, self-employed workers, leased workers, and parttime workers. Such workers are an increasingly significant segment of * The author is associate general counsel for the AFL-CIO in Washington, DC. This article was presented in Kauai, Hawaii, at the 2001 Midwinter Meeting of the Labor and Employment Section’s Committee on Development of the Law Under the National Labor Relations Act (February 2001). 1. 331 N.L.R.B. No. 173, 165 L.R.R.M. (BNA) 1017, 2000 WL 1274024, at *1 (Aug. 25, 2000). 2. NLRB Rewrites Rules Governing Union Representation of Temps, at http://www.NLRBWatch.com/news/jeffboat.htm (last visited Feb. 13, 2001). 3. Susan J. McGolrick, Contingent Workers: Will NLRB’s Recent Sturgis Ruling Help or Hurt Organizing, Bargaining?, Daily Lab. Rep. (BNA) No. 173, at AA-2 (Sept. 6, 2000). 4. Kenneth R. Dolin & Scott V. Rozmus, N.L.R.B. Decision in “Sturgis,” NAT’L L. J., Nov. 27, 2000. 5. McGolrick, supra note 3, at AA-1.

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the worker population. When all of these categories are considered, the contingent workforce “makes up almost [thirty] percent of the total workforce.” 6 Although this does not represent a recent increase, longerterm trends show that in certain categories, the numbers have grown. Specifically, the temporary help supply industry “has grown significantly.”7 About ten percent of the job growth in the 1990s was in temp agencies. Manpower, Inc., boasts that it is America’s largest employer. “[M]any employers got hooked on temp agencies,” resulting in “more than 3.3 million workers . . . on temp-firm placements, mostly in clerical or light-manufacturing jobs.”8 As the sheer number of these different types of employment systems suggests, the term contingent worker covers a lot of ground. The nonstandard working arrangements it embraces are wildly divergent and are not all created equally. Studies have found that answers to commonly asked questions about contingent workers differ according to what part of the population responds. Do contingent workers choose a non-traditional work arrangement because it affords them flexibility or training or an entre´e into the work force? Independent contractors, self-employed individuals, and parttime workers are typically relatively satisfied with their voluntarily chosen lifestyle. In contrast, most temporary agency and on-call workers prefer standard employment to their current arrangements. Similarly, there is a pay penalty for nonstandard work, which persists for part-time workers and temps but does not hold for contract workers, independent contractors, and the self-employed. Career advancement through nonstandard jobs works for men but is much less likely to work for women. Overall, the best-paid type of non-standard work, often outearning similarly situated traditional workers, disproportionately consists of older white males, while the poorest-quality nonstandard jobs are disproportionately filled by workers who are African-American, Hispanic, young, and female.9 Findings that verify substandard incomes and benefits for contingent workers were reported in June 2000 by the U.S. General Accounting Office’s health, education, and human services division in a sixtypage report titled Contingent Workers: Incomes and Benefits Lag Behind Those of Rest of Workforce.10 According to the report, “on average, these workers have lower annual family incomes than standard 6. GAO/HEHS-00–76, CONTINGENT WORKERS: INCOME AND BENEFITS LAG BEHIND THOSE OF REST OF WORKFORCE 14 (June 2000). 7. Id. at 16. 8. David Wessel, Temp Workers Have Lasting Effect, WALL ST. J., Feb. 1, 2001, at A1. 9. ARNE L. KALLEBERG ET AL., NONSTANDARD WORK, SUBSTANDARD JOBS: FLEXIBLE WORK ARRANGEMENTS IN THE U. S. (Economic Policy Institute/Women’s Research & Education Institute 1997). 10. GAO/HEHS-00–76, supra note 6.

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full-time workers” and “are less likely than standard full-time workers to have employer-provided health insurance and pension benefits.”11 For many contingent workers, non-standard employment arrangements have created barriers to their exercise of legal rights enjoyed by their regular co-workers. According to the June 2000 General Accounting Office report, “contingent workers, such as temporary, on-call, and part-time workers, may not be covered by some of the laws designed to protect workers.”12 Even when contingent workers are technically covered by such laws, many are denied statutory benefits and protections because they cannot fulfill specified conditions or meet eligibility requirements or because they are misclassified by their employers.13 Specifically relevant to this discussion is the exclusion of temporary workers from the rights and protections of the National Labor Relations Act (NLRA).14 This exclusion was partially undone by the decision of the NLRB in its August 25, 2000, ruling in Sturgis.15 In its decision, the board recognized that its prior policy “fragment[ed] groups of employees who share common interests and working conditions into smaller groups with diminished bargaining power” and made it “more difficult for employees to obtain union representation, or result[ed] in fragmented units if they [were] successfully organized.”16 According to the board, its previous policy “ha[d] the potential for denying numerous affected employees the same Section 7 rights to self-organization accorded other employees under the Act.”17 In Sturgis, the NLRB acknowledged that its prior policy requiring employer consent before temporary agency employees could organize effectively denied NLRA rights to these workers. This admission by the board partially answers the question of whether the decision assists union organizing. To the extent that it allows employees to organize without the consent of their employer—a right that other NLRAcovered employees have always had—the decision certainly removes an impediment to union organizing. Does that mean that unions did not organize contingent workers pre-Sturgis? Here are two spectacular organizing successes from both the public and private sector: Last year 5,000 home health care workers in California were organized in a campaign that included legal, political, legislative, and organizing strategies. The legislative effort included the creation of a central, governmental employing entity for 11. 12. 13. 14. 15. 16. 17.

Id. at 18–20. Id. at 30. Id. at 27, 31, 33. 29 U.S.C. §§ 151–169 (1998). Sturgis, 2000 WL 1274024, at *1. Id. at *18. Id.

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these mostly women of color who worked in their clients’ homes, assisting with personal needs. In Louisiana, garbage truck hoppers, who jump off and collect garbage bags but do not drive the trucks, wanted union representation. The NLRB ruled, pre-Sturgis, that the temporary agencies who employed these day laborers were not joint employers with Waste Management, the garbage collection company.18 Thus, the union won election after election with the temp agencies separately. Then, through a series of strategically timed job actions and efforts at public awareness (apparently, mounting garbage in southern Louisiana in the summer grabs the public’s attention) and media focus, the agencies reached a contract. These examples merely serve to quell the notion that contingent workers could never be organized absent a board fix. II. The Sturgis Decision Any discussion of Sturgis really has to start with Greenhoot, Inc.,19 because Sturgis was merely the vehicle of undoing. In Greenhoot, a union petitioned for a unit of building maintenance employees employed by Greenhoot, a management company, at fourteen building locations in the District of Columbia. The union named Greenhoot as the employer. The NLRB held that the separate building owners at each building location were joint employers with Greenhoot. The board then treated the petition as seeking a multiemployer unit of Greenhoot and the building owners, who were not named in the petition. The NLRB concluded that, absent consent by the employers in which they have “manifested a desire to be bound in future collective bargaining by group rather than individual action,” the unit was inappropriate.20 However, separate units at each location would be appropriate, according to the board. The Greenhoot requirement of consent was significantly expanded in Lee Hospital.21 There, certified registered nurse anesthetists sought representation separately from other hospital professionals, in part, because they were jointly employed by the hospital and AAI (Anesthesiology Associates, Inc.). The NLRB held that the petitioned-for nurse anesthetists did not constitute a separate appropriate unit and were not able to be combined with a unit of professionals employed solely by the hospital, absent consent.22 In Sturgis, the NLRB significantly limited Greenhoot and overruled Lee Hospital as wrongly decided. The board held that there was “no statutory requirement of employer consent to a unit combining 18. See Temlaco, Inc., Corporate Personnel & Temps, Inc., and Waste Management, Inc., 15-RC-7901. 19. 205 N.L.R.B. 250, 83 L.R.R.M. (BNA) 1656 (1973). 20. 250 N.L.R.B. at 251. 21. 300 N.L.R.B. 947, 136 L.R.R.M. (BNA) 1348 (1990). 22. 300 N.L.R.B. at 948 (citing Greenhoot, 205 N.L.R.B. 250).

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solely and jointly employed employees of a single user employer” because no multiemployer bargaining was implicated.23 According to the board, After carefully reviewing our precedent and the policy questions raised, we find that the units at issue—all the employees performing work on behalf of the user employer (e.g., M.B. Sturgis and Jeffboat)—do not constitute multiemployer units requiring consent. . . . Separating “regular” employees—i.e., the solely employed—from the “temporaries” who may . . . share the same classifications, skills, duties, and supervision, creates an artificial division that is not required by the statute. We therefore overrule Lee Hospital and find no statutory requirement of employer consent to a unit combining solely and jointly employed employees of a single user employer.24

Moreover, in units with a single supplier employer and various user employers, no multiemployer unit is created when the union names only the single supplier employer in its petition for a supplier-wide unit. According to the board, such a unit “is not a multiemployer unit because the petition is seeking to represent the employees vis a vis a single employer.”25 However, the board continued to insist that a multiemployer unit was created in Greenhoot-type units of a single supplier employer and various user employers when the union “[sought] to represent a unit that includes employees of all of the users” and sought bargaining with all of the user employers.26 III. The Rationale of Sturgis Supports Overruling Greenhoot in Toto While the result reached by the NLRB in Sturgis was long overdue, it did not go far enough. Laudably and correctly, the board set forth its rationale for overruling Lee Hospital and modifying Greenhoot. All of the reasons that led the Sturgis board to decide that Lee Hospital should have been overruled are equally supportive of overruling all of Greenhoot. Simply put, the board’s characterization of the Greenhoot unit of a single supplier and multiple user employers as a multiemployer unit requiring consent is wrong. It violates the plain text of section 9(b), is contrary to the legislative history, departs from NLRB precedent, and does not further any legitimate statutory policy. An examination of these factors not only supports the board’s decision to overrule Lee Hospital, but also provides the basis for overruling all of Greenhoot. A. Section 9(b) As an initial matter, section 9(b) of the NLRA provides that units for purposes of collective bargaining “shall be the employer unit, craft 23. 24. 25. 26.

Sturgis, 2000 WL 1274024, at *14. Id. at *12–14. Id. at *19. Id. at *13.

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unit, plant unit, or subdivision thereof.”27 An employer-wide unit is denominated by the act as generally appropriate whether the employer consents or not. A unit is decidedly an employer unit when it is formed around an employer who is the employer of all the unit employees. In Sturgis, the NLRB acknowledged this plain interpretation of the NLRA and applied section 9(b) to employer-wide units of single user employers, concluding that an employer unit could constitute a “unit of all of the user’s employees, both those solely employed by the user and those jointly employed by the user and the supplier.”28 Such a unit does not create a multiemployer unit, which requires employer consent because, according to the board, the scope of the bargaining unit “is delineated by the work being performed for a particular employer.”29 The board held that units of all the employees performing work on behalf of a single user employer “do not constitute multiemployer units requiring consent”30 because there is “no statutory requirement of employer consent to a unit combining solely and jointly employed employees of a single user employer.”31 Yet this very same application of section 9(b) also supports a unit of all the employees who perform work on behalf of a single supplier employer (i.e., the Greenhoot unit). As with a single user employer, the scope of a single supplier employer’s workforce “is delineated by the work being performed for a particular employer,”32 albeit here, the single supplier—rather than user—employer. B. Legislative History In 1947, Congress considered several amendments to the definition of employer that related, in part, to the board’s multiemployer decisions. Senator Taft introduced Senate Bill 1126, which modified section 2(2) to limit the NLRB’s authority with regard to multiemployer units by adding the following proviso: “That for the purposes of section 9(b) hereof, the term ‘employer’ shall not include a group of employers except where such employers have voluntarily associated themselves together for the purposes of collective bargaining.”33 A Senate Report described the amendment as clearly defining the board’s authority to “deem an employer association to be an employer, provided the individual employers in such an association have voluntarily delegated their authority to bargain collectively with their employees to such an organization.”34 The report acknowledged that “the Board itself has 27. 28. 29. 30. 31. 32. 33. (1948). 34.

29 U.S.C. § 159(b) (1994). Sturgis, 2000 WL 1274024, at *13. Id. Id. at *12. Id. at *14 Id. at *13. 1 LEGISLATIVE HISTORY OF THE LABOR MANAGEMENT RELATIONS ACT, 1947, at 102 Id. at 424 (quoting SEN. REP. NO. 80–105, at 18 (1947)).

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reached such a construction” and that “the amendment merely approves of those Board interpretations.”35 The proposed amendment was characterized in a Senate Minority Report as “enact[ing] into law present Board practice.”36 That practice was described as combining “within a single unit the employees of more than one employer” in two situations: “those involving two or more companies operated as a single business enterprise with the direct control of labor relations vested in a single source” and “those involving employers engaged in the same industry who have formed trade or employer associations to which they have delegated the right to bargain collectively for all members.”37 House Bill 3020 was introduced by Representative Hartley. It modified section 2(2) by substituting “any person acting as an agent of an employer, directly or indirectly” for “any person acting in the interest of an employer, directly or indirectly” in the definition of employer.38 The bill was adopted in conference and the Senate bill’s proviso to section 2(2) was dropped because “it merely restate[d] the existing practice of the Board.”39 In NLRB v. Truck Drivers Local Union No. 449, the Supreme Court reiterated that the 1947 amendments supported the “compelling conclusion . . . that Congress intended ‘that the Board should continue its established administrative practice of certifying multiemployer units.’ ” 40 C. Consistent NLRB Case Law Both before and after the 1947 amendments, the NLRB consistently included jointly employed employees in broader units with employees of only one of the joint employers despite employer objections and without requiring employer consent. As the board noted in Sturgis, there is a rich history of combining user and supplier employees into one bargaining unit without any requirement of consent and without ever viewing them as multiemployer bargaining units.41 35. 36. 37. 38.

Id. Id. at 497 (quoting SEN. REP. NO. 80–105, pt. 2, at 35). Id. 29 U.S.C. § 152(2) (1994); see also 1 LEGISLATIVE HISTORY OF THE LABOR MANAGEMENT RELATIONS ACT, 1947, at 535 (quoting H.R. CONF. REP. NO. 80–510, at 31 (1947)). 39. 1 LEGISLATIVE HISTORY OF THE LABOR MANAGEMENT RELATIONS ACT, 1947, at 536 (quoting H.R. CONF. REP. NO. 80–510, at 32). 40. 353 U.S. 87, 96 (1957) (quoting Truck Drivers Local Union v. NLRB, 231 F.2d 110, 121 (1956) (Waterman, J., dissenting)). 41. See Walgreen Louisiana Co., Inc., 209 N.L.R.B. 213, 85 L.R.R.M. (BNA) 1309 (1974) (including licensee employees in a broader store unit despite the employer’s objection); United Mercantile, Inc., 171 N.L.R.B. 830, 68 L.R.R.M. (BNA) 1173 (1968), (licensees operating the fine jewelry and shoe departments of a department store are joint employers and a combined unit of their jointly and solely employed employees is appropriate given the close community of interest and lack of any history of collective bargaining); Red-More Corp., 164 N.L.R.B. 638, 65 L.R.R.M. (BNA) 1155 (1967), enforced, 418 F.2d 890 (9th Cir. 1969); Thriftown, Inc., 161 N.L.R.B. 603, 63 L.R.R.M. (BNA) 1298 (1966)

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The courts have routinely enforced board orders that include employees of multiple licensees in the same bargaining unit with employees of a user employer. In Gallenkamp Stores Co. v. NLRB42 and S.S. Kresge Co. v. NLRB,43 the courts enforced NLRB decisions approving joint employer relationships between a user employer and its licensees and certifying storewide bargaining units based on community-ofinterest criteria. The user employers in each of these cases protested that the board’s decision to compel “unwilling employers” to bargain as joint employers would disrupt the collective bargaining process because each licensee would have independent ideas about appropriate labor policy. Both courts rejected this argument.44 Even post-Greenhoot, such combined units of jointly and solely employed employees have been approved. The joint employer/communityof-interest analysis was applied to a manufacturing operation of user and supplier employees in NLRB v. Western Temporary Services, Inc.45 There, the court enforced an NLRB order that a single user employer and a temporary help service agency that supplied its part-time workers were joint employers and that employees of both were properly included in a single bargaining unit, based on a community-of-interest analysis. In Archdiocese of Philadelphia,46 the board found that the Archdiocese and each of 273 parish elementary schools were joint employers of the lay teachers. Without any discussion of Greenhoot, the board found a single Archdiocese-wide unit appropriate where each of the schools was arguably a user employer and the Archdiocese was a single supplier employer. Similarly, in Seligman & Associates, Inc.,47 a single combined unit of employees of a sole supplier employer and multiple user employers was found appropriate. There, Seligman managed (finding a joint-employer relationship between a department store and its licensed shoe department); Jewel Tea Co., 162 N.L.R.B. 508, 64 L.R.R.M. (BNA) 1054 (1966); Stack & Co., 97 N.L.R.B. 1492, 29 L.R.R.M. (BNA) 1263 (1952); Taylor Oak Ridge Corp., 74 N.L.R.B. 930, 20 L.R.R.M. (BNA) 1219 (1947) (including concessionaire’s employees in broader unit with department store’s employees despite store’s objection); Louis Pizitz Dry Goods, Co., 71 N.L.R.B. 579, 584, 19 L.R.R.M. (BNA) 1037 (1946) (including “demonstrators” and employees of concessionaires who operated key and watch departments due to “strong community of interest with other employees” and over the employer’s objection); Hale Bros. Stores, Inc., 62 N.L.R.B. 367, 371, 16 L.R.R.M. (BNA) 236 (1945) (including employees of the millinery and lending library leased departments in a single store-wide unit based on a joint employer relationship and community of interest analysis). 42. 402 F.2d 525 (9th Cir. 1968), enforcing K-Mart, 162 N.L.R.B. 498, 64 L.R.R.M. (BNA) 1045 (1966). 43. 416 F.2d 1225 (6th Cir. 1969), enforced, 169 N.L.R.B. 442, 67 L.R.R.M. (BNA) 1200 (1968). 44. Gallenkamp, 402 F.2d at 531; S. S. Kresge, 416 F.2d at 1231. 45. 821 F.2d 1258 (7th Cir. 1987). 46. 227 N.L.R.B. 1178, 94 L.R.R.M. (BNA) 1719 (1977). 47. 240 N.L.R.B. 110, 100 L.R.R.M. (BNA) 1351 (1979), enforced, 639 F.2d 307 (6th Cir. 1981).

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twenty-one apartment house complexes, all but two of which were owned by other employers. The board affirmed an administrative law judge’s finding that an appropriate unit included all Seligman employees at the twenty-one complexes even though Seligman had been found to be a joint employer with each owner of its employees at each complex. All employees in the unit were employed by one common employer— Seligman—but the nineteen separate complex owners, all joint employers with Seligman, did not share any common employees. The Sixth Circuit enforced the decision, agreeing “with the Board that the multicomplex unit would not be rendered inappropriate even if the complex owners are separate joint employers.”48 These cases provide solid support for combined units of employees of supplier and user employers—regardless of whether there are multiple supplier employers or multiple user employers. Such units have been approved by the NLRB and the courts, pre-Sturgis, since the 1940s, in joint employer relationships where community-of-interest standards are met, without any requirement for consent even after Greenhoot was decided. D. Statutory Purpose As the board acknowledged in Sturgis, the rule of Greenhoot does not further the central statutory purposes of stabilizing bargaining relationships and promoting employee free-choice. Rather, it serves to deny temporary workers their section 7 rights to organize. Greenhoot violates the community-of-interest standard, which has been a bedrock for determining appropriate groupings of employees into bargaining units. The community-of-interest standard is intended to further the collective bargaining process by ensuring that the employees grouped together have enough in common to permit collective action and to formulate common demands.49 Artificially and arbitrarily fragmenting units of employees who share a community of interest, which is the practical result of Greenhoot’s application, disturbs the bargaining process and promotes industrial strife. Increasingly, regular workers work side by side, on a continuing basis, with leased and temporary agency employees. Requiring numerous splintered bargaining units for such employees, who share a community of interest, is contrary to the statutory purposes of the NLRA. This deleterious impact is particularly apparent in the health care industry. There, Greenhoot has created exactly the proliferation of bargaining units that the board’s health care bargaining unit rules sought to avoid. Thus, absent consent and pre-Sturgis, a group of registered nurses could be divided into two or three or ten separate bargaining units, depending on the number of supplier employers involved, based 48. 639 F.2d at 309. 49. NLRB v. Action Automotive, Inc., 469 U.S. 490 (1985).

