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- Can Employers Discriminate Against Employees Based on Sexual Orientation? No, According to this Key Court
- Ex-General Counsel Dodged Privilege Claims Before $14.5 Million Verdict (pt 2)
- How Did This Ex-General Counsel Win $14.5 Million From His Former Employer? (pt 1)
- Beware the Deadlock: Delaware Courts Step in on Corporate Dysfunction
- Insider Trading and Related Risks for Executive Branch Employees: Pay Attention to the STOCK Act
- From New York and Delaware Courts, a Double Blow of Bad News for Sergey Aleynikov
- Headed for Overtime? Trump Administration Will Decide Fate of New Time-and-a-Half Rule
- A Closer Look at the New Lawsuit By Baylor Football Coach Art Briles
- Can an Employer Back out of a Promise to Provide Advancement by Claiming That the Employee Committed Fraud?
- Suits by Suits Named to Blawg 100
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Blogs We Like:
The AmLaw Daily
The BLT: The Blog of LegalTimes
Connecticut Employment Law Blog
The D&O Diary
Delaware Employment Law Blog
DeNovo: A Virginia Appellate Law Blog
The Employer Handbook
Executive Pay Matters
The Federal Criminal Appeals Blog
Grand Jury Target
Screw You Guys, I’m Going Home: What You Need To Know Before You Scream “I Quit,” Get Fired, Or Decide to Sue the Bastards
Trade Secrets & Noncompete Blog
Virginia Appellate News & Analysis
WSJ Law Blog
P. Andrew Torrez, named one of Maryland's star lawyers by Benchmark, is the founding partner of The Law Offices of P. Andrew Torrez, LLC.
Showing 90 posts by P. Andrew Torrez.
The biggest news of the week in Suits by Suits is the Supreme Court’s decision in Lawson v. FMR LLC, which was handed down on Tuesday. Our Jason Knott weighed in with two excellent, in-depth pieces examining both the majority opinion as well as the concurring and dissenting opinions (including the very unusual dissenting lineup of Sotomayor, Kennedy, and Alito). We think this is a groundbreaking decision for whistleblowers and employers that will continue to affect the legal landscape for years. Other analysts have weighed in on Lawson, including the ABA and The Wall Street Journal (subscription required).
Of course, that’s not all that happened in the news this week:
- We’re monitoring a recently-filed lawsuit by AK Steel Corp., alleging that its former employee, Thomas Miskovich, violated his noncompete contract and tortiously interfered with AK Steel’s business when he jumped ship for Novelis Corp. Norvelis has responded that it is in the aluminum business – not the steel business – and thus is not a “competitor” of AK Steel. A federal district court in Ohio rejected AK Steel’s request for a TRO but will hear arguments for a preliminary injunction in two weeks; we’ll be sure to keep you posted.
- Writing for Forbes, Steve Parrish has some practical advice for employers in crafting executive compensation packages that reduce tax burdens on employees, including the issuance of restricted stock that employees forfeit if they leave the company as a kind of “golden handcuff.”
- But wait! Before you rush out and draft lucrative new compensation packages, keep in mind that such packages remain a touchy subject among shareholders. We’ve talked about the “say-on-pay” provisions of the Dodd-Frank Act on multiple occasions; this week, we saw something similar happen across the Atlantic. After shareholders rejected a more lucrative compensation package, Julius Baer – a private bank based in Switzerland – reduced CEO Boris Collardi’s pay by nearly 11% in 2013. And Rolls-Royce announced a plan to claw back any executive bonuses paid out to employees who subsequently come under investigation (“in the case of serious non-compliance with the Rolls-Royce code of conduct, reputational damage or gross misconduct”).
- On balance, though, such reductions in executive compensation remain the exception, rather than the norm. So while eyebrows were raised, we weren’t surprised to learn that GlaxoSmithKline PLC increased CEO Andrew Witty’s 2013 compensation by 63% despite ongoing investigations by the Chinese government into alleged kickbacks and fraud that have led to the arrest of four Glaxo executives in China.