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solely on the identity of their supplying agency and not at all on their community of interest on the job. Bargaining will be fragmented and difficult, yet disputes will envelop the entire workforce. This dangerous consequence is triggered by Greenhoot’s application in both multiuser/single supplier and multi-supplier/single user working arrangements. E. Consistent with Sturgis The NLRB’s decision in Sturgis is based on the interpretation that a section 9(b) employer unit is “delineated by work being performed for a particular employer,” that its result is “consistent with well-settled precedent that both precedes and postdates Greenhoot,” and that the Greenhoot doctrine denied contingent workers their rights under the NLRA.50 These same principles compel a total rejection of Greenhoot. First, in the case of a single supplier employer with multiple user employers, the employer unit is delineated by the work being performed for the single supplier employer. Nothing in Greenhoot or prior case law distinguishes between a single user employer and a single supplier employer. In both instances, all the employees in the potential bargaining unit share a common employer; they are all employees of a single supplier employer. Second, NLRB precedent that was cited earlier supports such combined units. Finally, the same statutory purposes served by Sturgis are thwarted when employees of a single supplier employer must obtain their employer’s consent to unionize when both their supplier and user employers are named in their petition. As with the units considered in Sturgis, all of the employees of a single supplier employer providing employees to various user employees have one common employer. Section 9(b), which defines appropriate units, is intended to protect employees and not employers. One of the potentially appropriate units it describes is an employer unit. A unit of all the employees of a single supplier constitutes an employer unit because all the employees are employed by one employer. The fact that some or all of the employees may be jointly employed by another employer does not render the unit something other than an employer unit. This interpretation of section 9(b) is consistent with Sturgis. For purposes of section 9(b), it makes no difference whether the common single employer is the user employer or the supplier employer. F. Greenhoot Does Not Present a Multiemployer Unit From the NLRA’s earliest days, the board has rejected the argument that a unit of solely and jointly employed employees creates a multiemployer unit. Instead, the NLRB has treated units consisting of employees of an employer (who employed all the unit employees) and joint employers (who employed only some of the employees) as a single 50. Sturgis, 2000 WL 1274024, at *13.

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unit so long as community-of-interest factors otherwise support the unit’s appropriateness, regardless of employer consent. Indeed, the multiemployer bargaining model simply does not apply to these employment arrangements. Multiemployer bargaining units occur where “individual employers have, on their own initiative, combined themselves into employer associations, and these associations have, pursuant to the powers delegated to them by their members, acted with respect to the employees of those members so as to bring themselves within the statutory definition of employer.”51 With multiemployer bargaining, totally unrelated employers of (typically) a particular industry agree to bargain through a mutually selected agent for substantially similar contracts. They agree to delegate their bargaining authority in favor of one voice at the bargaining table, with a goal of reaching a single set of contract terms. Their employees share no community of interest except that their employers have elected to bargain, not just together, but essentially as one. It is an arrangement employers can voluntarily undertake without regard for the wishes of their employees and with no consideration for whether their employees have any common interests.52 At the bargaining table, the agent for the employers bargains for all employers regarding all the terms and conditions of all the employees, and every employer has an identical or virtually identical contract. Consent must be a requirement because the employer is granting authority to an agent to act on its behalf and because it is agreeing to be bound by a single outcome that it cannot entirely control once consent is given. Here, joint employers are brought to the bargaining table to advance their own bargaining interests. They are joined by the fact that they each employ employees in the bargaining unit jointly with another employer, albeit not all may employ all bargaining unit employees. They bargain only as to the employees with whom they have an employment relationship and just to the extent of their control over the terms and conditions of those employees. A single (or substantially similar) contract may not be the outcome. This model is not multiemployer bargaining. Consent is not required because the employer is not granting authority to an agent to act on its behalf. No employer is agreeing to be bound by the outcome of a group effort. Each employer does not even necessarily bargain over all the terms and conditions of employment of all the employees. The requisite attributes for multiemployer bargaining and the justification for the consent requirement are totally lacking. 51. Waterfront Employers Ass’n of the Pacific Coast, 71 N.L.R.B. 80, 110–11, 18 L.R.R.M. (BNA) 1465 (1946). 52. Kroger Co., 148 N.L.R.B. 569, 57 L.R.R.M. (BNA) 1021 (1964).

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All of these factors support overruling the remaining vestiges of Greenhoot and allowing temporary employees their place at the bargaining table with the employers who control the terms and conditions of their employment. IV. Post-Sturgis Cases and Related Issues A. Joint Employer Status In Sturgis, the NLRB indicated that, for a combined unit of user and supplier employees, a threshold issue is the employers’ joint employer status: [T]wo or more employers are joint employers [when] the entities must share or co-determine matters governing essential terms and conditions of . . . the employment relationship, such as hiring, firing, discipline, supervision, and direction.53

Subsequently in Professional Facilities Management, Inc.,54 the board determined that the joint employer issue could be avoided if the petitioning union named only a single employer. The board held that a petitioning union could “seek to bargain with and name in its petition only the single user employer.”55 In such circumstances, the board “will not require the naming of all potential joint employers” and will not require litigation of “the existence of a joint employer relationship.”56 If a union seeks a combined unit of user and supplier employees, it may name only the common employer in the petition and avoid litigation of the joint employer issue. B. Community of Interest In order for a combined unit of user and supplier employees to be appropriate, the employees must share a community of interest. Sturgis did not change this standard, which examines the following factors: (1) similarity of working conditions, (2) job classifications, (3) skills and functions, (4) similarity of products, (5) interchangeability of employees, (6) geographic proximity, (7) functional integration of the business, (8) centralization of management control, (9) collective bargaining history, and [in accretion cases] (10) the size and number of employees at the facility to be acquired as compared with the existing operation.57

The community-of-interest standard was discussed by the board in relation to Sturgis in two subsequently issued cases. In J.E. Higgins Lumber Co.,58 the board remanded the case for review in accordance 53. Sturgis, 2000 WL 1274024, at *7 (citations omitted). 54. 332 N.L.R.B. No. 40, 165 L.R.R.M. (BNA) 1397, 2000 WL 1449837, at *1 (2000). 55. Professional Facilities, 2000 WL 1449837, at *2. 56. Id. 57. HOW TO TAKE A CASE BEFORE THE NLRB 114 (Brent Garren et al., eds., BNA 2000). 58. 332 N.L.R.B. No. 109, 166 L.R.R.M. (BNA) 1188, 2000 WL 1663426, at *1 (Oct. 31, 2000).

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with Sturgis. There, the regional director had granted a UC petition filed by the employer to exclude supplied employees from a warehouse unit, relying on Greenhoot, even though they performed bargaining unit work for the user employer on a daily basis. Concurring with the remand, Member Peter Hurtgen expressed his opinion that he would “generally not force” supplier employees into units with user employees and that, even in unit determination proceedings in non-accretion cases, since supplier and user employees have different employers and different “emoluments of employment,” he “would have serious concerns” about joining supplier and user employees into a single voting unit.59 It is noteworthy that Member Hurtgen, who did not participate in the Sturgis decision, expressly agreed with its holding and reasoning, notwithstanding these concerns. In Lodgian, Inc., a union petitioned for a unit of only the user employees. 60 The employer objected that the unit must include the jointly employed employees as well. The board denied the request for review, allowing the unit of user-only employees to stand, but emphasized that it was “not passing on the issue of whether a unit that encompasses both the solely employed employees and jointly employed employees also would be appropriate under a community-of-interest analysis” because the union was seeking only the solely employed employees and was “seeking to bargain only with the Employer, and not the supplier employers.”61 The NLRB also explicitly refrained from reaching the issue of whether the jointly employed employees could constitute a separate appropriate unit. C. Seasonal and Casual Temporaries Historically, the NLRB has used the term temporary to identify seasonal and casual employees who may not be eligible to participate in an NLRB-conducted election. Sturgis did not change the standard for such eligibility. The general rule is that less-than-full-time employees are eligible to vote if they have a reasonable expectation of continued employment and work sufficient hours to have a substantial and continuing interest in the working conditions of regular employees. Not eligible are short-term employees whose employment is for a finite period and/or those hired to complete a specific project who, at the time of the NLRB election, have no “reasonable expectation of continued future employment.”62 Various standards, such as hours worked per day or week or days worked per calendar period, have been applied in 59. Higgins, 2000 WL 1663426, at *3 (Member Hurtgen concurring). 60. 332 N.L.R.B. No. 128, 165 L.R.R.M. (BNA) 1380, 2000 WL 1740949, at *1. 61. Lodgian, 2000 WL 1740949, at *1. 62. Caribbean Communications Corp., 309 N.L.R.B. 712, 142 L.R.R.M. (BNA) 1130 (1992); New World Communications, 328 N.L.R.B. No. 10, 161 L.R.R.M. (BNA) 1049 (Apr. 7, 1999).

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different industries to determine whether an employee is regular and eligible to vote, or casual and ineligible.63 These rules still apply. D. Bargaining In an accretion situation, the terms and conditions of the existing collective bargaining agreement are applied to the incoming employees on the basis that they should have been included as bargaining unit employees from the beginning. The contract is extended to them as it would be to any newly hired bargaining unit employees. In Tree of Life, Inc.,64 the board considered a case which involved a complaint that the employer violated section 8(a)(5) by refusing to extend the terms of an existing collective bargaining agreement to newly hired temporary agency workers. Although such employees had been hired in the past during brief periods of high demand for the employer’s products, the employer brought agency employees in as regular warehouse workers when it was unable to successfully hire on its own. The union requested information about the new workers and demanded that they be covered under the existing contract. An administrative law judge (ALJ) found that the user and supplier employers were joint employees but dismissed the complaint because “the requisite consent” had not been shown.65 The board remanded for further consideration in light of Sturgis. In a supplemental decision, the ALJ granted the relief sought. The case is now on appeal before the board. When temporary agency workers are added to an existing unit through a self-determination election or voluntary recognition agreement, the employer must bargain in good faith with the union “as to the appropriate contractual terms to be applied to this new addition to the previous unit.”66 The scope of the bargaining obligation was described by the NLRB in Sturgis. There, the board made clear that “in these units each employer is obligated to bargain only over the employees with whom it has an employment relationship and only to the extent it controls or affects their terms and conditions of employment.”67 “[T]he joint employers must bargain over the terms and conditions of employment of their employees, and the sole employers are 63. Davison-Paxon Co., 185 N.L.R.B. 21, 74 L.R.R.M. (BNA) 1730 (1970); St. Luke’s Episcopal Hosp., 222 N.L.R.B. 674, 91 L.R.R.M. (BNA) 1359 (1976). 64. 332 N.L.R.B. No. 24, 165, L.R.R.M. (BNA) 1191, 2000 WL 1375048, at *1 (Sept. 20, 2000). 65. 2000 WL 1375048, at *4. 66. Federal-Mogul Corp., 209 N.L.R.B. 343, 344, 85 L.R.R.M. (BNA) 1353 (1974); H. K. Porter Co. v. NLRB, 397 U.S. 99 (1970). 67. Sturgis, 2000 WL 1274024, at *15 (citing Management Training Corp., 317 N.L.R.B. 1355, 149 L.R.R.M. (BNA) 1313 (1995). In Management Training Corp., the board ruled that it would assert jurisdiction over and entertain representation petitions as to employers with close ties to an exempt government entity where “there are sufficient employment matters over which unions and employers can bargain” even if they could not bargain over all terms and conditions of employment. 317 N.L.R.B. at 1355.

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obligated to bargain over the terms and conditions of employment of their employees.”68 This view was further clarified in Professional Facilities Management, Inc.69 There, the board concluded, “[T]he absence of one of the alleged joint employers at the bargaining table does not destroy the ability of the named employer . . . to engage in effective bargaining . . . to the extent it controls their terms and conditions of employment.”70 V. Conclusion The long-awaited decision in Sturgis addressed some of the concerns faced by temporary agency workers, but many issues remain for future resolution. For example, how will the decision be applied to revolving-door temporary agency workers? What will be the primary secondary-implications? Will accretion standards be changed or modified? How will the bargaining obligations sort out? Sturgis was an important first step in giving a voice at work to contingent workers. For many such workers, their section 7 rights are no longer subject to their employer’s approval and consent; rather, they have finally been accorded the statutory protections to which they are entitled.

68. Sturgis, 2000 WL 1274024, at *15. 69. 2000 WL 1449837, at *1. 70. Id. at *2.

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When Is a Multiemployer Bargaining Unit a “Multiemployer Bargaining Unit”? Robert W. Tollen* I. Introduction In M.B. Sturgis, Inc.,1 the National Labor Relations Board (NLRB) considered the representational rights of “an important segment of the ‘contingent work force.’ ”2 Specifically, the NLRB considered whether employees who were supplied by a supplier employer to a user employer and were found to be jointly employed by both could be combined in a bargaining unit with the user’s regular employees. Opponents argued that the combination would be a multiemployer bargaining unit, which the NLRB could not decide was appropriate, absent consent of the employer participants. Two cases supported the opponents’ position: Greenhoot, Inc.,3 and Lee Hospital.4 The NLRB took oral argument on December 2, 1996; Sturgis was one of the few cases in which the board had done so. The decision was not issued until almost four years later. By then, only one member of the NLRB that had heard the oral argument, Member Fox, was still on the board. A majority ruled that a unit of (1) employees jointly employed by a supplier employer and a user employer and (2) employees solely employed by the user employer was not a multiemployer bargaining unit, overruling Lee Hospital. Greenhoot was distinguished, clarified, and reaffirmed. The dispute has been viewed as reflecting a typical alignment of management and labor. The Chamber of Commerce, Business Leadership Council, Labor Policy Association, National Association of Temporary and Staffing Services, Associated Builders and Contractors, and other employer organizations aligned themselves as amicus curiae against the AFL-CIO and the general counsel. Chairman Truesdale and Members Fox and Liebman formed the majority, with Member Brame * Robert W. Tollen is a labor partner in the San Francisco, California, office of Seyfarth Shaw. He is a 1964 graduate of the University of Pennsylvania Law School, a member of the ABA Section of Labor and Employment Law, and a contributing editor to the book The Developing Labor Law. This article was presented in Kauau, Hawaii, under the National Labor Relations Act (February 2001). 1. 331 N.L.R.B. No. 173, 165 L.R.R.M. (BNA) 1017, 2000 WL 1274024, at *1 (2000). 2. Sturgis, 2000 WL 1274024, at *1. 3. 205 N.L.R.B. 250, 83 L.R.R.M. (BNA) 1656 (1973). 4. 300 N.L.R.B. 947, 136 L.R.R.M. (BNA) 1348 (1990).

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vigorously dissenting. There were, however, anomalies. Former Chairman Stephens was the first NLRB member to call for reconsideration of Greenhoot. In Brookdale Hospital Medical Center,5 he noted that in the preceding decade, health care employers had increasingly utilized contract labor to perform work that had formerly been done by their permanent work forces. He concluded, in light of those changes, that it might be appropriate to reexamine the continuing validity of Greenhoot. Member Truesdale followed Stephens’s call in Hexacomb Corp.6 In addition, the parties were not aligned as one might have been expected. M.B. Sturgis argued to the regional director and to the NLRB that Greenhoot should be overruled and that its temporary employees should be included in a bargaining unit with its regular employees. Member Hurtgen, who had recanted himself in Sturgis and who had been expected to agree with Member Brame, later expressed his agreement with the majority.7 This article agrees with the particular result reached by the majority, although not with its reasoning. Under the majority’s reasoning, a multiemployer bargaining unit requiring a showing of consent is present when one supplier employer services multiple unrelated useremployers. A multiemployer bargaining unit requiring a showing of consent is not present when one supplier employer services one user employer. This article agrees with both conclusions. The majority’s rationale, however, might lead to the conclusion that a multiemployer bargaining unit requiring a showing of consent is not present when multiple suppliers service one user. This article disagrees and concludes that configuration is also a multiemployer bargaining unit requiring a showing of consent. In other words, the majority concluded—and this article agrees— that the mere combination of a supplier employer with a user employer does not create a multiemployer bargaining unit requiring a showing of consent. The majority would find a multiemployer bargaining unit requiring a showing of consent solely where there were multiple users, regardless of the number of suppliers. This article finds a multiemployer bargaining unit where there are multiple users or multiple suppliers. Both the majority and this article find no multiemployer bargaining unit requiring a showing of consent when there is merely one supplier and one user, which are the facts presented in the cases consolidated in the Sturgis decision.

5. 313 N.L.R.B. 592, 593 n.4, 145 L.R.R.M. (BNA) 1017 (1993). 6. 313 N.L.R.B. 983, n.2, 145 L.R.R.M. (BNA) 1338 (1994). 7. See J. E. Higgins Lumber Co., 332 N.L.R.B. No. 109, 166 L.R.R.M. (BNA) 1188, 2000 WL 1663426, at *1 (2000).

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II. Section 9(b) Prohibits Multiemployer Bargaining Units, Absent Consent Multiemployer bargaining long antedated the National Labor Relations Act (NLRA).8 Multiemployer bargaining was used both in industries like the garment industry, which were characterized by numerous employers of small work forces, and in industries like long-shoring and building construction, which were characterized by workers who changed employers from day-to-day or week-to-week.9 When the NLRA was passed in 1935, section 9(b) directed the NLRB, as it does today, to decide in each case whether the unit appropriate for collective bargaining was “the employer unit, craft unit, plant unit, or subdivision thereof.”10 Soon after passage of the NLRA, it was argued that the NLRB had no jurisdiction to go beyond the individual company in deciding on an appropriate unit. In Shipowners Association of the Pacific Coast,11 the board ruled that it could. The board reasoned that section 9(b) authorized it to decide that an employer unit was an appropriate unit, that section 2(2) defined employer as including a “person acting in the interest of an employer, directly or indirectly,” and that section 2(1) defined person as including associations.12 Therefore, the NLRB reasoned, an employer unit encompassed another person or persons acting in the interest of the employer.13 A concomitant of this reasoning was that the other person must be authorized, either formally or informally, to act for or in the interest of an individual employer. When consent was present, the board held that it could decide that a multiemployer bargaining unit was appropriate. When consent was absent, the board held that it could not:14 Any uniformity in wages, hours, and working conditions that exists in the industry . . . has not therefore been achieved through any agent acting for or in the interest of all the Companies under any delegation of authority. Thus each of the Companies has retained to itself and has exercised direct control over the essential employer functions. Consequently, . . . within the limitations of the Act, we are unable to fix a single unit embracing the employees of all the Companies.15 8. National Labor Relations Act, 29 U.S.C. §§ 151–169 (1998). 9. NLRB v. Truck Drivers Local Union No. 449, 353 U.S. 89, 94, 95 n.23 (1957). 10. 29 U.S.C. at § 159(b). 11. 7 N.L.R.B. 1002, 2 L.R.R.M. (BNA) 377 (1938). 12. Id. at 1024–25. 13. Followed in Waterfront Employers Ass’n of the Pacific Coast, 71 N.L.R.B. 80, 110, 18 L.R.R.M. (BNA) 1465 (1946). 14. See, e.g, F.E. Booth & Co., 10 N.L.R.B. 1491, 3 L.R.R.M. (BNA) 552 (1939). 15. Id. at 1496–97. See also Metro-Goldwyn-Mayer Studios, 7 N.L.R.B. 662, 2 L.R.R.M. (BNA) 322 (1938) (evidence insufficient to justify finding multiemployer bargaining unit is appropriate); M&J Tracy, Inc., 12 N.L.R.B. 936 (1939); Bulk Sales Dep’t, Gulf Refining Co., 21 N.L.R.B. 1033, 6 L.R.R.M. (BNA) 152 (1940); Rayonier Inc., 52 N.L.R.B. 1269, 1275, 13 L.R.R.M. (BNA) 91 (1943) (association’s lack of power to bind members not relevant where members “demonstrated their desire to be bound by group rather than individual action.”); George F. Carleton & Co., 54 N.L.R.B. 222, 13 L.R.R.M. (BNA) 189 (1943); Dolese & Shepard Co., 56 N.L.R.B. 532, 14 L.R.R.M. (BNA) 178 (1944);

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During the course of the Taft-Hartley debates, many proposals to limit multiemployer bargaining were introduced. A House bill would have banned most multiemployer bargaining. A Senate bill would have banned only involuntary multiemployer bargaining.16 Neither bill’s language was adopted. In rejecting the Senate version, the conference committee commented, The treatment in the Senate amendment of the term employer for purposes of section 9(b) is omitted from the conference agreement, since it merely restates the existing practice of the Board in fixing of bargaining units containing employees of more than one employer, and it is not thought that the Board will or ought to change its practice in this respect.17

In NLRB v. Truck Drivers Local Union No. 449,18 the Supreme Court concluded that Congress intended the board to “continue its established administrative practice of certifying multiemployer units, and intended to leave to the Board’s specialized judgment the inevitable questions concerning multiemployer bargaining bound to arise in the future.” Two changes in the statute were enacted as part of the Taft-Hartley amendments and arguably are relevant to the NLRB’s authority to decide whether a multiemployer bargaining unit is appropriate. In Shipowners Association of the Pacific Coast, the board relied on the language of section 2(2), defining employer as including “any person acting in the interest of an employer,” to support its conclusion that it could decide whether a consensual multiemployer bargaining unit was appropriate.19 That language was changed to read, as at present, “any person acting as an agent of an employer.” According to Patrick Hardin in The Developing Labor Law,20 the NLRB “implicitly read this amendment” in Associated Shoe Industries21 “as detracting nothing from its authority to conduct elections in multiemployer units.” The Taft-Hartley amendments also added section 8(b)(4)(A); it prohibits a union from engaging in coercive activity for an object of “forcing or requiring any employer . . . to join . . . any employer organization.” This section has been cited as evidence of congressional intent that

Advance Tanning Co., 60 N.L.R.B. 923, 16 L.R.R.M. (BNA) 22 (1945); Associated Shoe Indus., 81 N.L.R.B. 224, 23 L.R.R.M. (BNA) 1320 (1949); Pacific Metals Co., 91 N.L.R.B. 696, 26 L.R.R.M. (BNA) 1558 (1950); York Transfer & Storage Co., 107 N.L.R.B. 139, 33 L.R.R.M. (BNA) 1078 (1953); Bennett Stone Co., 139 N.L.R.B. 1422, 1424, 51 L.R.R.M. (BNA) 1518 (1962); NLRB v. Beckham, Inc., 564 F.2d 192 (5th Cir. 1977). 16. Mobile Mech. Contractors Ass’n, Inc. v. Carlough, 664 F.2d 481, 485 (5th Cir. 1981), comparing H.R. 3020, 80th Cong., 1st Sess. §§ 2(16), 9(f)(1), 12(a)(3) (1947), with S. 1126, 80th Cong., 1st Sess. §§ 2(2), 9 (1947). 17. H. CONF. REP. NO. 510 on H.R. 3020, 2 Leg. Hist. 535–536 (LMRA 1947). 18. 353 U.S. at 96. 19. 7 N.L.R.B. at 1024–25. 20. PATRICK HARDIN, THE DEVELOPING LABOR LAW 510 (3d ed. 1992) 21. 81 N.L.R.B. 224, 23 L.R.R.M. (BNA) 1320 (1949).

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multiemployer bargaining must be voluntary. Nothing in the language of the section, however, purports to limit the NLRB’s authority to find that a multiemployer bargaining unit is appropriate nor does this section assist in identifying what is or is not a multiemployer bargaining unit. Regardless of the impact of section 8(b)(4)(A), today there is an unchallenged consensus that the NLRB lacks authority to decide that a multiemployer bargaining unit is appropriate, absent the individual employers’ consents. Member Brame so argued in his dissent in Sturgis, 22 and the majority agreed. In overruling Lee Hospital and in clarifying Greenhoot, the majority wrote, Unlike true multiemployer bargaining, . . . all the employees in fact share the same employer, i.e., the user employer. . . . We therefore overrule Lee Hospital and find no statutory requirement of employment consent to a unit combining solely and jointly employed employees of a single user employer.23 If the petitioner names only the supplier employer in its petition, there is no statutory impediment to a supplier-wide unit under the Act.24

Further, not one of the many parties or amici before the NLRB argued that the board could find a multiemployer bargaining unit appropriate, absent consent of all the employers. The issue in Sturgis was therefore not whether the board could decide a multiemployer bargaining unit was appropriate, absent consent (it cannot), but whether the units in question were multiemployer bargaining units. III. Precedents: The Department Store Cases Prior to Greenhoot and Lee Hospital, the Board had frequently found bargaining units appropriate, which the Sturgis majority thought were like the units at issue in Sturgis.25 Those cases could have been distinguished. Former-Member Raudabaugh demonstrated to the NLRB that they all involved one business sector, retail stores, in which the store licensed the operation and management of individual departments to third parties (for example, the jewelry department in a de22. 2000 WL 1274024, at *21 (Member Brame, dissenting). 23. Id. at *14. 24. Id. at *19. 25. See, e.g., Louis Pitzitz Dry Goods Co., 71 N.L.R.B. 579, 19 L.R.R.M. (BNA) 1037 (1946); Taylor’s Oak Ridge Corp., 74 N.L.R.B. 930, 20 L.R.R.M. (BNA) 1219 (1947); Denver Dry Goods Co., 74 N.L.R.B. 1167, 1176, 20 L.R.R.M. (BNA) 1247 (1947); J.M. High Co., 78 N.L.R.B. 876, 878, 22 L.R.R.M. (BNA) 1288 (1948); Block and Kuhl Dep’t Store, 83 N.L.R.B. 418, 419, 24 L.R.R.M. (BNA) 1101 (1949); Stack & Co., 97 N.L.R.B. 1492, 29 L.R.R.M. (BNA) 1263 (1952); Frostco Super Save Stores, Inc., 138 N.L.R.B. 125, 50 L.R.R.M. (BNA) 1558 (1962); Thriftown, Inc., 161 N.L.R.B. 603, 63 L.R.R.M. (BNA) 1298 (1966); Jewel Tea Co., 162 N.L.R.B. 508, 64 L.R.R.M. (BNA) 1054 (1966); Walgreen Louisiana Co., 209 N.L.R.B. 213, 85 L.R.R.M. (BNA) 1309 (1974); Sun-Maid Growers of California, 239 N.L.R.B. 346, 352–353, 99 L.R.R.M. (BNA) 1668 (1978), enforced 618 F.2d 56, 59 (9th Cir. 1980).

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partment store or the meat department in a supermarket).26 In each of those cases, the store was designed and presented to the public as one integrated enterprise, a situation explicitly relied on by the NLRB in holding that it was appropriate to combine employees jointly employed by a store and by a department operator with employees solely employed by the store: A meaningful interpretation of the provisions of the [retailer’s] licenses and a consideration of their purpose and effect must, in our opinion, take full cognizance of the entrepreneurial context in which these licenses are utilized. That context is a commercial venture in which separate corporate entities combine their resources and create the appearance of a single integrated enterprise under the same roof in order to obtain the mutual business advantages to be derived from this type of operation. 27

Thus, those stores gave the appearance of a common or joint venture. Further, there was no contention made in any of the cases that combining different employers violated the board’s authority under section 9(b). Therefore, there was no consideration of that issue. The lack of such contention might show that no one thought the units were multiemployer, within the meaning of section 9(b), but it also means that the cases were not stare decisis. When confronted with the contention that combining jointly employed employees in one bargaining unit with solely employed employees violated the statutory bar on multiemployer bargaining units, absent consent, more was needed to resolve the issue than a recitation of possibly factual similar cases that nevertheless did not address the issue. IV. Precedents: Greenhoot and Lee Hospital Sturgis was essentially a case of first impression. Although its issues had ostensibly been considered in Greenhoot and Lee Hospital, they had never been plumbed before Sturgis. In Greenhoot, a union appeared to have petitioned for a unit of employees employed by Greenhoot, Inc., a property management company, at fourteen separately owned office buildings. The fourteen separate owners did not appear to have been named in the petition. They were served with notices of the hearing. Six appeared in the persons of two representatives.28 There was no indication of the positions they took, if any. Greenhoot contended that the separate building owners were the sole employers. In the alternative, Greenhoot contended it was a joint employer with each of the separate building owners, and “accordingly, a multiple location 26. Post-Hearing Brief of Intervenor, Interim Personnel, Inc. for the National Labor Relations Board at 6–7 (NLRB Jan. 14, 1997) (Nos. 9-UC-406, 14-RC-11572, 33-RC-4042). 27. United Mercantile, Inc., 171 N.L.R.B. 830, 832, 68 L.R.R.M. (BNA) 1173 (1968). 28. Greenhoot, 205 N.L.R.B. at 250 n.1.

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unit [was] not appropriate.”29 The decision did not say whether Greenhoot’s contention was (1) that the board was barred by section 9(b) from recognizing a multiemployer bargaining unit without consent or (2) that employees at each separate location lacked a community of interest with employees at other locations. The regional director found that Greenhoot was not an employer.30 The NLRB reversed that finding.31 It found that Greenhoot was an employer and that it had entered into a joint employment relationship at each of the fourteen locations with the owner of each location. Continuing, the board held, In this circumstance, there is no legal basis for establishing a multiemployer unit absent a showing [of consent]. . . . As there is no consensual basis here for finding a multiemployer unit, we find that separate units at each location sought by the Petitioner . . . to be appropriate herein.32

The NLRB cited precedent in support of the conclusion that it could not establish a multiemployer bargaining unit absent consent but cited no precedent or explanation for its conclusion that a unit consisting of a supplier employer and user employers would constitute a multiemployer bargaining unit. In Lee Hospital, the union petitioned for a unit of the hospital’s registered nurse anesthetists.33 Under bargaining rules unique to hospitals, the NLRB held that the anesthesia department lacked sufficient disparity from the hospital’s other professional staffs to be a separate unit. The board then considered another way the anesthesia department might be a separate unit. The hospital had contracted with an outside company to operate the anesthesia department. The department would be a separate unit, the board concluded, if the hospital and the outside company were joint employers. The jointly employed employees of the department, the board concluded, could not be combined in a bargaining unit with the hospital’s other solely employed professional staffs: “[T]he Board does not include employees in the same unit if they do not have the same employer, absent employer consent.”34 Ultimately, the NLRB concluded that the outside company was not an employer. Therefore, the hospital was the anesthetists’ sole employer, and there was no impediment to placing them in a bargaining unit with the hospital’s other professional staffs. As for the board’s conclusion that, if the employees in the anesthesia department had been jointly 29. 30. 31. 32. 33. 34.

Id. at 250 (emphasis added). Id. at 251. Id. Id. 300 N.L.R.B. at 947. Id. at 948 (citing Greenhoot, 205 N.L.R.B. 250).

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JOINT EMPLOYER MIXED BARGAINING SUPPLIER/USER UNIT BARGAINING UNIT

UNDISPUTED MULTIEMPLOYER BARGAINING UNIT

Number of Employers

One

Multiple

Multiple

Multiple

Shared Control Over Employees

Not applicable

All employees

Some employees and not other employees

None

Commonality of Employers to Employees

One employer common to all employees

Multiple employers common to all employees

One employer common to all employees and one employer not common to all employees

No employer common to all employees

employed, then they could not have been placed in a unit with solely employed employees of the hospital, the board gave no explanation other than its citation to Greenhoot. V. Consent Is the Controlling Factor Is a unit consisting of employees jointly employed by two employers and of employees solely employed by one of them (henceforth referred to as a mixed supplier/user bargaining unit35) a multiemployer bargaining unit within the meaning of section 9(b)? If it is, then the NLRB may not decide such a unit is appropriate, absent consent of all the employers. Another possible relationship between or among multiple employers is that of joint employment. Joint employers “exert significant control over the same employees.”36 A unit of joint employers is not referred to as a multiemployer bargaining unit, although it literally is. NLRB law does not require a showing of consent before the board may decide such a unit is appropriate. Is a mixed supplier/user bargaining unit like a joint employer bargaining unit, a multiemployer bargaining unit, or neither? In the table below, the attributes of four types of bargaining units are compared. An obvious truth about a mixed supplier/user bargaining unit is that it involves more than one employer. In this regard, it is like a multiemployer bargaining unit that requires a showing of consent. A joint employer bargaining unit, however, also involves more than one 35. Meaning the unit mixes employees; some are jointly employed, and some are solely employed. 36. Lutheran Welfare Services v. NLRB, 607 F.2d 777, 778 (7th Cir. 1979); NLRB v. Western Temp. Servs., 821 F.2d 1258, 1266 (7th Cir. 1987).

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employer. It is not, on that basis alone, described as a multiemployer bargaining unit. Further, suppose one supplier employer supplies all of a user employer’s employees (a supplier/user unit but not mixed with other employees). No one would contend that it is a multiemployer bargaining unit; it would be described, at most, as a joint employer unit. Plainly, the mere fact of combining two employers in one bargaining unit has not resulted in labeling the unit a multiemployer bargaining unit, even though there are multiemployers. A distinguishing feature of a multiemployer bargaining unit requiring a showing of consent is that each member controls its own employees and does not share control over them with other employers. “Thus, each of the Companies has retained to itself and has exercised control over its essential employer functions.”37 Compare joint employers: They “exert significant control over the same employees.”38 In this regard, a mixed supplier/user unit is like a joint employer unit: The supplier and the user share control over the joint employees. The supplier and the user, on the other hand, do not share control over employees employed solely by the user. The situation of those employees, however, is distinguishable from a bargaining unit that is described as multiemployer on another ground: They share an employer in common with all employees in the unit. No employee in a unit described as a multiemployer shares an employer in common with all employees. Which of these fluctuating factors is significant? It is certainly true that the unit called a mixed supplier/user unit is unlike any unit described as multiemployer that was reviewed in the board’s case law prior to Taft-Hartley. If it can be said that Taft-Hartley froze in time a snapshot of a multiemployer bargaining unit, then a mixed supplier/user unit is not one. Where, however, is the rational basis for identifying one unit as multiemployer, within the meaning of section 9(b), and another not? It lies in yet another ultimately more obvious factor. Harking back to the NLRB’s pre-Taft-Hartley standards, the NLRB could combine two or more employers in a single bargaining unit when they consented to act in each other’s interests and not otherwise. The facts that permit two separate employers to be treated as joint employers demonstrate a voluntary alliance. Consent to the alliance is implicit. A joint employer relationship exists where multiple employers have “chosen to handle jointly . . . important aspects of their employeremployee relationship.”39 In a mixed suppler/user unit, the supplier and the user are joint employers. Joint employers implicitly consent to act in each other’s interests. The consent of others must be demonstrated. Absent the implicit consent of a joint employment relationship 37. F.E. Booth & Co., 10 N.L.R.B. at 1497. 38. Lutheran Welfare Servs., 607 F.2d at 778 (emphasis added). 39. NLRB v. Browning-Ferris Indus., Inc., 691 F.2d 1117, 1122 (3d Cir. 1982) (emphasis added) (quoting NLRB v. Checker Cab Co., 367 F.2d 692, 698 (6th Cir. 1966)).

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or, otherwise, a demonstrated consent, two employers may not, as a matter of law, be joined together in one bargaining unit. In other words, a joint employer bargaining unit is a multiemployer bargaining unit. The consent of the joint employers to come together in one bargaining unit is implicit in the nature of a joint employment relationship. Thus, there is no exception to the statutory mandate that multiple employers may not be combined in one bargaining unit without their consent. VI. The Sturgis Decision The Sturgis decision consolidated two cases. In Sturgis itself, a union petitioned for a unit consisting of all production employees at Sturgis’s hose assembly plant.40 The plant employed about thirty-five regular employees. It also used ten to fifteen temporary employees supplied by a temporary employment agency. Sturgis contended that the temporary employees should have been included in the bargaining unit. The union objected. The regional director found the temporary employees were jointly employed by Sturgis and the agency and that, under Lee Hospital, they could not have been combined in a unit with Sturgis’s solely employed employees.41 Sturgis petitioned for review. In Jeffboat Division, American Commercial Marine Service Co., the union already represented a unit of 600 production and maintenance employees who were engaged in shipbuilding.42 A collective bargaining agreement was in place. A temporary personnel agency supplied thirty welders and steam-fitters. The union petitioned to clarify the bargaining unit to include the welders and steam-fitters. The regional director found that the welders and steam-fitters were jointly employed by Jeffboat and the agency.43 On that basis, the regional director dismissed the petition under authority of Greenhoot and Lee Hospital.44 The union petitioned for review. In briefing before the NLRB, Sturgis, the union at Jeffboat, the general counsel, and the AFL-CIO urged the board to reverse Greenhoot or Greenhoot and Lee Hospital. All parties and amici in opposition urged the board to reaffirm both. No party or amicus curiae suggested that the two cases were distinguishable or that the board should affirm one and reverse the other. Yet, that is what the NLRB did, reaffirming (and clarifying) Greenhoot, while overruling Lee Hospital. The Sturgis board held that the combination of multiple user employers (the building owners) in Greenhoot produced a multiemployer bargaining unit, while the presence merely of one user employer in Lee 40. 41. 42. 43. 44.

Sturgis, 2000 WL 1274024, at *4. Id. at *2. Id. at *5. Id. at *3. Id.

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Hospital negated a multiemployer bargaining unit.45 The distinguishing and controlling fact for the board was the number of employers at the user level: The scope of a bargaining unit is delineated by the work being performed for a particular employer. In a unit combining the user employer’s solely employed employees with those jointly employed by it and a supplier employer [as in Lee Hospital, Sturgis and Jeffboat Division], all of the work is being performed for the user employer.46

By contrast, in Greenhoot, the work was being performed for fourteen unrelated users. Because Greenhoot involved more than one employer at the user level, the board reaffirmed that it presented a multiemployer bargaining unit.47 The board offered no citation and no explanation beyond the preceding two sentences for its ultimately defining rationale. The proposition that work performed uniquely for a particular employer can be identified and isolated, and is the distinguishing factor between a multiemployer bargaining unit and other bargaining units, is novel, unexplained, and suspect. For example, the work performed by the employees of one or more of a contractor’s subcontractors is performed for the contractor, but the work does not delineate the scope of a bargaining unit. By the preceding holding, the NLRB disposed of Lee Hospital, Sturgis, and Jeffboat Division. Expounding further on Greenhoot, the board wrote that Greenhoot “did not, however, pass on whether consent would have been required had the union sought to be certified only . . . for purposes of collective bargaining with Greenhoot alone.”48 In that circumstance, the board held, consent would not have been required (i.e., the unit would not have been a multiemployer bargaining unit): If a petitioner seeks to bargain only with the supplier employer, a petitioned-for unit of all the employees of a single supplier is not a multiemployer unit because the petition is seeking to represent the employees vis a vis a single employer . . . . [W]e wish to make clear that Greenhoot’s requirement of employer consent to the creation of a multiemployer bargaining unit has no application when the bargaining relationship sought is only with the supplier employer . . . . [A] petition that . . . seeks a unit of all the employees of a supplier employer and names only the supplier employer, . . . does not involve a multiemployer unit.49

Section 9(b), however, makes no reference to the identity of the party with whom the union seeks a bargaining relationship. It merely 45. Id. at *13. 46. Sturgis, 2000 WL 1274024, at *13. 47. Id. at *1, *13. 48. Sturgis, 2000 WL 1274024, at *19. In fact, every indication in the Greenhoot opinion is that the union did name Greenhoot alone. See supra discussion in Part V. 49. Sturgis, 2000 WL 1274024, at *19.