- And Witty isn’t the only executive to bring home the bacon; Wells Fargo’s CEO John Stumpf – already the highest-paid bank CEO in the U.S. – was awarded $1 million in restricted stock as part of his 2013 compensation, and, just days after RadioShack announced that it may close as many as 1,100 retail stores in light of its second straight annual loss, the company announced raises and bonuses for top executives, including a half-million-dollar retention bonus for CEO Joseph Magnacca.
- Relatedly: Excellus BlueCross Blue Shield – the largest not-for-profit insurer in New York – revealed earlier this week that it had paid outgoing CEO David Klein a $12.9 million retirement bonus and former CFO Emil Duda $10.95 million in retirement pay, which it says were “industry norms at the time the agreements were made.” Key to the packages were noncompete clauses that were said to have kept the officers from working for Excellus’s competitors.
- Putting it all together: MoneyNews’s Dan Weil, analyzing a study performed for The Wall Street Journal, suggests that for purposes of awarding compensation bonuses, many companies are using non-standard methods of computing their earnings – particularly by excluding certain expenses that would otherwise affect the company’s bottom line under generally accepted accounting principles – in ways that reward executives for the upside but fail to calculate downside risks. And Antony Jenkins, CEO of international financial giant Barclays PLC, suggests that executive bonuses are necessary to retain key staff; after Barclays cut compensation in 2012, nearly 700 high-level U.S. employees left, presumably for richer pastures. Barclays reversed course and awarded increased bonuses in 2013 to avoid a “death spiral” of further departures.
Our legal world was abuzz this week with the news that the law firm of Quinn Emmanuel will inaugurate a "work away week" in which its lawyers will be given $2,000, told to travel to anywhere in the world (so long as they have 24/7 internet access) and work from the beach or travel destination of your choice. We here at Suits by Suits aren't quite so fortunate, but we do have all the inside information about the latest disputes between employers and employees:
- Our friends at the Trade Secrets & Noncompete Blog have a nice piece analyzing the basics of the enforceability of covenants not to compete under New York law as seen through the lens of the recent federal court opinion in Reed Elsevier, Inc. v. TransUnion Holding Company, Inc. (No. 13 Civ. 8739, S.D.N.Y. Jan. 8, 2014).
- Speaking of noncompetes -- here's a unique wrinkle that came to our attention: Texas has a statute (§ 15.50 of the Texas Business and Commerce Code) that, in subsection (a) reflects the general LBI test we've discussed at some length, but in subsection (b) sets forth a list of statutory requirements for such clauses to be enforceable against physicians, including the requirement that the covenant must "provide for a buy out of the covenant by the physician at a reasonable price." Id., § 15.50 (b)(2). It's an idiosyncratic requirement, but -- as one employer recently found out -- it's not just boilerplate; by failing to include such a buyout, an appellate court bounced an otherwise-valid noncompete. LasikPlus of Texas, P.C. v. Mattioli (No. 14-12-01155-CV; 14th. App. Dist. Nov. 21, 2013). Our own Jason Knott discussed this case in depth back in December.
- Relatedly, the Texas-based computer forensics firm has released a white paper entitled "Top 10 Best Practices for Non-Compete Enforcement," intended as a guide for employers and their lawyers in drafting covenants not to compete that are more likely to survive an LBI analysis. The paper doesn't cover what we think is the most important issue -- knowing the specifics of your jurisdiction; see the above entries -- but does reflect some of the concerns we've continued to stress here since this blog's inception. It's worth a read.
- Finally, amidst the controversy over large new raises given by Goldman Sachs and JPMorgan Chase to chief executive officers Lloyd Blankfein and Jamie Dimon (once called "The Most Dangerous Man in America"), several executives have voluntarily turned down multi-million-dollar bonuses awarded to them by their respective boards, including Barclays CEO Antony Jenkins (doing so for the second year in a row), and IBM CEO Virginia Rometty, and in fact, all of IBM's senior management.