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directs the board to decide whether the unit appropriate for bargaining shall be the employer unit, craft unit, plant unit, or subdivision thereof. The NLRB’s regulations and its form petition require the petitioner to name the employer,50 but the requirement is not part of the statutory scheme. Section 8(a)(5) prohibits an employer from refusing “to bargain with the representative of his employees.”51 Once the board certifies a union as the representative of employees, any employer of those employees is obligated to bargain with the union. If the board had certified the union in Greenhoot as the representative of the Greenhoot employees at each of the office buildings, the building owners, as joint employers, would have been obligated to bargain with the union, without regard to whether the union had named them in its petition. The only issue would have been whether the building owners had received notices of the representation proceedings. That issue would have been relevant solely for due process purposes.52 Section 11008.1(c) of the Casehandling Manual now requires that notification be given in representation proceedings to “any other employer which might be a joint employer,” including “a contractor, an employment service, or a supplier of leased or temporary employees,” or “the operator of a leased department.”53 Was the NLRB correct to distinguish Greenhoot from Lee Hospital, Sturgis, and Jeffboat Division and to find that the Greenhoot unit was a multiemployer bargaining unit? The unit at issue in Greenhoot was different from the units at issue in the other cases. The issue posed by the board in Sturgis was “whether and under what circumstances employees who are jointly employed by a ‘user’ employer and a ‘supplier’ employer can be included for representational purposes in a bargaining unit with employees who are solely employed by the user employer.”54 Sturgis’s holding is, “A unit composed of employees who are jointly employed by a user employer and a supplier employer, and employees who are solely employed by the user employer, is permissible under the statute without the consent of the employers.”55 Greenhoot did not involve a unit of (1) employees who were jointly employed by a user employer and a supplier employer and (2) employees who were solely employed by a user employer. Greenhoot involved (1) employees who were jointly employed by a supplier employer and a user employer and (2) other employees who were jointly employed by the same supplier employer and different user employers. 50. 29 CFR § 102.61(1) (West 2001) (petition for certification shall contain the name of the employer); Petition, item 2. 51. 29 U.S.C. § 158(a)(5). 52. S.S. Kresge Co., 416 F.2d 1225 (6th Cir. 1969); Central Transport, Inc., 306 N.L.R.B. 166, 139 L.R.R.M. (BNA) 1404 (1992). 53. Sturgis, 2000 WL 1274024, at *20. 54. Id. at *1. 55. Id. at *12.

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The Sturgis board did not need to pass on the validity of Greenhoot to decide the cases before it. Nevertheless, its ultimate disposition of Greenhoot makes sense. A Greenhoot-type unit is different from a unit described as multiemployer in two respects: In a Greenhoot unit, first, every employer shares control over its employees with another employer, and second, there is an employer common to all employees. The opposite is true, in both respects, in a unit described as multiemployer. Nevertheless, a Greenhoot type unit is like a multiemployer bargaining unit in a more important respect. It brings together, in one bargaining unit, multiple employers (the users) who have not consented, either implicitly or explicitly, to come together. This element distinguishes Greenhoot from Lee Hospital, Sturgis, and Jeffboat Division and warrants a different result. The final unit for consideration is present in none of the cases discussed so far. It is a unit that consists of the employees of one user employer and several supplier employers. Under the majority’s rationale in Sturgis, this unit cannot be considered a multiemployer bargaining unit because the user level is not multiple. That basis for distinguishing multiemployer bargaining unit bears no relationship to section 9(b). This unit should be barred under section 9(b) because it brings together multiple employers, the suppliers, who have not consented to come together. VII. Conclusion: Consent Is the Controlling Factor All variations of units and their variable factors may be summarized in the following table, but the one factor that is legally significant is consent. Under section 9(b), multiple employers may not be combined in the same bargaining unit absent consent, whether implicit or demonstrated. That is so without regard to whether the multiple employers are suppliers or users. VIII. Implications of Sturgis A. Community of Interest Plainly, Sturgis is not the end of the road for supplier/user units, which are now held not to be multiemployer bargaining units. Before the jointly employed employees or a supplier and a user may be combined in one unit with the solely employed employees of the user, the proposed unit must survive a gauntlet of community-of-interest tests.56 Sturgis merely removes an artificial, albeit convenient, barrier to reaching the community-of-interest test: . . . [A]pplication of our community-of-interest test may not always result in jointly employed employees being included in units with 56. Overnite Transp. Co., 322 N.L.R.B. 723, 723–24, 154 L.R.R.M. (BNA) 1019 (1996).

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One employer common to all employees

Commonality of Employers to Employees

Consent

Not applicable

One

Shared Control Over Employees

Number of Employers

SINGLE EMPLOYER BARGAINING UNIT

Implicit

Two employers common to all employees

All employees

Multiple

JOINT EMPLOYERS BARGAINING UNIT

Must be demonstrated

No employer common to all employees

None

Multiple

UNDISPUTED MULTIEMPLOYER BARGAINING UNIT

Table 2.

Implicit

One employer not common to all employees

One employer common to all employees

Some employees and not others

Multiple

ONE SUPPLIER/ ONE USER MIXED UNIT LEE HOSPITAL, STURGIS, JEFFBOAT

One employer common to all employees

Some employees and not others

Multiple

MULTIPLE SUPPLIERS/ONE USER

Implicit between supplier and user Must be demonstrated among users

Implicit between supplier and user Must be demonstrated among suppliers

Multiple employers Multiple employers not common to all not common to all employees employees

One employer common to all employees

All employees

Multiple

ONE SUPPLIER/MULTIPLE USERS GREENHOOT

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solely employed employees. We do not prejudge the outcome of this analysis in the cases before us. Having decided above that the statute does not require consent of both employers for the establishment of such units, we simply find that their appropriateness will be decided based on their particular circumstances, using the Board’s traditional analysis.57

Since a contingent or temporary work force is at the heart of these cases, the most obvious limitation on including them in a bargaining unit is the principle that temporary or casual employees are not eligible to vote in representation elections.58 In order to include an employee within the unit, it must be shown that “the employee performs unit work with sufficient regularity to demonstrate a community of interest with remaining employees in the bargaining unit.”59 In the construction industry, the rules are more relaxed. A worker is eligible to vote in the construction industry (1) if the worker has been employed for at least thirty days within the twelve months preceding the eligibility date, or (2) if the worker has been employment for some amount of time within the preceding twelve months and for at least forty-five days within the preceding twenty-four months.60 Suppose a construction worker is employed on a regular basis by a supplier employer, but on a temporary basis by a user employer. Which set of eligibility rules should govern? If the construction industry rules govern, presumably, the NLRB will apply them solely to employment for the user employer. In J.E. Higgins Lumber Company, Member Hurtgen noted his agreement with the majority decision in Sturgis but noted also that he would have “serious concerns” about finding a community of interest “in many supplier/user situations” because “the two groups are likely to have different economic emoluments. . . . [I]n many supplier/user situations, the economic emoluments of employment for the jointly employed group are set by the supplier, while the emoluments for the user group are set only by the user.” 61 The supplier and user employers are likely to have divergent interests too. Depending on the severity of in-

57. Sturgis, 2000 WL 1274024, at *15 (citations omitted). 58. Owens-Corning Fiberglass Corp., 140 N.L.R.B. 1323, 52 L.R.R.M. (BNA) 1246 (1963); E. F. Drew & Co., Inc., 133 N.L.R.B. 155, 48 L.R.R.M. (BNA) 1615 (1961) (employees hired through U.S. Employment Service on temporary basis excluded); Sealite, Inc., 125 N.L.R.B. 619, 45 L.R.R.M. (BNA) 1153 (1959) (laborers and truck drivers hired for particular construction jobs lasting several days to several months excluded); Continental Winding Co., 305 N.L.R.B. 122, 124, 138 L.R.R.M. (BNA) 1397 (1991) (Kelly Services and user found to be joint employers, but their employees excluded for lack of showing continuity and regularity of employment). 59. Pat’s Blue Ribbons and Trophies, 286 N.L.R.B. 918, 127 L.R.R.M. (BNA) 1034 (1987). 60. Daniel Constr. Co., 167 N.L.R.B. 1078, 66 L.R.R.M. (BNA) 1220 (1967); Steiny & Co., 308 N.L.R.B. 1323, 141 L.R.R.M. (BNA) 1217 (1992). 61. J. E. Higgins, 2000 WL 1663426, at *3.

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terest differences, a future case may find that this factor undermines a community of interest between the two groups of employees. B. Accretion In the accretion context (Jeffboat Division), additional limitations apply. First, “[t]he Board has followed a restrictive policy in finding accretion because it forecloses the employees’ basic right to select their bargaining representative.”62 The NLRB adds employees to a bargaining unit without their consent “only when the additional employees have little or no separate group identity . . . and when the additional employees share an overwhelming community of interest with the preexisting unit to which they are accreted.” 63 Second, imposing an existing labor contract on an employer in the accretion context is wholly different from requiring an employer to participate in negotiating a contract in a newly certified bargaining unit. Dissenting Member Brame and some of the amicus curiae argued that this result would violate the principle expressed by the U.S. Supreme Court in H.K. Porter Co. v. NLRB,64 which states that the board lacks authority to compel an employer to accept any particular contractual provision.65 This issue has yet to be tested. If the board does accrete, issues of retroactivity may be raised. Should the joint employers have been compensating joint employees in accordance with the terms of the collective bargaining all along? C. Limitation on the Duty to Bargain An important limitation on the obligations of an employer in a mixed supplier/user bargaining unit is found in the Sturgis majority’s insistence that “in these units, each employer is obligated to bargain only over the employees with whom it has an employment relationship and only to the extent it controls or affects their terms and conditions of employment. . . . [A] user employer . . . and its supplier . . . need only negotiate with the union over their jointly employed employees to the extent that they each control their conditions of labor.”66 Thus, the supplier employer is not obligated to bargain regarding the employees who are solely employed by the user employer. More significantly, with regard to the joint employees, the supplier and the user are each obligated to bargain solely with regard to those terms and conditions that each controls or affects. For example, in a typical situation, a supplier employer will set the wages and benefits of its employees. On the job, the 62. Towne Ford Sales, 270 N.L.R.B. 311, 116 L.R.R.M. (BNA) 1066 (1984). 63. Compact Video Servs., Inc., 284 N.L.R.B. 117, 119–20, 125 L.R.R.M. (BNA) 1167 (1987) (quoting Safeway Stores, 256 N.L.R.B. 918, 918, 107 L.R.R.M. (BNA) 1338 (1981)); See also Member Hurtgen’s precautionary concurrence in J. E. Higgins, 2000 WL 1663426, at *3. 64. 397 U.S. 99 (1970). 65. See also NLRB v. Burns Int’l Sec. Servs., 406 U.S. 277 (1972). 66. Sturgis, 2000 WL 1274024, at *15.

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user employer will set the hours of work and direct the work. In that situation, according to the majority, the user will not be required to bargain with the union regarding wages or benefits, and the supplier will not be required to bargain regarding hours or onsite working conditions. The majority was “confident that bargaining in these units is feasible. Since employers will be obligated to bargain only over those terms and conditions over which they have control, we believe . . . that employers and unions will be able to formulate appropriate and workable solutions to logistical issues that may arise.”67 D. Secondary Activity The implications of Sturgis for secondary activity are problematic. Regardless of Sturgis, joint employers will not be neutral with regard to disputes relating to their jointly employed employees.68 With regard to disputes relating to the user’s solely employed employees, a supplier will be neutral if its employees (the jointly employed employees) are not performing struck work (i.e., work normally done by the user’s solely employed employees).69 In fact, the supplier might often be performing precisely that work, but its loss of neutrality will have nothing to do with Sturgis. Dissenting Member Brame felt the “model adopted by the majority . . . could unnecessarily complicate the identification of the primary employer in disputes by creating the mistaken impression that a supplier employer such as a temporary agency is a primary employer in controversies between the user employer and its solely employed employees.”70 In that event, Member Brame felt that a dispute could spill over to involve other user employers of the supplier, but he thought it would only be a “mistaken impression” that the supplier employer was a primary employer.71 In fact, he stated, “Action by a union against the agency in these circumstances would be purely secondary because the agency, rather than being able to settle the dispute through its own action, could only bring about a resolution by exerting pressure on the user employer.”72 Employers have the assurance of the AFL-CIO that it agreed with Member Brame. In its post-argument brief to the board, the AFL-CIO wrote, It is also settled that the joint employers’ duty to bargain is limited in scope to the joint employees. [Citations omitted.] Thus, a joint employer has no duty toward employees in a bargaining unit who are not its own. It follows that if a dispute arises within the unit which 67. 68. 69. 70. 71. 72.

Id. at *16. Local 363, IBT, 214 N.L.R.B. 868, 88 L.R.R.M. (BNA) 1102 (1974). Cf. Local 761, IUE v. NLRB, 366 U.S. 667 (1961). Sturgis, 2000 WL 1274024, at * 40 (emphasis added). Id. Id.

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17 THE LABOR LAWYER 183 (2001) relates only to the non-joint employees, only the employer of those employees will be treated as the primary. For example, taking the facts of Jeffboat, if a bargaining dispute arises which concerns only the employees of Jeffboat, and not the joint employees, [the temporary agency] would be treated as a neutral person with respect to that dispute, and entitled to protections from coercive conduct that any neutral is entitled to under section 8(b)(4). However, if the dispute was unit wide—encompassing both the joint employees and the other employees in the unit—then [the temporary agency] would not be a neutral and would be subject to the range of pressures that any primary employer may experience.73

As noted earlier, the temporary agency’s exposure to primary status in the latter example would be based on its status as a joint employer, not on any status newly created by Sturgis. E. Increased Board Litigation The Sturgis decision means increased time and litigation for the NLRB and for the parties that come before it. Difficult issues of community of interest and accretion will be litigated in representation proceedings, and issues of the parties’ respective duties to bargain and of secondary activity will be litigated in unfair labor practice proceedings. Especially in the representation area, quick stipulations are unlikely.

73. Post-Argument Brief of the AFL-CIO for the National Labor Relations Board at 18–19, Jeffboat Division (9-UC-406), M.B. Sturgis, Inc. (14-RC-11572), Value Recycle, Inc. (33-RC-4042).

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Epilepsy Foundation of Northeast Ohio and the Recognition of Weingarten Rights in the NonOrganized Workplace: A Manifestly Correct Decision and a Seed for Further Progress Sam Heldman Hilary E. Ball Frederick T. Kuykendall III* In the first half of the last century, legal realism grew to be the dominant strain in American jurisprudence. In a very rough nutshell, this realism was the recognition that judges, in deciding cases, were doing more than applying neutral logic and deduction to derive the correct answer from precedent; realists understood that something more than logic, something including even an awareness of reality and social policy, went into the art of judging. As the century went on, this understanding became so dominant that it was common in the academic legal community to say, “We are all realists now.” Later, an even more emphatic and often accusatory description of judging was put forth by some of those who practiced what became known as Critical Legal Studies. Some of those Crits (as they called themselves) argued that law and judging were raw acts of politics, which were often designed to serve one class at the expense of another. This doctrine was—as one might have expected in light of the time period and historical context—put forth by those on the left, who were claiming that the class that dominated legal decision making was the rich, who used their power at the expense of workers. This view, of course, was most often rejected by those at the centers of power in legal academia and the establishment, who tended to hold a more idealized— or at least more overtly respectful—view of legal decision makers. * The authors are all of counsel with Gardner, Middlebrooks, Gibbons, & Kittrell, P.C., in the District of Columbia and Alabama. In addition to other aspects of their practice, they represent unions and employees in labor and employment matters. An earlier version of this article was presented in Kauai, Hawaii, at the 2001 Midwinter Meeting of the Labor and Employment Section’s Committee on the Development of the Law under the National Labor Relations Act (February 2001).

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However, upon reading much of the management-side response to the decision of the National Labor Relations Board (NLRB) in Epilepsy Foundation of Northeast Ohio,1 it is tempting to say not just that we are all realists, but that we are all Crits now. That management-side response, as disseminated through the new quasi-populist medium of pamphleteering (i.e., the World Wide Web), has the continual refrain that Epilepsy Foundation was an act of raw politics and that political power must be mobilized against it. The online newsletter of the firm Walter & Haverfield LLP, for instance, asserts that the decision was “seemingly based on political party lines” and that the decision (unless reversed on appeal) “will likely stand until a Republican president is elected.”2 The law firm Duvin, Cahn & Hutton even more bluntly asserts that it knows what was on NLRB members’ minds, calling Epilepsy Foundation an “abrupt and politically motivated reversal of a well-settled legal doctrine.”3 A Delaware business publication, the New Castle Business Ledger, says, “Since the National Labor Relations Board is headed by five members appointed by the president for fiveyear terms, its rulings often twist and turn with the political winds of change. [Epilepsy Foundation] is a classic example of that phenomenon.”4 A management advocacy group calling itself LPA (the public policy association of senior human resource executives) highlights Epilepsy Foundation in an article titled Recent Reversals of Established Precedents Highlight Politicization of the Board, declaring that much of the board’s decision making is pure politics and going so far as to advocate eliminating the NLRB’s jurisdiction over unfair labor practice issues. 5 The funny thing, of course, is that (unlike the first Crits) this chorus proceeds from the view that the basic problem in contemporary American labor law is that the unfortunate bosses are suffering mightily from arbitrary power wielded by a “dictatorship of the proletariat”6 —a view that no one but a management lawyer or anti-union consultant could say with a straight face. It is our belief, however, that this chorus of management-side neoCrits has appropriated only some of the rhetoric of critical legal the1. 331 N.L.R.B. No. 92, 164 L.R.R.M. (BNA) 1233, 2000 WL 967066, at *1 (2000). 2. Randall G. Ammons, New NLRB Decision Makes It Harder to Talk to Employees, at http://www.walterhav.com/news_item2.asp (visited Apr. 4, 2001). 3. Duvin, Cahn & Hutton, Weingarten Rights: NLRB Rules That Nonunion Employees Have the Right to Insist on Presence of Coworkers at Investigatory Meetings, at http://www.duvinlaw.com/publications/newsletter/clientalert/weingarten.htm (visited Apr. 4, 2001) (emphasis added). 4. Robert F. Stewart, Jr., Union-Like Decision for Non-Union Employees, at http://www.ncbl.com/archive/09–00labor.html (visited Apr. 4, 2001). 5. Recent Reversals of Established Precedents Highlight Politicization of the Board, at http://www.nlrbwatch.com/news/Recent_Reversals.htm (visited Apr. 4, 2001). 6. Because this is a law journal, we must note that the phrase “dictatorship of the proletariat” appears at least as far back as 1875, in Karl Marx’s “Critique of the Gotha Programme.” See http://www.marxists.org/archive/marx/works/1870/gotha/ch04.htm (visited Apr. 4, 2001).

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ory—that is, a willingness to deride as political any decision with which they disagree. They are critical in that they criticize, but critical thinking means more than disagreeing—it also entails the use of close, rigorous, and careful logical analysis. In this sense, the new management Crits utterly fail to engage in actual critical thinking. They have elevated rhetoric over substance.7 Their criticisms of Epilepsy Foundation are, if evaluated seriously, quite weak. We will show in this article that Epilepsy Foundation makes perfect sense as a matter of law and public policy. I. Legal Background and the Limited Nature of the Right Recognized in Epilepsy Foundation The basic legal background of Epilepsy Foundation is familiar to most labor lawyers. Section 7 of the National Labor Relations Act (NLRA) states, “Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”8 Section 8(a)(1) makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7.”9 Thus, although we are most familiar with section 7 as a source of rights related to union activity—organizing, representation elections, and the negotiation and administration of collective bargaining agreements—it is clear from the language of section 7 that the statute also recognizes rights that are applicable outside of the context of union activity.10 The right to engage in concerted activities for the purpose of mutual aid or protection, under the statute, is a right in every workplace (at least so long as the employer is subject to the NLRA, as most significant private employers are). There have been, over the years, many cases recognizing and enforcing section 7 rights in non-organized workplaces. As a recent example, see Odyssey Capital Group III, L.P.11 Numerous other examples of cases finding activity protected under sec-

7. It is noteworthy that this criticism of NLRB decision making is not the only recent instance in which Crit-like sound-bites have come from legal commentators on the right, ascribing raw political motivation to decisions with which the commentators disagree. Another particularly stark example was the response of many Republican legal commentators to the decisions of the Florida Supreme Court in the litigation over the 2000 presidential election. 8. 29 U.S.C. § 157 (1998). 9. 29 U.S.C. § 158(a)(1) (1998). 10. See 29 U.S.C. § 157 (“the right . . . to engage in other concerted activities for the purpose of . . . other mutual aid or protection”). 11. 2000 WL 1728274, at *1 (2000) (Administrative Law Judge decision holding employees’ action was protected under section 8(a)(1) where—in a non-organized workplace—employees collectively refused to work around asbestos under unsafe conditions).

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tion 8(a)(1) in non-organized workplaces are listed in the NLRB’s decision in Materials Research Corp.12 The Supreme Court, too, agrees that employees in non-organized workplaces do enjoy the section 7 right to engage in concerted activity for mutual aid or protection.13 Most labor lawyers are also quite familiar with Weingarten rights, under the Supreme Court’s decision in NLRB v. Weingarten, Inc.14 In Weingarten, the Supreme Court upheld the NLRB’s ruling that, under sections 7 and 8(a)(1), it is an unfair labor practice for an employer to deny “an employee’s request that [a] union representative be present at an investigatory interview which the employee reasonably believed might result in disciplinary action.”15 The right to the presence of such a representative was, according to both the NLRB and the Supreme Court, to be found in the above-quoted broad language of section 7; it was an instance of “concerted activities for the purpose of . . . mutual aid or protection” (the NLRB concluded, and the Supreme Court agreed, that the conclusion was a reasonable and permissible one).16 As the Weingarten right arises from a portion of section 7 that is likewise applicable to non-organized workplaces, the question therefore naturally arose whether an employee in a non-organized workplace enjoyed a similar section 7 right to be accompanied when called to an investigatory meeting that the employee reasonably believed might result in disciplinary action. In 1982, in Materials Research Corp., the board held that employees in non-organized workplaces enjoyed such a right.17 In 1985, in Sears, Roebuck & Co., the board overruled Materials Research, holding that employees in non-organized workplaces have no right analogous to Weingarten; the board went so far as to say that the NLRA itself actually prohibits the board from recognizing such a right in non-organized workplaces.18 In 1988, in E.I. DuPont de Nemours, the NLRB—while continuing not to recognize Weingarten or analogous rights in the non-organized workplace—retreated from the extreme position staked out in Sears: The board acknowledged that it could recognize such rights but chose not to.19 In Epilepsy Foundation, the NLRB returned to the issue at the urging of the general counsel and once again considered whether “Wein12. 262 N.L.R.B. 1010, nn. 15–16, 110 L.R.R.M. (BNA) 1401 (1982). 13. See, e.g., NLRB v. Washington Aluminum Co., 370 U.S. 9 (1962). 14. 420 U.S. 251 (1975). 15. Id. at 252. 16. Id. at 252– 53 (citing Weingarten, Inc., 202 N.L.R.B. 446, 82 L.R.R.M. (BNA) 1559 (1973) (noting that the right was derived from this portion of section 7)); Id. at 260 (upholding the NLRB’s decision as a reasonable interpretation of this portion of section 7). 17. 262 N.L.R.B. 1010, 110 L.R.R.M. (BNA) 1401 (1982). 18. 274 N.L.R.B. 230, 118 L.R.R.M. (BNA) 1329 (1985). 19. 289 N.L.R.B. 627, 128 L.R.R.M. (BNA) 1233 (1988).

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garten should be extended to employees in non-unionized workplaces, to afford them the right to have a co-worker present at an investigatory interview which the employee reasonably believes might result in disciplinary action.”20 The board—after substantial discussion of Weingarten, Materials Research, Sears, DuPont, and the issues of statutory construction and labor policy involved in the question—decided, “[T]he rule enunciated in Weingarten applies to employees not represented by a union as well as to those that are.”21 The NLRB thus “overrule[d] the Board’s decision in DuPont and return[ed] to the standard set forth in Materials Research Corp.”22 The board concluded that DuPont, and the rejection of Weingarten rights for employees in non-organized workplaces, was “inconsistent with the rationale articulated in the Supreme Court’s Weingarten decision, and with the purposes of the Act.”23 Thus the present law under Epilepsy Foundation is that an employee in a non-organized workplace, when called by the employer for an investigatory interview that the employee reasonably believes might result in disciplinary action, has the right to have a co-worker present. It is important (because, among other reasons, it allows a realistic appraisal of whether the decision is really so disastrous for management as some critics have publicly claimed) to note that the right recognized in Epilepsy Foundation—like the Weingarten right in organized workplaces—is a rather limited right. (This is based on the assumption that, which we think is probably a fair one, the NLRB is unlikely to extend the Epilepsy Foundation right for non-organized workers beyond the parameters of the Weingarten right.) The right is limited, as the Supreme Court noted in Weingarten itself, by the following points: (1) the right exists only when invoked by the employee, and notably, the employer under current law has no obligation to notify the employee of her right to make such a request; (2) the right exists (so far) only as to interviews that the employee reasonably believes may result in discipline; (3) the employee does not have a statutory right that the employer must bargain with the employee or her accompanying co-worker;24 and (4) as with the Weingarten right, the employer may—once the employee requests the presence of a co-worker—refuse to go forward with the investigatory interview and may proceed to discipline the employee without ever hearing her side of the story.25 The employer can even pressure the employee with the 20. 2000 WL 967066, at *1 (noting that the general counsel urged the NLRB to revisit the issue). 21. Id. at *6. 22. Id. 23. Id. at *2. 24. Weingarten, 420 U.S. at 257–60. 25. Id. at 258–59.

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threat that it will do just that—that is, the employer can tell the employee that it will hear her out only if she relinquishes her statutory right.26 It is sometimes naively believed that the Weingarten right—and now maybe the Epilepsy Foundation right—is analogous to that aspect of Miranda v. Arizona27 and related constitutional cases which recognize that an accused has the right to counsel in police interrogations. (After all, who could object to a rule that gives an accused loyal employee the same right as an accused criminal?) A critical understanding of Weingarten and Epilepsy Foundation and an appraisal of the practical effects of those decisions on American work-life require the understanding that, in fact, Weingarten and Epilepsy Foundation are vastly weaker than this aspect of Miranda and related cases. Among other things, the essence of Miranda is that an accused criminal must be given notice of, among other rights, her right to request a representative in the interview; yet the employee has no such right to notice. Equally importantly, an accused criminal who invokes her right to counsel under Miranda and related cases cannot lawfully be cajoled or pressured into recanting that invocation of the right (through, for instance, a declaration that she will get a chance to tell her story only if she withdraws her request for counsel), yet the employee is subject to precisely that type of badgering, designed to induce her to abandon her statutory right to be accompanied in the interview. With this understanding of the background and the limited scope of Epilepsy Foundation, it soon becomes clear that the chorus of management-side criticism of the decision is wildly overblown. II. The NLRB’s Decision in Epilepsy Foundation Is a Permissible Interpretation of the NLRA and Should Be Enforced by the Courts Though some management-side advocates argue that U.S. courts of appeals (or the Supreme Court) will (or should) deny enforcement of the board’s decision in Epilepsy Foundation, we believe that well settled precedent requires federal courts to uphold the board’s decision.28 The most specific guidance in this regard is the fact that existing federal court precedent already holds that the rule to which the board returned in Epilepsy Foundation is a reasonable and permissible interpretation of the NLRA. The Third Circuit so held in Slaughter v. NLRB, finding that the NLRB in Sears had wrongly asserted that the

26. Id. 27. 384 U.S. 436 (1966). 28. The Epilepsy Foundation has filed a petition for review of the decision in the U.S. Court of Appeals for the D.C. Circuit, Docket Number 00–1332. The petition is pending as of this writing.

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act forbade extension of Weingarten to non-organized employees.29 The same court also so held in E.I. DuPont de Nemours & Co. v. NLRB, upholding the Materials Research rule extending Weingarten rights to non-organized employees.30 Though the Ninth Circuit denied enforcement of a Materials Research-era NLRB decision applying Weingarten in a non-organized workplace,31 that decision was (as had been explained by the Third Circuit in its DuPont decision) based on peculiar facts. Thus, the more persuasive and generally applicable existing judicial precedent is the Third Circuit’s Slaughter/DuPont, which supports the current Epilepsy Foundation rule. More general precedent regarding judicial review of NLRB decisions also supports enforcement of Epilepsy Foundation. The general principle, of course, is that Congress has entrusted the NLRB with the primary responsibility of interpreting the NLRA in light of reality and policy. The courts are to enforce the board’s decisions so long as those decisions are rational and consistent with the language of the NLRA.32 The board’s decision in Epilepsy Foundation easily passes muster under this very deferential standard of review. First, the decision is not foreclosed by the language of the NLRA. To the contrary, the language of section 7—which protects employees’ rights, whether or not their workplaces are organized, to “engage in . . . concerted activities for the purpose of . . . mutual aid or protection”— is easily broad enough to encompass the activity at stake in this context. At stake here is, in essence, a declaration by employees (at least two and perhaps more) that they will look out for each other when the employer threatens possible discipline and that for their mutual protection they will stick together, refusing to allow the employer to isolate them from each other in the crucial area of discipline. This is the quintessence of concerted activity for mutual protection. At the very least, the NLRB violated no linguistic rule and no congressional command by interpreting section 7 in this way.

29. 794 F.2d 120 (3d Cir. 1986). 30. 724 F.2d 1061 (3d Cir. 1983); see also Epilepsy Found., 2000 WL 967066, at *26 n.75 (Member Brame, dissenting) (detailing the long procedural history of Slaughter and DuPont). 31. E.I. DuPont de Nemours & Co. v. NLRB, 707 F.2d 1076 (9th Cir. 1983). 32. See, e.g., ABF Freight Sys., Inc. v. NLRB, 510 U.S. 317, 324 (1994) (holding that NLRB decisions “merit the greatest deference” because Congress has entrusted the NLRB with the “authority to make specific policy determinations,” and NLRB decisions are therefore to be enforced unless they are “arbitrary, capricious, or manifestly contrary to the statute.” Id. at 324 (quoting Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844 (1984))); Allentown Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359, 364 (1998) (holding that “[c]ourts must defer to the requirements imposed by the Board if they are ‘rational and consistent with the Act,’ . . . and if the Board’s ‘explication is not inadequate, irrational or arbitrary’”).

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Turning for a moment from the general rule to the specific facts at issue in Epilepsy Foundation, 33 it surely cannot be denied that the conduct at issue there falls neatly within the plain language of sections 7 and 8(a)(1). The case involved two employees, Hasan and Borgs, who embarked on a path of concerted activity for mutual aid and protection. First, they wrote a memo to their supervisor stating that his supervision was no longer required (although this memo was no doubt somewhat presumptuous from an employer’s point of view, there can surely be no debate that this was concerted activity for mutual aid). Then, after learning that the employer had reacted negatively to the memo, they wrote another memo to a higher supervisor, elaborating on the reasons for their assertion and including various incidents where their supervisor had acted inappropriately—again, classic concerted protected activity. The case came to a head, with regard to Borgs’s discharge, when the two supervisors then directed Borgs to meet with them. To make a long story short, Borgs asked if Hasan (his cohort) could come to the meeting as well because he was intimidated by the prospect of meeting alone with the two supervisors. The supervisors refused Borgs’s request. Borgs still resisted going to the meeting without Hasan’s accompaniment. Borgs was discharged the next day for “gross insubordination” (i.e., refusing to go to the meeting alone as directed).34 When Borgs declared that he preferred to meet the supervisors with his colleague Hasan by his side, that plainly amounted to “concerted activities for the purpose of . . . mutual aid or protection” within the meaning of section 7. Borgs and Hasan were in this together, acting jointly because they obviously knew (as all employees learn sooner or later) that joint action is more powerful than the act of one individual in isolation. When Borgs sought to have Hasan accompany him in the meeting, it was clearly an act by which Borgs sought to match the employer’s double-team (two supervisors) with equal strength. He did this not only for his own protection, but also for Hasan’s because, after all, they were in it together and would (so long as they stuck together) sink or swim together. The employer, for its part, undoubtedly recognized that its own position, strength, and intimidating power vis-a-vis the employees would be enhanced if it could isolate them from each other. That is why the employer took action that, under the plain language of section 8(a)(1), interfered with and restrained the employees’ attempted exercise of section 7 rights. The employer told Borgs that he and Hasan could not stick together in this meeting. Surely any person reasonably versed in the English language will agree that these facts come within the language of sections 7 and 33. Epilepsy Found., 2000 WL 967066, at *1. 34. Id. at *2.

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8(a)(1). Borgs and Hasan tried to stick together (“concerted activities”) to present their joint position to the employer in order to improve their work lives and reduce the possibility that they would be disciplined (“for the purpose of mutual aid or protection”), and the employer flatly demanded the right to isolate them from each other at the most critical moment (“interfere with, restrain, or coerce”). Moreover, the board’s decision in Epilepsy Foundation is certainly not arbitrary or capricious in the extreme sense, which is necessary before a court can overturn an NLRB decision on such an issue of labor law and policy. While management advocates freely assert that the board’s ruling in Epilepsy Foundation was not well considered, their complaint in this regard does not go beyond the sort of attack that one can always make against a judicial or administrative decision. One can always say (and is sometimes even correct in saying) that the logic employed by the judge or other decision maker was not airtight or that the decision would have negative consequences which the judge or decision maker failed to refute or that sort of thing. Those, by and large, are the type of criticisms that management advocates are hurling at Epilepsy Foundation, but judicial deference to the board means that a great deal more than that sort of criticism is required before the courts can overturn a decision of the board. The main argument made by those who would have the courts deny enforcement of Epilepsy Foundation is that the decision is contrary to the thrust of section 9 of the NLRA, which requires an employer to bargain only with a certified or recognized majority representative.35 This contention was, for instance, a large part of Member Brame’s dissent.36 This argument should not prevail because—unless, for rhetorical effect, one vastly overstates the parameters of the right recognized in Epilepsy Foundation—that right does not conflict at all with the principle of exclusive representation in section 9. In order to manufacture a conflict between section 9 (or even the spirit of section 9) and Epilepsy Foundation, it is necessary for a critic to portray Epilepsy Foundation as requiring a non-organized employer to bargain—or, at the very least, to deal—with a representative other than one that is properly certified or recognized under section 9. The critic’s claim is that Epilepsy Foundation requires the employer in an investigatory interview to treat the accompanying co-worker as the representative of the target (i.e., the employer is required to engage in a dialogue with the representative, listening to the points that the representative seeks to make and (perhaps) even going so far as to negotiate or debate with that representative). If that were what Epilepsy Foundation required, then there would be a colorable argument that 35. 29 U.S.C. § 159 (1988). 36. Epilepsy Found., 2000 WL 967066, at *22 (Member Brame, dissenting).

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the decision was contrary to the concept of representation as embodied in section 9. That sort of dealing or bargaining with a representative is not what Epilepsy Foundation requires. First, even if the employer does go forward with the investigatory meeting in the presence of the accompanying co-worker, it is clear that no bargaining is required. This is the law even in the organized setting under Weingarten,37and the same is true under Epilepsy Foundation.38 Thus, there is no conflict with section 9, which sets up a system of exclusive representation only as to bargaining.39 The Third Circuit in Slaughter v. NLRB recognized that a rule such as that adopted in Epilepsy Foundation would not conflict with section 9 for this very reason.40 Moreover, the argument that Epilepsy Foundation conflicts with section 9 misses the point for another reason as well: Epilepsy Foundation (like Weingarten) leaves the employer entirely free to decide not to have the investigatory meeting at all and to proceed to a decision on discipline without any interaction whatsoever with the co-worker who would have accompanied the target to an investigatory interview.41 Thus, Epilepsy Foundation does not even come close to a conflict with section 9 because it does not require the employer to have any contact with anyone who might possibly be considered a representative outside the scope of section 9. To say that Epilepsy Foundation conflicts with section 9, then, is ultimately no different from saying that an employer does, or should, have the right to forbid employees in a non-organized workplace from sticking together on matters of mutual concern or the right to be free from collective action by employees. The plain language of section 7, and years of NLRB and court decisions, show that the non-organized employer has no such right.42 Indeed, even just to call the accompanying co-worker a representative is to misstate the nature of the right under Epilepsy Foundation. The accompanying co-worker is not a representative in the sense that a union business agent or even a steward is. The accompanying coworker is instead one with a shared concern for mutual aid and protection and with an equal part in the collective activity. Her presence is, in many cases, desired as part of a pact made among co-workers to watch each other’s back in case of trouble, to stand beside each other when conflict with the employer is imminent, or to pay attention to what happens to each other because of the recognition that the fates of all employees are intertwined. The role of the accompanying co-worker 37. 38. 39. 40. 41. 42.

Weingarten, 420 U.S. at 259–60. Epilepsy Found., 2000 WL 967066, at *5. See 29 U.S.C. § 159. Slaughter, 794 F.2d at 127–28. Epilepsy Found., 2000 WL 967066, at *4; Weingarten, 420 U.S. at 259. See, e.g., Wash. Aluminum Co., 370 U.S. at 9.

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under such a pact of collective action is, at least in part, to share knowledge and information (e.g., about relevant laws and employer practices) with the target and to observe what occurs in the investigatory meeting (and thereby, among other things, both to deter employer overreaching and to be a potential witness should a hearing of any sort become necessary). This sort of concerted activity among co-workers is even more obviously protected by section 7 than is the Weingarten right to a union representative in a similar meeting. Even more so than the union representative, the co-worker in Epilepsy Foundation falls within the clear core of the section 7 phrase “concerted activities for the purpose of . . . mutual aid or protection.”43 For these reasons, the board’s decision in Epilepsy Foundation is certainly due to be enforced by the courts.44 III. The Board’s Decision Is Not Merely a Permissible Interpretation of the NLRA; It Is a Manifestly Correct Interpretation The NLRB’s decision in Epilepsy Foundation is not—as discussed earlier—just a permissible and reasonable interpretation of the NLRA. It is, beyond that, a wise and good decision. In the dissents in Epilepsy Foundation and the chorus of Internet criticisms from the management side, several complaints about the decision are repeated time and again. They are all, however, quite overstated and ultimately very flimsy. 43. It remains to be seen, in future cases, whether employees in non-organized workplaces have the right to bring a real representative (i.e., someone other than a co-worker) to an investigatory meeting, where the retention of such a representative is itself the result of concerted activity among employees. The recognition of that right would be truly analogous to Weingarten. As it stands, for the reasons mentioned in the text above, Epilepsy Foundation is in fact an easier case than Weingarten, as the request for an accompanying co-worker under Epilepsy Foundation does not involve a representative as such but instead is, in itself, direct concerted action. 44. We note that we are not making a prediction with a confidence level of 100% that the rule in Epilepsy Foundation will be upheld by the courts in all instances (particularly in those future cases where the facts are somewhat less perfect, as an instance of concerted activity for mutual aid and protection, than they were in Epilepsy Foundation itself). We are realists—or perhaps even Crits—enough to know that there is a possibility that some court(s) will deny enforcement of such a board decision by (for instance) analogizing it to Lechmere, Inc. v. NLRB, 502 U.S. 527 (1992). The thrust of the Supreme Court’s decision in Lechmere was that the Court had already, in prior cases, announced the correct interpretation of the act on the subject at hand (there, it was nonemployee access to employer property), and the NLRB had no authority to adopt a different approach once the Court indicated what the correct rule was. As just noted, some will try to analogize Epilepsy Foundation to Lechmere, claiming that the Supreme Court’s decision in Weingarten marked the “correct” and final word on the topic of investigatory meetings. The analogy would be fundamentally flawed, because Weingarten clearly did not (and could not have, because the issue was not presented) hold that employees in non-organized settings have no right of the sort recognized in Epilepsy Foundation. Therefore, the board did not in any sense violate Weingarten by recognizing the existence of analogous rights in the non-organized workplace. Lechmere is therefore not a proper analogy (even if one assumes that Lechmere was correctly decided).

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Perhaps the most often repeated criticism of Epilepsy Foundation— even from those management advocates who do not cynically chalk the decision up to raw politics—is that it overruled precedent.45 This complaint is not a logical part of a coherent management/Republican/right jurisprudence these days; conservative judges have certainly not shrunk from overturning precedent in recent years (consider, among many other examples, Seminole Tribe of Florida v. Florida46). As discussed earlier, the precedent that Epilepsy Foundation reversed was itself an overruling of prior precedent.47 In other words, precedent is not sacrosanct to management advocates or to employee advocates; each of us has worked at one time or another to have some adverse precedent overturned. Furthermore, the U.S. Supreme Court has explicitly recognized that the board—like all rational decision makers—can rationally change its collective mind from time to time.48 From the point of view of the Epilepsy Foundation itself as an employer and litigant, there was perhaps the sting of liability (relatively modest) when its conduct had been lawful under then-existing law; for the rest of us, the fact that Epilepsy Foundation overturned precedent is essentially irrelevant on a real-world, forward-looking basis. It is no real criticism to say that Epilepsy Foundation overturned precedent that itself had overturned precedent. The next common criticism of Epilepsy Foundation from management advocates is that it is a trap for the unwary: few non-organized employers know about the right, they therefore violate it out of ignorance of the law, and there is something unfair about this.49 (This was also a concern expressed in Member Hurtgen’s dissent.50) We, however, agree with Thomas Jefferson: “Ignorance of the law is no excuse in any country.”51 The argument of ignorance could just as easily be made as to every NLRB decision about section 7 rights in the non-organized workplace, but as we repeatedly point out in this article, the existence and enforceability of such rights are well settled. We also cannot help but highlight the irony in this assertion that employer ignorance of Epilepsy Foundation creates some level of unfairness to employers, for 45. See supra note 3. 46. 517 U.S. 44 (1996). 47. As discussed above, the NLRB in Epilepsy Foundation returned to the rule of Materials Research, which had been temporarily overruled in Sears and DuPont. 48. See, e.g., NLRB v. Curtin Matheson Scientific, Inc., 494 U.S. 775, 787 (1990) (“a Board rule is entitled to deference even if it represents a departure from the Board’s prior policy”). 49. See, e.g., Moffatt Thomas Barrett, Rock & Fields, CHTD, The NLRB’s Epilepsy Foundation Decision Sets a Trap for Unwary Non-union Employers, at http://www. moffatt.com/jddnews.html (visited Apr. 4, 2001). 50. Epilepsy Found., 2000 WL 967066, at *14. 51. Thomas Jefferson, Letter to Andre Limozin, 22 Dec. 1787. Jefferson continued with a level of cynicism which is perhaps appropriate in labor law: “Ignorance of the law is no excuse in any country. If it were, the laws would lose their effect, because it can always be pretended.”