A few days before Alex Rodriguez filed his Complaint against Major League Baseball (and, somewhat surprisingly, the Major League Baseball Players Association, his own union), we set out the basic legal framework that will govern A-Rod’s efforts to overturn the arbitration award suspending him for the entire 2014 season. Now, I’m a baseball lawyer, so obviously I had a unique interest in this particular case, but I also continue to think that the A-Rod case is instructive in the larger context that we write about here at Suits by Suits.
Specifically, A-Rod isn’t just one of the most famous – or infamous, depending on your perspective – baseball players in the world; he’s an employee having a very well-publicized dispute with his employers. The law that governs A-Rod’s attempts to vacate Fredric Horowitz’s arbitration award is the exact same law that would apply to virtually any private sector employee whose employment-related dispute is governed by arbitration; namely, the Federal Arbitration Act, 9 U.S.C. § 1 et seq.
If you’re following our coverage of the Alex Rodriguez story at all (See our Part 1, a general primer; and Part 2 on the specifics of the 162-game suspension), you probably watched last night’s 60 Minutes, which contained interviews with Tony Bosch of Biogenesis, who claims that he personally administered banned Performance Enhancing Substances to Alex Rodriguez; MLB executive Rob Manfred; and one of Alex Rodriguez’s attorneys, Joseph Tacopina, Esq.
Concurrent with the airing of the program, sports journalists began reporting that the Major League Baseball Players Association (“MLBPA,” the players’ union) was “furious” at MLB’s participation in the TV program. The MLBPA subsequently issued the following statement:
MLB's post-decision rush to the media is inconsistent with our collectively-bargained arbitration process, in general, as well as the confidentiality and credibility of the Joint Drug Agreement, in particular. After learning of tonight's "60 Minutes" segment, Players have expressed anger over, among other things, MLB's inability to let the result of yesterday's decision speak for itself. As a result, the Players Association is considering all legal options available to remedy any breaches committed by MLB.
Let’s evaluate those two arguments. Read More ›
Breaking news: An arbitrator for Major League Baseball (MLB) has issued a final decision determining that New York Yankee third baseman Alex Rodriguez should be suspended for 162 games – the complete 2014 MLB season – plus any and all postseason games. This decision reduces the suspension initially imposed by MLB (211 games), and, because it will be without pay, costs A-Rod $25 million. (Perversely, the suspension benefits the Yankees, who will not only be freed from their payroll obligations to A-Rod for 2014, but relieved of certain luxury tax obligations as well under MLB rules.)
Via a statement released earlier today, A-Rod says that he and his lawyers are headed to federal court. What awaits him there? To understand that, we need to understand the legal landscape that applies to major league baseball players.
The relationship between Alex Rodriguez, the New York Yankees, and MLB is governed by the Basic Agreement, a contract that was negotiated in 2012 between the existing MLB teams and the players’ union, called the Major League Baseball Players Association (“MLBPA”). The current Basic Agreement runs until 2016, at which point the union and MLB will sit down and collectively bargain for a new one.
Under the Basic Agreement, disputes between a player and his team are governed by Article XI (the “Grievance Procedure”). Id. at 38. Those disputes, in turn, are ultimately settled by arbitration pursuant to XI.B. Id. at 44. The Basic Agreement provides that the “decision of the Arbitration Panel shall constitute full, final and complete disposition of the Grievance appealed to it.” Id.
That’s where we are now; A-Rod has followed the Grievance procedures and has now obtained a “full, final and complete disposition” of his Grievance, reducing his suspension from 211 to 162 games. How does he get from there into federal court?
The answers are two-fold: first, because the Basic Agreement is a product of private collective bargaining, it is subject to the federal Labor-Management Relations Act, which in turn provides for federal jurisdiction over disputes regarding rights created by or substantially dependent upon a collective bargaining agreement (such as the Basic Agreement). 29 U.S.C. § 185(a); see also Caterpillar, Inc. v. Williams, 482 U.S. 386 (1987). So that means A-Rod can file suit in federal court based on federal law, regardless of what the Basic Agreement or any state laws happen to say.