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from our point of view, the real unfairness is that Epilepsy Foundation does not require employers to notify employees of their right to be accompanied in an investigatory interview. We therefore have the odd spectacle of management advocates who say in one breath that employer unawareness of Epilepsy Foundation is unfair to employers while, in the other breath, advising employers to take advantage of employees’ unawareness of the decision. Another common criticism of Epilepsy Foundation among management advocates is that it interferes with legitimate interests of employers in investigatory meetings. Though it is natural and to some extent appropriate that those advocates feel more deeply about the interests of employers than of employees, we believe nonetheless that the asserted employer interests at stake are not actually affected to any substantial degree by Epilepsy Foundation. Some management advocates claim that an employee’s right to be accompanied by a co-worker to an investigatory meeting will interfere with the employer’s ability to obtain the truth in such a meeting.52 That claim is wrong as a matter of practical reality. This culture has come to understand that isolating vulnerable witnesses from all sources of support, in intimidating situations where they have much to lose, is not (as a factual matter) the method best designed to discover the truth. In the employment setting, such a method of investigation will in many instances not succeed in obtaining the fullest true picture of the situation. An employee who is scared, isolated, and feeling no sense of control whatsoever over an investigatory meeting often has less ability to present her own accurate explanation of the facts at issue (either in describing the facts which mitigate her perceived misconduct, in explaining that similar conduct has been tolerated in other employees, or any of the many other facts that might bear on the situation) than she would have if she were supported by a co-worker. There is no real reason to believe that more truth will emerge in a one-sided meeting than in a meeting with a more level balance of power. Another concern often asserted by management advocates is the putative interest of the employer in protecting the confidentiality of the matters at issue in the investigatory interview.53 Denial of the right to be accompanied by a co-worker to an investigatory interview does not substantially protect this putative interest of the employer (even in those rare cases where it may be an interest that anyone but the 52. See, e.g., Susan L. McGreevy, NLRB Expands Rights of Non-Union Employees, at http://www.contractormag.com/articles/1200/clawtemp.asp (visited Apr. 3, 2001) (claiming “[o]bviously, an ‘adviser’ can influence his co-worker and make it more difficult to get to the facts”). 53. See, e.g., Roxane N. Sokolove & Jonathan L. Sulds, The Presence of Coworkers During Investigatory Interviews, at www.akingump.com/labor/publications/pdfs/ presence_of_coworkers.pdf (visited Apr. 4, 2001).

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employer would consider worthy of the law’s protection; more often, in our experience, this putative interest is not even one which the law should protect, but is instead based on mere secretiveness for its own sake). Even without the Epilepsy Foundation right, an employee who is subjected to an investigatory interview undoubtedly has the right to tell other employees about what was said to her by the employer and what she said to the employer in such a meeting. That type of discussion among co-employees, about matters in which they share an important interest (i.e., the employer’s disciplinary practices), surely falls within the scope of the section 7 phrase “concerted activities for the purpose of . . . mutual aid or protection.”54 So even without Epilepsy Foundation, an employer cannot lawfully require that an employee keep confidential that which occurred in an investigatory meeting at which she was the target. Thus, it is not a compelling argument against Epilepsy Foundation to say that the decision undermines the confidentiality of what occurs in such a meeting. One final putative employer interest that is supposedly undermined by Epilepsy Foundation is worth noting precisely because it so clearly illustrates the vastly divergent views of employer and employee advocates on this topic. This is the assertion by the Walter & Haverfield firm that “[u]nfortunately, the worst part about this decision is that it puts you, as an employer, on the defensive and breaks down any trust that might have been built [between employer and investigated employee] prior to that call to your office.”55 This is a strange usage of the word trust. If the employer is reluctant to have its conduct in the meeting observed by another employee and if (as this same firm advocates) the employer is careful not to tell the employee what it knows about the existence of the Epilepsy Foundation right,56 it seems to us that this describes a relationship in which there is no real trust whatsoever, in either direction. If an employer feels that it does not trust an employee who would dare engage in concerted protected activity, then that says much about management’s attitudes towards the NLRA. The presence of such management anti-act attitudes, however, is not a legitimate reason to narrow the interpretation of section 7. For all these reasons, the protest that Epilepsy Foundation substantially undermines the legitimate interests of employers is vastly 54. See Westside Community Health Ctr., 327 NLRB No. 125, 1999 WL 94097, at *1, *11 (1999) (employees have the right under section 7 to discuss their discipline with each other, and the employer cannot forbid such discussion); cf. Niles Co., 328 NLRB No. 58, 1999 WL 318899, at *1, *8 (1999) (employees have the right under section 7 to discuss their respective salaries, and the employer cannot forbid such discussion). 55. Randall G. Ammons, New NLRB Decision Makes It Harder to Talk to Employees, at http://www.walterhav.com/news_item2.asp (visited Apr. 4, 2001). 56. Id. (stating “You don’t need to let [the employee] know that she has the ‘Right’ to bring someone else along (after all, it’s easier to talk about these issues one-on-one) but if she asks . . . say yes.”)

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overstated. Likewise unconvincing are the protests of management advocates that the right recognized in Epilepsy Foundation is of no real benefit to employees (and that it may even be to employees’ detriment). Management advocates have tended to identify two asserted reasons why (in their view) Epilepsy Foundation is of no real benefit to employees; neither of those reasons, when subjected to critical thinking, is strong enough to sway anyone who is not already convinced. One of the common assertions in this regard is that the granting of Epilepsy Foundation rights will actually harm employees because, when an employee invokes that right, the employer will likely decide to forego the investigatory meeting altogether and will proceed to discipline the employee without ever hearing her side of the story.57 This putative concern, however, suffers from at least two serious flaws: (1) it postulates the most unreasonable sort of employer (i.e., the employer who elevates its own interest in dominance and control, over the desire to obtain factual information, to such a degree that it is willing to forego any chance of obtaining useful information in order to avoid encountering concerted activity among its employees) and oddly urges that the law should cater to the behavior of that employer; and (2) it embraces a curious paternalism, urging the view that people ought not have rights if the invocation of those rights might cause a negative reaction in others, rather than letting the employee in each instance decide (as a mature and competent adult) whether her interests would be better served by invoking the Epilepsy Foundation right. The other common putative concern in this regard is that a coworker who accompanies the target to the investigatory meeting will likely not be as helpful as the union representative who accompanies the target in an organized setting under Weingarten.58 Here again, we believe that this putative concern suffers from at least two serious flaws: (1) as a matter of fact, broad generalizations as to the alleged uselessness of a co-worker are grossly exaggerated because, in fact, there will in many cases be significant benefit not only to the target of the investigatory meeting, but to other employees as well;59 and 57. See Epilepsy Found., 2000 WL 967066, at *6 (noting that this concern had been raised by some advocates against the extension of Weingarten to non-organized workplaces, but rejecting this concern). 58. This concern was stated (for instance) in Member Brame’s dissent. 2000 WL 967066, at *29 (“a coworker-representative does not bring the same level of assistance to an investigatory interview as does a union representative”). 59. These benefits will in many cases include, but are not limited to, (1) deterring employer overreaching in the investigatory meeting; (2) providing a potential corroborating witness, not aligned with management, in the event that testimony as to what was said in the meeting ever becomes necessary; (3) providing emotional support to enable the target employee to give her own full account of the facts at issue; (4) assisting the target employee with at least some knowledge about relevant laws and employer practices; and (5) gathering, for use by other employees in future disciplinary matters, a working collective knowledge of the employer’s disciplinary practices.

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(2) again the odd paternalism discussed earlier is at work in this putative concern, for any employee is capable of deciding for herself whether the benefits from being accompanied by a co-worker are sufficient to justify the countervailing risk of incurring the employer’s displeasure.60 In our view, if one engages in actual critical reflection on these asserted reasons for denying the Epilepsy Foundation right, one will arrive at a conclusion that ought to be a rule of thumb for every advocate: Always take it with a grain of salt when an opponent claims that her opposition to one’s position is really for one’s good. One particularly curious aspect of the management-side response to Epilepsy Foundation is that many critics of the decision expressly concede that an employee’s request to management that a co-worker be present at such an investigatory meeting is protected by the NLRA. (Among those who made this concession was Member Brame in dissent.61 Member Hurtgen, the only other dissenter, also conceded the point but only for the sake of argument rather than as a definitive statement.62) By this concession, they agree that an employee cannot be terminated simply because she made that request. They admit that such a termination would violate section 8(a)(1), but, they continue, this does not mean that the employer must grant the request. In their A hypothetical example may help. Consider an employee investigated for tardiness, and correctly believing that she may be about to incur discipline for it. If her occasional tardiness is necessitated by the care of a chronically sick child, each of the benefits above could easily accrue from the presence of a co-worker in the meeting. The co-worker could, by her presence, deter the employer from browbeating the target into a bare confession of guilt and a promise to reform. She could be a witness in any proceeding under the Family and Medical Leave Act or similar proceeding. She could help the target put her own defense on the table through explanation of the reasons for the occasional tardiness. She could help the target work through an understanding of whether the Family and Medical Leave Act might apply to the situation. By participating and hearing the employer’s response, the co-worker could add to the employees’ collective databank of information about the employer’s leave practices. 60. This contention—that a lay co-worker would be less helpful in an investigatory meeting than a union representative—also misses the mark because (among other reasons) as noted above, Epilepsy Foundation is a much easier case than Weingarten. In the non-organized setting such as Epilepsy Foundation, the very act of being accompanied by a co-worker to an investigatory meeting is (as explained above) in and of itself “concerted activit[y] for the purpose of . . . mutual aid or protection.” In the organized setting at issue in Weingarten, by contrast, it requires a few more words to explain why being accompanied by a union representative (who may or may not be a co-worker) is “concerted activit[y] for the purpose of . . . mutual aid or protection.” The Supreme Court’s decision in Weingarten supplies that explanation, in laying out some of the reasons why the presence of a union representative in such a meeting is useful to the bargaining unit as a whole. But again, no such explanation is necessary in the non-organized setting—and there is no need to show that the right is of some extreme level of usefulness—because in the non-organized setting the very act of being accompanied by a coworker is, in and of itself quite plainly “concerted activit[y] for the purpose of . . . mutual aid or protection.” 61. Epilepsy Found., 2000 WL 967066, at *16 (Member Brame, dissenting). 62. Id. at *12 (Member Hurtgen, dissenting).

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view, the employer is free to deny the request and demand that the employee attend the meeting alone. As Member Brame put in his dissent, “Non-unionized employees would clearly have the right to request that a co-worker attend an investigatory interview, but their employers just as clearly are permitted to deny that request.”63 From the point of view of a logically thinking employee advocate, this concession—though meant by management advocates to be a limited one—leads inexorably to the conclusion that Epilepsy Foundation was correctly decided. The reason begins with the recognition that not every request that an employee can make in this situation will be protected by the NLRA. For instance, it would probably be perfectly lawful under the act to terminate an employee in a non-organized workplace merely for requesting the presence of a random friend if that friend were not a co-worker. Though that hypothetical termination is absurd and harsh, it is hard to argue that it violates section 8(a)(1) because is hard to argue that the presence of the non-co-worker friend will constitute concerted activity among employees for mutual aid or protection within the scope of section 7. The point proven by this negative hypothetical, we submit, is that the reason the mere request for a coworker’s presence is protected (as even many critics of Epilepsy Foundation concede that it is), such that the employee cannot be fired simply for making the request, is that the thing requested (i.e., the co-worker’s presence) is itself protected under section 7. This is the difference between the hypothetical friend and the Epilepsy Foundation co-worker: The co-worker’s presence is concerted activity for mutual aid or protection, where the friend’s is not. That, as a matter of language and logic, means that the employer cannot interfere with the co-worker’s presence if there is to be such a meeting; because that presence is protected by section 7, an employer will violate section 8(a)(1) by interfering with it. This is the plain meaning of the NLRA’s plain language, and all of management’s arguments as to why this is a bad result from a policy perspective are therefore beside the point. The act, after all, does not declare that an employer can interfere with concerted activities whenever they become arguably more burdensome to the employer than they are useful to the employees. The command of section 8(a)(1), at least as applied to this factual context, is pure and simple. The management advocates who make this concession about the protected nature of the request, of course, have a different spin. Their argument, in short form, is that there are many types of requests that are protected by the NLRA in the sense that an employer cannot terminate an employee for the mere request; they say that the act does not require the employer to grant such requests. Declining a request, they say, is not the same as interfering with section 7 rights. The anal63. Id. at *28 (Member Brame, dissenting) (footnote omitted).

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ogy is sometimes offered to employees (in a non-organized setting) who concertedly request a raise. It is generally common ground (under the current mainstream view of labor law) that employees cannot be terminated for making the request but that the employer is not required by the NLRA to grant the request. The Epilepsy Foundation right, management advocates say, is of this sort: Employees are protected in the making of concerted requests for mutual aid or protection, but the law will not make the employer grant those requests.64 Under this view, Epilepsy Foundation is a departure from the basic path of labor law. The cleverness of this argument shows how very important it is for lawyers not to buy too quickly into their opponents’ language. For if lawyers are indeed talking about a request here, then management’s analogy is a compelling one and its argument is hard to refute. The flaw in the argument, however, is that the word request is too loaded a word. The verb request, in fact, assumes that the object of the verb is not something to which the subject has entitlement. People request things when they have no legally enforceable right to demand them. The word request in this context is a sleight-of-hand that purports to make the analogy a logical and compelling one but which in fact begs the question. One can just as well say, “Employees, of course, have the right to request the opportunity to speak among themselves about working conditions in the break room on break time, but the employer is not obligated to grant the request.” Though this statement may seem absurd to all who are adherents of mainstream labor law, it is merely another utilization of the very same semantic technique that underlies this thread of criticism of Epilepsy Foundation. The real question here—for the NLRB and for a reviewing court— is whether request is actually the correct word to describe the conversation in which the employee expresses her preference that she be accompanied by a co-worker. It is our view—and, we believe, the view of the NLRA—that this is not in fact a request but an invocation of a right. It is an invocation rather than a request because, for the reasons which have already been discussed herein, being accompanied by a coworker to an investigatory meeting called by the employer is “concerted activit[y] for the purpose of . . . mutual aid or protection” within the scope of section 7. It is not a thing that is in the power of an employer to grant or refuse. It is a thing, a right, with which the employer must not interfere under section 8(a)(1), and it is therefore indisputable that by refusing to allow the co-worker to enter the meeting room, or by terminating the employee for refusing to abandon the right, the em-

64. The authors heard this argument made (with great skill) by several management-side participants at the 2001 Mid-Winter Meeting of the American Bar Association’s Committee on the Development of the Law under the National Labor Relations Act to which an earlier version of this article was presented.

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ployer interferes and thus subjects itself to liability under section 8(a)(1). Ultimately, the opposition to Epilepsy Foundation comes down to an assertion that is so dear to the heart of management advocates that it seems completely obvious to them: An employer has the right to decide how to conduct an interview (or, by and large, how to do just about anything else) in a non-organized workplace. Management advocates, in our experience, tend to think of this as so obvious as even to rise to the level of natural law. Member Hurtgen put it this way, without any trace of a recognition that anyone can possibly disagree: In a nonunion setting, the employer makes the judgment as to whether the interview would be enhanced by the presence of a third party. If the employer makes the judgment that the interview would be impaired, it is not the role of the Government to say that this judgment is incorrect.65

The basic point of the NLRA, though—when correctly understood—is that this putatively obvious principle reserving such rights to management is not so obvious and is not correct. There is no reason, as a matter of logic or natural law, why an employer should have the unilateral right to dictate to an employee as to who will be allowed to attend an investigatory meeting, rather than having that decision rest within the authority of the employee. This is not a matter of logic, definition, philosophy, or natural law; it is a matter of policy. It makes just as much sense to say that—at least in certain instances—the employee should have at least an equal say in the decision. If one proceeds from the premise that employer and employee stand on equal footing, with equal say in the employment relationship, then there is no reason to subscribe to the bold assertion that the employer has the right to decide this sort of thing—any more than one needs to subscribe to the opposite viewpoint, which is that the employee has the right to tell the employer which management personnel can come to such a meeting. Congress, in declaring the broad existence of a right to concerted action in section 7 even in non-organized workplaces, adopted a broad framework for labor policy that does not place those decisions solely in the hands of management. Thus, to say that Epilepsy Foundation keeps management from making such decisions unilaterally is no real criticism under the law; instead, it is simply a recognition that Epilepsy Foundation is American labor law and that in American labor law (even in non-organized settings) the employee occasionally has some say in her fate. We have pointed out that the board and the courts have for decades recognized that employees in non-organized workplaces do have the right to take 65. Epilepsy Found., 2000 WL 967066, at *14 (Member Hurtgen, dissenting) (emphasis in original).

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collective action against the wishes of their employer in a variety of settings. Epilepsy Foundation is simply one more in that long line of cases. IV. Building on Epilepsy Foundation The real question as to Epilepsy Foundation is not whether it goes too far—for, as this article shows, it clearly does not—but whether it goes far enough. Much remains to be decided in this area, and it should not merely be whether to accede to the sorts of quibbling and nibbling exceptions that employers will want to litigate (e.g., whether the employer can require a meeting in the absence of a requested co-worker when the co-worker is not immediately and conveniently available). The next major decisions, instead, should focus on whether section 7 in fact requires something beyond the initial steps taken in Epilepsy Foundation. Should the employer be required—as a matter of case adjudication or as a matter of rulemaking—to notify employees of their right under Epilepsy Foundation? Should the right be extended to other sorts of meetings beyond disciplinary investigations? Do employees in non-organized workplaces have the right to be accompanied by a nonco-worker representative (perhaps a union representative in an organizing situation or an attorney hired collectively by several co-workers jointly)? Along with further refinement and expansion of Epilepsy Foundation, there should be a renewed focus on other aspects of section 7 rights in the non-organized workplace. Advocates for employees should be creative, within the parameters of reasonable argument, in identifying and advocating potential cases in which the board should expand its recognition of non-organized employees’ rights. Such creative advocacy in an attempt to push the envelope and expand rights will be necessary and appropriate despite some expected cynicism and despair among employee advocates in the current political climate. We do not predict with confidence that, in the next few years, a newly appointed general counsel will advocate, or that a changing NLRB will accept, broad new rights for employees. On the other hand, we are not such cynics as to despair of any such progress. Most importantly, we believe that—just as management advocates have cried vociferously at the purportedly extreme unfairness of rather modest decisions such as Epilepsy Foundation during the last several years of board activity—so it will be necessary for employee advocates to ensure that the other end of the spectrum of debate is still heard during the foreseeable future. Employee advocates must ensure that the labor law debate, for the next few years, is not merely about whether to tilt heavily or only somewhat more slightly in favor of employers. To counteract that tendency, employee advocates must continue to seek opportunities to expand the rights of employees under section 7. Copyright 2001 American Bar Association

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Epilepsy Foundation of Northeast Ohio: A Case of Questionable Reasoning and Consequences M. Jefferson Starling III* I. Introduction On July 10, 2000, the National Labor Relations Board (NLRB) issued its decision in Epilepsy Foundation of Northeast Ohio,1 overturning long-standing NLRB precedent and holding that nonunion employees had the right to a co-worker representative during interviews that might lead to disciplinary action. This article focuses on the history of representational rights in the nonunion workplace, the shortcomings in the majority’s opinion in Epilepsy Foundation, and the likely unintended consequences of that decision. The article concludes by calling on the NLRB to take the first opportunity to reverse its decision in Epilepsy Foundation. II. The History of Weingarten Rights in the Nonunion Workplace A. NLRB v. Weingarten, Inc. The Supreme Court’s opinion in NLRB v. Weingarten, Inc.,2 serves as the starting point for any discussion of an employee’s right—or lack thereof—to have a co-employee present during an investigatory interview. Weingarten involved a union-represented employee who was terminated for refusing to participate in an investigatory interview after the employer had refused to permit her union steward to be present at the interview.3 In upholding the NLRB’s finding of a section 8(a)(1) violation by the employer, the Supreme Court recognized for the first time that a represented employee has a right to have a union repre-

* Jeff Starling is a partner in the Birmingham, Alabama, law firm of Johnston Barton Proctor & Powell LLP. Mr. Starling acknowledges the assistance of associate Christopher M. Michalik. An earlier version of this article was presented in Kauai, Hawaii, at the 2001 Midwinter Meeting of the Labor and Employment Section’s Committee on the Development of the Law under the National Labor Relations Act (February 2001). 1. 331 N.L.R.B. No. 92, 164 L.R.R.M. (BNA) 1233, 2000 WL 967066, at *1 (2000). 2. 420 U.S. 251 (1975). 3. Id. at 252.

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sentative present at any investigatory interview after which the employee reasonably believes that discipline may follow.4 The Weingarten Court espoused a number of justifications for its decision. The Court recognized that the NLRB was burdened with the difficult task “of reconciling conflicting interests of labor and management.”5 The Court then proceeded to show why the board had struck “a fair and reasoned balance” between those interests by holding that the represented employee had such a right.6 The Court reasoned that a bargaining unit employee’s request for a union representative’s assistance at an investigatory interview “clearly falls within the literal wording of Section 7,” even though the employee may have been the only person with “an immediate stake in the outcome” of the interview and the employee had been seeking “aid or protection” against the possibility of individual discipline.7 The rationale for such reasoning was that the union representative was safeguarding . . . the interests of the entire bargaining unit by exercising vigilance to make certain that the employer does not initiate or continue a practice of imposing punishment unjustly. The representative’s presence is an assurance to other employees in the bargaining unit that they, too, can obtain his aid and protection if called upon to attend a like interview.8

The Court also emphasized a number of practical reasons for such an outcome. It noted that the inclusion of a “knowledgeable union representative” on the front end could benefit both the employee and the employer by saving time and money.9 Among other things, the Court reasoned that the representative could assist both employer and employee by helping to clarify the situation, the facts, and any collective bargaining agreement clause that might have been implicated by the investigation.10 In that vein, the Court also noted that many collectivebargaining agreements already contained provisions according employees the right to representation and that many arbitrators upheld such a right even when it was not explicitly provided for in the collective bargaining agreement.11 In essence, the Court viewed the right as existing industry practice within the unionized workforce. The right to representation set forth in Weingarten was not an unlimited one. In particular, the Court recognized the right within the 4. Id. at 253 (citing National Labor Relations Act, § 8(a)(1), 29 U.S.C. § 158(a)(1) (1994)). 5. Id. at 267. 6. Id. 7. Id. at 260–61 (citing Mobil Oil v. NLRB, 482 F.2d 842, 847 (7th Cir. 1973)). 8. Weingarten, 420 U.S. at 260–61. 9. Id. at 262–63 (recognizing that “[t]he Board’s construction also gives recognition to the right when it is most useful to both employee and employer”). 10. Id. 11. Id. at 267.

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limitations and confines constructed by previous NLRB decisions.12 The right to representation arose only where an employee actually requested the presence of a union representative and only when the employee had a reasonable belief that the investigation would result in some sort of disciplinary action.13 Moreover, although the employer could not force the employee to participate in an interview, it could refuse to conduct the interview with the representative present and proceed without interviewing the employee.14 Also, if the employer did conduct an interview with a union representative in attendance, it had no duty to engage in bargaining with the representative.15 Finally, the preceding NLRB cases and the Weingarten Court focused on—and only considered—the existence of such a right for represented employees. B. Materials Research Corp. In the ten-year period after the Weingarten decision, the NLRB struggled with the propriety of expanding so-called Weingarten rights into the nonunion arena. Although this struggle has now been ongoing for some twenty-five years, the legal positions were essentially developed—and remain relatively unchanged—in the first board decision to tackle the issue.16 The positions roughly break down to (1) the Materials Research majority’s expansive view that Weingarten compelled the application of the right to non-represented employees; (2) Chairman Van de Water’s dissenting view that the National Labor Relations Act (NLRA) compelled that unrepresented employees not be given such a right; and (3) Member Hunter’s view in dissent that neither position was compelled by the NLRA or Weingarten but that the restrictive view was the one supported by reason and a balancing of the interests encompassed within the act. The Materials Research majority held that Weingarten compelled a finding that unrepresented employees had a right to have a co-worker present at an investigatory interview, which they reasonably believe may lead to discipline.17 The majority supported its position by focusing on the Weingarten Court’s grounding of the representational right in employees’ section 7 rights.18 According to the majority, unrepresented employees should have been accorded the same right because, for the most part, section 7 protections did not vary, based on an employee’s representational status.19 In addition, the majority pointed to Wein12. Id. at 256–58. 13. Id. at 257–58. 14. Weingarten, 420 U.S. at 258. 15. Id. at 258–60. 16. Materials Research Corp., 262 N.L.R.B. 1010, 110 L.R.R.M. (BNA) 1401 (1982), overruled in part by Sears, Roebuck & Co., 274 N.L.R.B. 230, 118 L.R.R.M. (BNA) 1329 (1985). 17. Id. at 1014. 18. Id. at 1012. 19. Id. at 1012, 1014.

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garten’s language indicating that requiring a lone employee to attend an investigatory interview perpetuated the inequality that the NLRA was designed to eliminate—“the perceived imbalance of economic power between labor and management.”20 Similar to its section 7 analysis, the majority argued that this consideration came into play regardless of whether an employee was represented by a union.21 Moreover, the majority asserted that unrepresented employees might have had an even greater need for support during the interview because they were without the safeguards of a collective-bargaining agreement.22 Chairman Van de Water and Member Hunter each strongly dissented in the Materials Research opinion. Chairman Van de Water focused on several issues. His main argument contended that the application of the Weingarten right to unrepresented employees was in violation of the NLRA’s exclusivity provision.23 In support of this contention, he pointed out that employers were not statutorily obligated to recognize a representative of their employees unless that representative had been recognized by the employer or certified by the NLRB.24 Without such recognition or certification, employers were free to deal with employees on an individual, group, or wholesale basis with regard to all terms and conditions of employment, including discipline.25 In contrast to that, he noted that section 9(a) of the NLRA required an employer with a unionized workforce to deal with the union rather than with individual employees on matters related to terms and conditions of employment.26 He further noted that previous NLRB cases dealing with the right of unionized employees to representation at investigatory interviews had recognized that an employer’s refusal to grant an employee’s request for representation frustrated this right not to deal individually with the employer when the collective-bargaining relationship required the employer to deal with the employee’s representative.27 Clearly, he argued, Weingarten was centered on the existence of a collective-bargaining relationship. In light of his arguments regarding section 9(a), Chairman Van de Water explained that extending the Weingarten right to the nonunionized workforce would create a “hybrid relationship” that was not foreseen or permitted under the NLRA.28 He noted that, pursuant to the Supreme Court’s Weingarten decision and previous NLRB decisions, employers had to allow the Weingarten representative to partici20. 21. 22. 23. 24. 25. 26. 27. 28.

Id. at 1014 (quoting American Ship Bldg. Co. v. NLRB, 380 U.S. 300, 316 (1965)). Id. at 1014. Materials Research Corp., 262 N.L.R.B. at 1014. Id. at 1016–17. Id. at 1016. Id. Id. at 1016–1017. Id. Materials Research Corp., 262 N.L.R.B. at 1019.

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pate in the interview in an active way.29 This, Chairman Van de Water asserted, was “strikingly similar to the role of a labor organization in its dealings with an employer.”30 Consequently, the extension of the right to bargain individually with the employer would create a situation where employees had the rights of a labor organization without the commensurate obligations and responsibilities.31 In addition, Chairman Van de Water argued, it would alter the employee-employer relationship with regard to one condition of employment while not affecting any others.32 Neither situation was consistent with the NLRA and therefore was in violation of it. In addition to his section 9(a) argument, Chairman Van de Water criticized the majority’s assertion that section 7 compelled the extension of the Weingarten right to the non-unionized arena. He noted that—contrary to the majority opinion—employees’ section 7 rights were affected by whether or not they had opted to select a collectivebargaining representative.33 As a specific example, he noted that employees were no longer free to deal with their employer on individual bases.34 Likewise, a union was permitted to waive bargaining unit employees’ right to strike.35 To Chairman Van de Water, this was clear evidence that section 7 rights were not necessarily the same for represented and unrepresented employees. Consequently, the majority’s argument that the rights should have been extended based solely on the ground that Weingarten had focused on section 7 rights was untenable. Chairman Van de Water also criticized the majority’s assertion that the Weingarten Court’s concern—the “perceived imbalance of economic power between labor and management”—with regard to represented employees applied equally or even more forcefully with respect to unrepresented employees.36 He argued that this was a misunderstanding of the NLRA. The act, he asserted, sought not to improve employees’ positions through any means possible, but sought to give employees the power to improve their positions by selecting a collective-bargaining representative.37 Accordingly, Chairman Van de Water argued that Weingarten was focused on the existence of a collective-bargaining relationship and could not be transposed onto unrepresented employees.38 Member Hunter’s dissent took a different track than that of Chairman Van de Water. Unlike Chairman Van de Water, Member Hunter 29. 30. 31. 32. 33. 34. 35. 36. 37. 38.

Id. Id. Id. Id. Id. at 1020. Materials Research Corp., 262 N.L.R.B. at 1020. Id. Id. at 1018. Id. Id.

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did not assert that the NLRA compelled a holding that Weingarten rights could not be applied to unrepresented employees. Instead, he argued that either view was permissible under the statute. To Member Hunter, both Weingarten and practical considerations supported the policy of restricting the right to represented employees. Member Hunter asserted that the majority’s position was not supported by the Weingarten opinion. In so doing, he noted that the Court’s decision in Weingarten flowed from the status of the union as a collective-bargaining representative, in particular “the unique right and obligation” of the union representative.39 In that vein, he criticized the majority’s reliance on the Weingarten Court’s section 7 language.40 Rather than support the application of the right to a co-worker in a nonunion setting, Member Hunter believed the language served as evidence that the Court’s opinion relied heavily on the unique attributes of the union representative.41 Member Hunter argued that a regular employee was not charged with the unique responsibility inherent in a union representative position of protecting the rights of not just an individual, but all of the members of a bargaining unit.42 In the absence of these considerations, he asserted that reliance on the Weingarten Court’s section 7 analysis was misplaced.43 In addition, Member Hunter asserted that practical considerations argued against extending Weingarten. Though not going into great depth, he noted that the knowledgeable role a union representative could play in assisting employer and employee alike was absent in the context of unrepresented employees.44 An unrepresented coworker almost certainly would lack the unique skills, knowledge, and responsibility that the Weingarten Court found so compelling, thereby diminishing his or her value to both the employee and the employer.45 The usefulness would be further reduced because of the probability that the co-worker was likely to be emotionally involved with the interview if for no other reason than his or her friendship with the person being investigated.46 Member Hunter also noted the increased workload that such an extension would create for the NLRB, which had already begun to be overwhelmed.47 Essentially, he contended that the board was making Weingarten a “Pandora’s box,” which it was never intended to be.48

39. 40. 41. 42. 43. 44. 45. 46. 47. 48.

Id. at 1021. Materials Research Corp., 262 N.L.R.B. at 1021. Id. Id. Id. Id. Id. Materials Research Corp., 262 N.L.R.B. at 1021. Id. Id. at 1022.

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C. Sears, Roebuck & Co. Approximately three years after the Materials Research decision, the NLRB revisited the issue of Weingarten’s application to unrepresented employees in Sears, Roebuck & Co.49 This time the majority accepted and adopted Chairman Van de Water’s Materials Research dissent. The majority held that the application of Weingarten to unrepresented employees “wreak[ed] havoc with fundamental provisions of the Act.”50 It did so because the NLRA provides that, when no union is present, an employer is free to deal with its employees on individual, group, or wholesale basis, whichever it chooses.51 Enforcing a Weingarten right, however, forces the employer to do just the opposite—recognize and deal with the equivalent of a union representative.52 In so doing, such action contradicts the NLRA’s exclusivity provisions.53 Therefore, the majority held that the act compelled the restriction of the right to represented employees. Member Hunter concurred in this result but reiterated—and expanded on—his reasoning for reaching the same result and how it differed from the theory that had originally been espoused by Chairman Van de Water and later endorsed by the majority. Member Hunter again asserted that both the expansionist and restrictive views were permissible under the NLRA but only the restrictive view was reasonable.54 In support of his contention, he essentially reiterated his Materials Research dissent. D. E.I. Du Pont De Nemours Three years after Sears, Roebuck & Co., the NLRB once again visited the Weingarten issue in E.I. Du Pont De Nemours.55 This time, the majority disregarded the position propounded by Chairman Van de Water and instead adopted the theory put forth by Member Hunter in his Materials Research dissent and Sears, Roebuck & Co. concurrence. In so doing, it overruled its earlier holding that the NLRA compelled a finding that unrepresented employees were not entitled to a Weingarten right.56 Though acknowledging that granting unrepresented employees a right to the assistance of a co-worker was not prohibited by the act, the majority maintained that such an application was not a reasonable balancing of the interests involved. The NLRB majority began its analysis by asserting that the issue of whether an unrepresented employee was entitled to the presence of 49. 274 N.L.R.B. 230, overruled in part by E.I. Du Pont and Co., 289 N.L.R.B. 627, 128 L.R.R.M. (BNA) 1233 (1988). 50. Id. at 231. 51. Id. 52. Id. 53. Id. 54. Id. 55. 289 N.L.R.B. 627. 56. Id. at 628.

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a co-worker could not be resolved by resorting to the plain language of section 7.57 Although a literal reading of that provision appeared to support such a contention, the majority reasoned that further analysis was necessary. It pointed out that the language of section 7 was so broad that almost any activity—including, for example, soliciting during work time—could be considered protected, concerted activity.58 In the case of solicitation, the majority noted that the NLRB had nevertheless applied a balancing test, weighing the employer’s interest in maintaining discipline against the employee’s interest in engaging in the activities covered by the broad language of section 7.59 Citing to the Weingarten Court’s observation that the board’s duty involved the “difficult task of ‘reconciling conflicting interests of labor and management,’ ” the Du Pont majority elected to apply the same analysis to the issue at hand.60 In balancing the competing interests of employees and employers, the majority reasoned that the interests of both pointed to the same result: not granting an unrepresented employee a right to have a coworker present at an investigatory interview.61 The board majority essentially adopted Member Hunter’s position, stressing the practical differences between a co-worker representative and the trained union representative that the Weingarten Court had found so valuable.62 According to the majority, the co-employee would not have the skill or experience necessary to provide the assistance to both employee and employer envisioned by the Supreme Court.63 Similarly, an unrepresented co-employee would not have the obligation to represent the interests of an entire bargaining unit, thereby ensuring the same degree of collective protection as the presence of a union representative.64 At a minimum, the board concluded, these differences made it far less likely that the “useful objectives,” which the Weingarten Court had listed, would be achieved.65 The Du Pont board also stated that granting an unrepresented employee the right to a co-worker’s attendance at an investigatory hearing might well have been harmful to the requesting employee.66 Here, the board noted that the absence of any sort of grievance procedure in the nonunion setting meant that if the employer elected to forego the interview process, the unrepresented employee would not 57. 58. 59. 60. 61. 62. 63. 64. 65. 66.

Id. at 627–30. Id. Id. Id. Du Pont, 289 N.L.R.B. at 627–30. Id. Id. Id. Id. Id.

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have the fall back of a grievance procedure to tell his or her side of the story.67 Therefore, by refusing to participate in an investigatory interview because the employer would not allow the presence of a requested co-worker, the unrepresented employee could actually be harming himself or herself. The board majority also recognized that, in contrast to the diminished or even harmful effects of extending the Weingarten right to unrepresented employees, a nonunion employer had a significant interest in conducting investigations in accordance with its own established practices and procedures and in maintaining the efficiency of its operations.68 Consequently, the board held that the proper balance between the interests of the employee and the employer warranted not extending the Weingarten right to unrepresented employees.69 E. Epilepsy Foundation of Northeast Ohio This past year, the NLRB yet again visited the issue of an unrepresented employee’s right to insist on the presence of a co-worker at an investigatory interview that the employee reasonably believes may lead to discipline.70 Throughout the eighteen-year period following Materials Research, the arguments had essentially remained the same. This time, however, the board majority overruled the Du Pont holding and returned to the rule set forth by the Materials Research majority.71 For the first time in fifteen years, an unrepresented employee now has the right to refuse participation in investigatory interviews if an employer denies her request for the presence of a co-worker. The Epilepsy Foundation majority relied on the same arguments as the Materials Research majority to support its position. It, too, attached “much significance” to the fact that the Weingarten Court found that the right was grounded in section 7’s protection of the right to engage in “concerted activities for the purpose of mutual aid or protection.”72 Arguing that section 7 rights were not dependent on union representation for their implementation, the majority asserted that the Supreme Court’s rationale was equally applicable to unrepresented employees because the right to have a co-worker present “enhances the employees’ opportunities to act in concert to address their concern that ‘the employer does not initiate or continue a practice of imposing punishment unjustly.’ ”73 The majority also took the opportunity to address the arguments of the dissenting board members. In so doing, the majority dismissed 67. 68. 69. 70. 71. 72. 73.

Du Pont, 289 N.L.R.B. at 627–30. Id. Id. Epilepsy Found., 2000 WL 967066, at *1. Id. at *3. Id. at *4. Id. (quoting Weingarten, 420 U.S. at 260–61).

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as mere speculation Member Hurtgen’s contention that its decision altered the balance between the employer’s interest and the employees’ interest.74 Likewise, the majority addressed Member Brame’s concern about the differing treatment of one aspect of an unrepresented employee’s terms and conditions of employment by asserting that the Weingarten decision only dealt with that aspect.75 According to the majority, any discussion of other terms or conditions would be mere speculation.76 As is evident, two board members, Hurtgen and Brame, vigorously dissented. Member Hurtgen began his dissent by asserting that the majority had too easily overruled existing NLRB precedent.77 In particular, he argued that the majority had not presented “compelling considerations” to justify such an abrupt reversal of precedent.78 To him, section 7, at most, protected an unrepresented employee in seeking assistance at an interview.79 It did not require that the employer accede to the request, much less constitute justification for the reversal of precedent. Member Hurtgen then reiterated the argument that Member Hunter had first explained, noting that the Weingarten Court had not envisaged a right to representation in the nonunion arena.80 He pointed out that, in a unionized setting, an employer would act at its peril when dealing directly with an employee with respect to a term or condition of employment.81 An employer in a nonunion setting, however, was free under the NLRA to deal with individual employees as it wished. He criticized the majority for “obliterat[ing]” this “clear line.”82 In addition, Member Hurtgen emphasized the NLRB’s duty to balance the interest of the employer and the employee.83 He reiterated that the arguments of both Member Hunter and the Du Pont majority had shown the lessened benefit of the right in the nonunion situation. Member Hurtgen contended that the employer had an interest in conducting unhindered interviews and maintaining efficiency.84 In addition, he argued that the expansion of the right would also serve as a litigation “trip wire” that would lie in wait for unsuspecting employers as they pursued legitimate investigations of employee conduct.85 Faced with the combination of these factors, Hurtgen asserted that the Du 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85.

Id. at *4 n.11. Id. Epilepsy Found., 2000 WL 967066, at *5. Id. at *12. Id. Id. Id. Id. Id. at *13. Epilepsy Found., 2000 WL 967066, at *13. Id. at *14. Id.