But what does that federal law say? As it turns out, this is a topic we’ve discussed frequently here at Suits by Suits; the same law that governs virtually all individual arbitration clauses contained in employment agreements also governs here: the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq. The FAA, in turn, provides four ways in which a litigant can vacate an arbitration award:
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
9 U.S.C. § 10(a). If you want to skip to the punch line, our own Jason Knott summarized it perfectly a few months ago: “When a federal court confirms an arbitration award, it isn’t newsworthy, because that’s what everyone expects will happen. But when a court tosses an arbitrator’s decision, it creates headlines.” So why exactly does A-Rod face such an uphill scenario?
The biggest reason isn't what the FAA says; it's what it doesn't say. Note that those four statutory grounds for reversing an arbitration award do not include “mistake of law” or even “gross mistake of law.” They don’t include incompetence, stupidity, or carelessness. As the U.S. Supreme Court has noted, when a collective bargaining agreement specifies that an arbitrator’s award is “final,” a court may not evaluate whether the arbitrator applied “correct principles of law” or not. United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 598-99 (1960). Thus, even if the arbitrator had no basis for imposing a 162-game suspension on A-Rod, that fact standing alone would not be sufficient to permit a federal court to overturn the arbitration award under the FAA.
Summarizing this (and other) holdings, we lawyers typically describe the FAA’s standards for vacating an arbitration award as procedural rather than substantive; that means that a successful challenge must show that there was something wrong with the way in which the arbitration was conducted, and not just the result the arbitrator reached. This is the dual-edged nature of binding arbitration; like it or not, you’re usually stuck with even an egregiously wrong outcome. (For this reason, we told you how some employers are reconsidering whether mandatory arbitration clauses with their executives are good business policy.)
We do not yet know what transpired during A-Rod’s arbitration. But what we do know is that, if Rodriguez is going to prevail in federal court, he’s almost certainly going to need to show that the process itself was unfair in some way. Maybe he can do this; perhaps there were key pieces of evidence that the arbitrator refused to admit (9 U.S.C. § 10(a)(3)). So far, however, A-Rod’s allegation is that the arbitrator “blatantly disregarded the law and the facts.” That allegation – even if true – is probably not enough for him to succeed in overturning the arbitration award.
As more details are forthcoming – and if Alex Rodriguez and/or his lawyers detail allegations that fit more closely within the four grounds set forth for vacatur under the FAA – we’ll continue to update and evaluate.
After writing a basic primer on Alex Rodriguez’s appeal, there’s one question I’ve gotten more than any other:
Q: How does the arbitrator have the authority to impose a 162-game suspension on A-Rod? Doesn’t the Joint Drug Agreement (titled “Major League Baseball’s Joint Drug Prevention and Treatment Program” and referred to as the “JDA”) specify that the punishment is a 50-day suspension for a first offense and 100 days for the second?
A: Sort of. Section 7.A. of the JDA provides that a player who “tests positive for a Performance Enhancing Substance, or otherwise violates the Program through the use or possession of a Performance Enhancing Substance, will be subject to the discipline set forth below,” and those punishments are the ones you see quoted in popular sports media; i.e., 50 days for a first offense, 100 for a second, and a “permanent suspension” from MLB subject to the right to apply for reinstatement for a third. Id. at 22 (emphasis added). There’s also a catch-all provision, Section 7.G.2, which provides that any player “may be subjected to disciplinary action for just cause by the Commissioner for any Player violation of Section 2 not referenced in Section 7.A through 7.F above,” and Section 2 in turn covers all Prohibited Substances. Id. at 25.
Note those italics. MLB didn’t charge A-Rod with one (or even multiple) test violations; it charged him with generally violating MLB’s Program through the alleged use of performance enhancing substances and suspended him for 211 games. Now one could argue – and Alex Rodriguez’s lawyers almost certainly did argue during the arbitration – that MLB had no authority to impose a 211-game suspension under the JDA. The arbitrator thus presumably heard and responded to those arguments; if he refused to hear them, A-Rod certainly has a great argument on his side on appeal pursuant to 9 U.S.C. § 10(a)(3), as I discuss in the previous post. (I note that, so far, neither A-Rod nor his lawyers have suggested that they were denied the opportunity to make that or any other argument.)