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Pont majority had struck the proper balance between employee and employer.86 Member Brame’s dissent followed more along the lines of Chairman Van de Water’s Materials Research dissent. He asserted that by finding that non-unionized employees have a Weingarten right to representation, the majority forced non-unionized employers to deal collectively with employees who had not selected a collective-bargaining agent.87 This, he argued, was “completely at odds with the intent and structure of the Act.”88 In addition, Member Brame argued that the majority was effectively creating a hierarchy of the terms and conditions of employment for unrepresented employees. On the one hand, employers would be forced to treat employees collectively with regard to a request for the presence of a co-worker at an investigatory interview89; on the other hand, the employer would be free to deal individually with its unrepresented employees as to every other term and condition of employment.90 In the alternative, the majority’s opinion created a situation in which unrepresented employees would be at least entitled to Weingarten-type representation at any meeting in which terms and conditions of employment might be affected.91 Member Brame argued that either alternative altered the structure of the “long-standing interpretation” of the NLRA.92 Member Brame also propounded the arguments of Members Hunter and Hurtgen and the Du Pont majority by pointing out the practical pitfalls of the majority’s position. In essence, he was asserting as a second position that a balancing of the interests would lead to a conclusion contrary to that reached by the majority.93 II. The NLRB Should Reverse Its Decision in Epilepsy Foundation and Return to E. I. Du Pont & Co. Although there is significant merit to the majority opinions in Sears, Roebuck & Co. and Member Brame in his Epilepsy Foundation dissent, it appears unlikely that a majority of current NLRB members will conclude that the NLRA compels a finding that unrepresented employees are not entitled to the presence of a fellow employee during an investigatory interview. Instead, the focus more likely will turn on whether extending Weingarten rights fairly balances the interests of

86. 87. 88. 89. 90. 91. 92. 93.

Id. Id. at *16. Id. at *28. Epilepsy Found., 2000 WL 967066, at *28. Id. Id. Id. Id. at *29–30.

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the act. This is precisely where the majority in Du Pont began, and an analysis of any new case at this time should bring the board to the same conclusion. As the Du Pont majority pointed out, a literal reading of section 7 might indeed suggest that it bestows on nonunion employees the right in question here, because an employee who insists on the presence of another employee when facing the employer in a matter that may lead to discipline thereby attempts to engage in concerted activities for ‘mutual aid or protection,’ insofar as there is an implicit promise that the employee enlisting support would offer his own support were the other facing such an interview.94

That, however, is only part of the analysis. Historically, courts and the board have balanced employee and employer rights in assessing the parameters of section 7.95 Here, a fair balancing favors restricting Weingarten rights to the unionized setting. In short, the Epilepsy Foundation majority was incorrect in granting nonunion employees Weingarten rights because that conclusion (1) is neither compelled nor supported by the Supreme Court’s decision in Weingarten; (2) is inconsistent with the purposes of the NLRA and other board decisions construing the extent of nonunion employees’ section 7 rights; and (3) does not serve the interests of employees, employers, or the NLRB as an institution. A. Weingarten Is Limited to Union-Represented Employees In determining the proper balance, it is appropriate to look first at the interests served by extending Weingarten rights to unrepresented employees. In Epilepsy Foundation, the majority reasoned that “the right to the presence of a representative is grounded in the rationale that the Act generally affords employees the opportunity to act together to address the issue of an employer’s practice of imposing unjust punishment on employees.”96 This finding arose from the majority’s combining the actual language of section 7 with the rationale of the Supreme Court in Weingarten, which stated, The union representative whose participation he seeks is however safeguarding not only the particular employee’s interest, but also the interests of the entire bargaining unit by exercising vigilance to make certain that the employer does not initiate or continue a practice of imposing punishment unjustly. 97

Of course, the majority’s synthesis left out the fact that the representative in Weingarten was a statutory union representative of an established bargaining unit.98 The majority attempted to address this prob-

94. 95. 96. 97. 98.

Du Pont, 289 N.L.R.B. at 628 (citing Weingarten, 420 U.S. at 261). See, e.g., Republic Aviation Corp. v. NLRB, 324 U.S. 793, 797–98 (1945). Epilepsy Found., 2000 WL 967066, at *3. Id. at *13 (quoting Weingarten, 420 U.S. at 260–61). Weingarten, 420 U.S. at 254–56.

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lem by pointing out that the Court in Weingarten had been confronted with a very specific factual setting and therefore had not been compelled to address the nonunion situation.99 Nevertheless, this does not alter the fact that substantial differences exist between union and nonunion representatives or that those differences were significant factors in the Court’s opinion in Weingarten. First, a union representative has a statutory obligation to represent the interests of the entire bargaining unit; a nonunion co-employee representative does not. Second, as the Weingarten Court pointed out, a union representative generally is trained and “knowledgeable,” such that he can assist the employer and employee in eliciting favorable facts and in avoiding formal grievances.100 A nonunion co-employee representative would not likely be trained or knowledgeable and thus would be much less helpful in avoiding a (normally nonexistent) formal grievance process. Finally, the Court’s emphasis on the fact that permitting union representation at an investigatory interview was “in full harmony with actual industrial practice” because collectively bargained rights or arbitrary authority cannot be applied to the nonunion setting.101 In short, far from compelling an extension of Weingarten rights, the Court’s reliance on the unique status of the union representative in reaching its conclusion in Weingarten implicitly militates against it. B. Epilepsy Foundation Is Inconsistent with Other NLRB Decisions The gist of Epilepsy Foundation is not that an employee has the right to seek mutual aid and protection, but that an employer violates the NLRA if it discharges an employee who refuses to attend a disciplinary meeting without a co-employee representative.102 This ruling, as Member Hurtgen pointed out, destroys an employer’s interest in having an unfettered investigation of allegations of misconduct, including misconduct that may go to the core of the employer’s propriety interests.103 The majority’s failure to accord any weight to this interest demonstrates that it did not “engag[e] ‘in the difficult and delicate responsibility’ of reconciling conflicting interests of labor and management.”104 Moreover, it represents an extension of employee rights beyond other board decisions delineating the parameters of section 7. For example, while an employee has the right to request the presence of a co-worker at an employer-called meeting to discuss wages, benefits, or issues such as work schedules, the employer is free to de99. Epilepsy Found., 2000 WL 967066, at *3. 100. Weingarten, 420 U.S. at 262 n.7, 263. 101. Id. at 267. 102. Epilepsy Found., 2000 WL 967066, at *6. 103. Id. 104. Weingarten, 420 U.S. at 267 (quoting N.L.R.B. v. Truck Drivers Local Union No. 449, 353 U.S. 87, 96 (1957)).

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mand that the employee meet with it individually and to discipline the employee if she refuses that demand. Likewise, employees can engage in protected concerted activities by requesting that an employer meet with them to discuss pending changes to wages, hours, or working conditions. While the employer may not discipline the employees for simply making the request, the employer is free to refuse the meeting, implement the changes, or even require the employees to meet with it individually. In neither of these examples does the employee’s protected activity grant her a correlative right to insist on her demands or refuse the employer’s request. This was the position taken by Member Hurtgen when he opined that section 7, at most, protected an employee in seeking assistance, but that nothing required the employer to accede to the request.105 An analogous balancing of employee and employer interests can be found in the NLRB’s and the Supreme Court’s approach to solicitation and distribution rules. For example, while an employee who solicits other employees in support of organizing a union is engaged in concerted activity for mutual aid or protection, the board has not held that such activity will necessarily be protected and therefore could preclude possible disciplinary action by the employer. Instead, the board has balanced the employee’s interest against the employer’s interest in maintaining discipline and productivity to find that an employer may prohibit certain solicitation and discipline employees who violate such a rule.106 Here, there is no similar balancing of interests. The Epilepsy Foundation decision also arguably broke new ground in defining the scope of protected concerted activity under section 7. Section 7 extends protection to employees who “engage in other concerted activities for the purpose of . . . mutual aid or protection.”107 Under current NLRB doctrine, a single employee is not engaged in concerted activity unless he is acting “with or on the authority of” fellow workers.108 In an Epilepsy Foundation setting, it is hard to understand how the individual employee requesting a co-employee representative is engaged in concerted activity. In all likelihood, the co-employee will have no idea that the employee being investigated has requested his/her presence or even that an investigatory meeting is taking place. Certainly it would be unreasonable to say that the employee is acting “with or on the authority of” another employee. The same doubts can be raised with regard to the mutual aid or protection prong of section 7. In most cases, an employee being inves105. Epilepsy Found., 2000 WL 967066, at *12. 106. See, e.g., Republic Aviation Corp., 324 U.S. at 797–98. 107. 29 U.S.C. § 157. 108. Meyers Indus., Inc., 268 N.L.R.B. 493, 115 L.R.R.M. (BNA) 1025 (1984), rev’d sub nom., Prill v. N.L.R.B., 755 F.2d 941 (D.C. Cir. 1985), cert. denied, 474 U.S. 971 (1985), decision on remand sub nom., Meyers Indus., Inc., 281 N.L.R.B. 882, 123 L.R.R.M. 1137 (1986), aff’d, 835 F.2d 1481 (D.C. Cir. 1987), cert. denied, 487 U.S. 1205 (1988).

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tigated is simply looking out for his own interest when he requests a co-employee representative. At the time of the employee’s request, there may not appear to be any concerted activity for the purpose of providing mutual aid or protection to other employees. Unlike a represented employee in a union workplace, in the nonunion workplace there is no collective bargaining agreement to be interpreted, arbitrary precedent to be established, or other mechanism by which the presence of a co-worker at an investigatory meeting might have an impact on other employees such that his presence could be construed as offering mutual aid or protection to them. The troubling aspect of Epilepsy Foundation is that the issue of whether the employee had actually been engaged in protected concerted activity was never addressed. In fact, it had not been addressed in any of the cases leading up to Epilepsy Foundation. Arguably, the Supreme Court’s decision in Weingarten implicitly answered the question when it found that the right to a union representative was grounded in section 7. However, the fact remains that the issue has not been fully litigated, and an argument could be made that while the request for a co-employee representative in the union workplace is protected under the Interboro Contractors109 doctrine, such a request would not be protected in a nonunion workplace under the Meyers Industries110 standard. In sum, the NLRB’s decision in Epilepsy Foundation appears inconsistent with a number of prior decisions. C. The Purposes of the NLRA Are Not Served by Extending Weingarten Rights to Nonunion Employees 1. Unintended Consequences and Rights without Remedies While it is unfair to assume that the majority failed to foresee many of the likely consequences of its holding in Epilepsy Foundation, the fact that it gave short shrift to the practical points raised by members Hurtgen and Brame tends to lead to the conclusion that those points were at least not given due consideration. It is just those points that demonstrate the impropriety of the majority’s decision in Epilepsy Foundation. The most obvious unintended consequence of Epilepsy Foundation is that some employers will forego conducting investigatory interviews of employees who demand to exercise their Weingarten rights, thus leaving the employee without an opportunity to tell her side of the story. This point was made by Member Hurtgen (as well as Member Hunter, Chairman Van de Water, and others in earlier opinions) but dismissed by the majority who found it was “based wholly on speculation, and

109. 157 N.L.R.B. 1295, 61 L.R.R.M. (BNA) 1537 (1966), enforced, 388 F.2d 495 (2d Cir. 1967). 110. 281 N.L.R.B. 882.

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assumes the worst in employer motives.”111 Regardless of motive, Member Hurtgen’s warning was prescient. Employers who are aware of Epilepsy Foundation should develop a comprehensive policy to address representation requests so that they can ensure that their supervisors respond uniformly to avoid discrimination claims under section 8(a)(3), Title VII, the Americans with Disabilities Act, and other nondiscrimination laws. In developing such a policy, employers generally must choose between granting or denying all such requests. Given that some employers will be uncomfortable in having a co-employee representative present during certain investigatory interviews, they may choose not to allow a representative to be present. The result is that many employees who make a Weingarten request will not be granted one, and those employees will be denied an opportunity to present their side. Instead, most employers will simply make their disciplinary decision based on the facts they have prior to the interview. (Other employers might provide an opportunity for the employee to submit a written response, but without the give-and-take of an interview, it is unlikely the employee will be able to fully respond to the allegations). A good example of why employers are suspicious of co-employee representatives at investigatory interviews can be found in the context of sexual harassment investigations. Most sexual harassment claims involve the disclosure of personal and often embarrassing information by the victim of harassment. Because victims are often reluctant to come forward with their claims, most employer policies provide that the complaint will be kept as confidential as possible. In fact, the EEOC’s Guidance on Vicarious Employer Liability for Unlawful Sexual Harassment by Supervisors provides that an essential element of a legally valid harassment policy is “[a]ssurance that the employer will protect the confidentiality of harassment complaints to the extent possible.”112 Needless to say, if the alleged harasser is allowed to have a co-employee representative present during the investigatory interview, the confidentiality of the victim’s claims will be compromised by disclosure to an uninterested, uninvolved third party. Whether the representative could actually be forced to maintain such confidentiality is highly questionable and beside the point: Victims are much less likely to report harassment if they believe they have to confront or disclose their allegations to not just the harasser, but also to her buddy. Another scenario where representational rights interfere with other, more significant interests is the case of conspiratorial misconduct. For example, if two employees jointly engage in theft from their 111. Epilepsy Foundation, 2000 WL 967066, at *6. 112. EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, GUIDANCE ON VICARIOUS EMPLOYER LIABILITY FOR UNLAWFUL SEXUAL HARASSMENT BY SUPERVISORS 9 (1999), available at 1999 WL 33103140.

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employer, the employer will be severely restricted if it is required to interview each employee in the presence of the other. Unlike the union representative whose interest as an employee advocate is counterbalanced by his obligation to represent the entire bargaining unit, an employee representative who is involved in the same misconduct as the investigated employee surely would not serve the type of role or function the Supreme Court found beneficial to the purposes of the NLRA. For those employers who do allow a co-employee representative to be present, there also exists a possibility that an employee’s opportunity to present a defense during the interview may be hampered or, worse yet, harmed because of an overzealous or inadequate representative. While the Epilepsy Foundation majority dismissed such concern as purely speculative, the fact is that no one is providing training to possible representatives. It is also far from speculative to assume that the chosen representative will often be the employee who is viewed by others as regularly challenging management and willing to go to bat for other employees—even to a degree inconsistent with the purposes of the meeting. The truth is that extending Weingarten rights to nonunion employees actually does little in terms of granting them substantive rights. As even the Weingarten majority noted, an employer is free to ignore an employee’s representation request and discipline the employee without the benefit of an investigatory meeting.113 In the union workplace, the aggrieved employee has a significant chance of having the imposed discipline overturned because the employee can file a grievance and pursue arbitration under the terms of a collective bargaining agreement (CBA). The employee could then argue both (1) that the employer violated the CBA by refusing the employee a contractual right to a union representative and (2) that the employer’s refusal to provide the employee an opportunity to be heard constitutes a failure on the part of the employer to demonstrate just cause for the disciplinary action. In most cases, an arbitrator will at least be skeptical of the employer’s action and offer the employee a fair opportunity to present her case. The same cannot be said of the nonunion employee. That employee has no recourse other than filing a charge with the NLRB or pursuing some other form of legal action. In the case of an NLRB charge, an employee’s alleging and even proving that she was denied a representative would entitle her to no more relief than a cease and desist order and a notice posting.114 As the majority in Epilepsy Foundation noted, Taracorp makes it clear that unless the discipline was the direct result of an employee’s assertion of Weingarten rights, reinstatement, back 113. Weingarten, 420 U.S. at 258–59. 114. Taracorp Indus., 273 N.L.R.B. 221, 117 L.R.R.M. (BNA) 1497 (1984).

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pay, or other make-whole remedies are inappropriate.115 It is (as the Taracorp board explained) a rare occasion in which the employee can prove that her assertion of Weingarten rights was the reason for the discipline.116 2. Increased Litigation All of those consequences should be considered in conjunction with the increased litigation that undoubtedly will arise from the decision in Epilepsy Foundation. In his dissent, Member Hurtgen claimed that employers would “face an unknown trip-wire placed there by the Board” and that “[t]he workplace has become a garden of litigation and the Board is adding another cause of action to flower therein, but hiding in the weeds.”117 The majority claimed to have found no force in Member Hurtgen’s argument because it disagreed that employers would be completely unaware of Epilepsy Foundation rights.118 This conclusion is ironic in light of the fact that the majority decided to apply its decision retroactively, in part because there was no evidence “even remotely suggesting that the Respondent was relying on the state of Board law when it decided to take action against Borgs.”119 Without question, some employers are aware of the NLRB’s decision in Epilepsy Foundation, and some of them are likely to implement policies to avoid meetings with co-employee representatives. The vast majority of employers do not know of this new right, just as the vast majority of employees do not know of it. While first impressions might suggest Epilepsy Foundation will result in few charges and little litigation, the fact is that such decisions have a tendency to slowly become part of the lore of the workplace (some unions are already distributing to employees wallet-sized instruction cards explaining how to request representational rights). The likely result will be significant confusion and litigation. Because most employers and employees will have little comprehension of the parameters of Epilepsy Foundation rights, the NLRB should expect numerous unintended consequences. Employees will insist on representatives for purposes other than investigatory interviews, and some employers will discharge them. Employers will grant representational rights selectively and face discrimination charges of all kinds. Representatives will misunderstand their role, suffer discipline, and file charges. Employers and employees will not understand basic issues such as who is an appropriate representative or when Ep-

115. 116. 117. 118. 119.

Epilepsy Found., 2000 WL 967066, at *7 n.14. Taracorp Indus., 273 N.L.R.B. at 223. Epilepsy Found., 2000 WL 967066, at *14. Id. at *6. Id. at *7.

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ilepsy Foundation rights attach. Furthermore, the board will have to resolve numerous other issues, including the following: • Is a representative entitled to pay for the time spent in the interview? • Preparation time? • Meetings after work hours? • At what point does a representative exceed the bounds of protected conduct? • Can he/she be disciplined? • How much time must an employer allow for an employee to find a representative? • How many choices does the employee have? • What if the representative leaves during the meeting? • What if the only possible representative is unavailable? • Can an employee select a co-employee union steward/representative? While some precedent may exist from the litigation of Weingarten rights in the unionized workplace, it will take time for the board to resolve these and other issues as applied to nonunion workplaces. More importantly, it will take years (if ever) for most nonunion employers to be educated on the vagaries of Weingarten rights and to develop legally consistent policies. In the meantime, employers face something more akin to a minefield than a trip-wire and the resultant increase in charges is likely to be significant. Simply pointing to the number of charges currently being filed that allege the denial of Weingarten rights is meaningless in terms of evaluating the potential impact of Epilepsy Foundation. As repeated throughout, union and nonunion workplaces are not comparable. For example, most issues surrounding the invocation of Weingarten rights in the union setting are now well settled. Consequently, the practical advice addressing such issues has been communicated to, and implemented by, union representatives. It is unlikely that most seasoned employers or union representatives will act in contravention of those legal principles. In addition, most collective bargaining agreements provide contractual Weingarten rights, which further place employers on notice of an employee’s rights. Likewise, as the Supreme Court noted in Weingarten, the union workplace often provides an alternative mechanism to charging-filing for the resolution of Weingarten issues; namely, the grievance process incorporated into the parties’ collective bargaining agreement.120 Finally, the simple fact is that unionized employees constitute only 13.5 percent of the workforce (16,258,000). Now, 104,528,000 nonunion employees and their employers will face this le120. Weingarten, 420 U.S. at 262–64.

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gal gauntlet without the benefit of the knowledge and experience found in the union workplace. To say that Epilepsy Foundation does not open a proverbial Pandora’s box is simply wishful thinking. III. Conclusion While the NLRB should be cautious in reversing important legal doctrine, it should not be hamstrung by that tenet in this particular situation. In fact, the board has ample reason for overturning Epilepsy Foundation: (1) it would simply be reversing a decision that reversed fifteen years of precedent; (2) it has precedent for doing exactly what it should do now;121 and (3) the decision improperly balances the interests of labor and management and, importantly, frustrates the purposes of the NLRA. Simply put, a recount is in order.

121. See Sears, Roebuck & Co., 274 N.L.R.B. 230, overruled in part by E.I. Du Pont and Co., 289 N.L.R.B. 627.

Copyright 2001 American Bar Association

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