But let’s assume A-Rod made that argument to the arbitrator and lost. Now the question is: what must the arbitrator do with it? The arbitrator’s authority to address grievances comes from Article XI of the Basic Agreement, as previously discussed. Subsection B, in turn, provides that the arbitrator, after hearing all evidence and argument relating to any grievance, “may affirm, modify, or reverse the decision from which the appeal is taken.” Id. at 44. MLB’s decision was to suspend A-Rod for 211 games, and the arbitrator thus modified it downward to 162 games. A-Rod is free to argue that the arbitrator’s decision to do so was erroneous (or even arbitrary); I’ve already explained why that’s not likely to be a winning argument.
Could A-Rod characterize an argument that the arbitrator “exceeded [his] powers” in imposing a 162-game suspension in light of Section 7.A of the JDA? He could, but in my experience, courts have generally not been receptive to such an argument. See, e.g., Certain Underwriters at Lloyd’s, London v. Ashland, Inc., 967 A.2d 166 (D.C. 2009). The bottom line is that even if the arbitrator disregarded the 50/100/lifetime structure set out in the JDA, that fact standing alone is unlikely to provide grounds for reversal of the award by a federal court.
Neither snow nor rain nor heat nor gloom of night – and certainly not a batch of freezing rain and ice that’s currently paralyzing the greater Baltimore-Washington area right now – stays your trusty editors from the swift completion of their appointed rounds; namely, bringing you the weekly roundup of Suits by Suits:
- It may not make the headlines on cable news channels, but next Tuesday, the Supreme Court will hear oral argument in United States v. Quality Stores, Inc. to determine whether severance payments made by employers to involuntarily-terminated employees are subject to FICA taxes. The U.S. Court of Appeals for the 6th Circuit says such payments are not “wages” and thus not subject to FICA tax; a prior IRS ruling disagrees. The Human Resource Executive Online estimates that businesses may qualify for $1 billion or more in refunds if the 6th Circuit opinion is upheld.
- The Occupational Safety and Health Administration (OSHA) issued a ruling requiring a trucking company, Oak Harbor Freight Lines, Inc., to compensate a driver who refused to work while taking a prescribed narcotic cough suppressant while sick in violation of OSHA regulations. The order also requires the company to cease retaliating against workers who refuse to operate vehicles while ill or fatigued in derogation of safety regulations.
- Speaking of which, the Wall Street Journal describes a series of new whistleblower protection laws that just went into effect in California, creating an entirely different legal regime. As the story notes: “Instead of establishing a specific program for individuals to submit tips, like the Securities and Exchange Commission’s whistleblower program, these laws broaden an individual’s right to pursue action if retaliated against for reporting suspected wrongdoing. The potential civil fine is up to $10,000 per violation, among other potential sanctions. (We’ve writen extensively about whistleblowers, usually in the federal context.)
- Of course, no issue of the Inbox would be complete without the usual roundup of complaints over golden parachutes. This week, we learned that Paterson, NJ was continuing to study the legality of a $74,000 payment to former mayor Jose “Joey” Torres in connection with accrued but unused sick days and vacation time; and that a U.S. trustee has objected to a proposed $650,000 in severance payments to two outgoing executives of discount fashion retailer Loehmann’s, currently in Chapter 11 bankruptcy. Despite the public controversy that often surrounds such payments, it hasn’t affected the boardroom: a study reveals that shareholders have approved a higher percentage of so-called golden parachutes in 2013 (86%) than they did in 2012 (82%), even as third-party advisers are increasingly advising shareholders to vote no.
- And finally: there’s been much coverage of Colorado’s law legalizing recreational use of marijuana – my personal favorite story is “I just bought pot for the first time with my boss’s money!” – but, as those killjoys at the Wall Street Journal note, Colorado employers remain free to prohibit marijuana use by their employees and back up such prohibitions with regular, mandatory drug tests. (The same story does note that drug use at the workplace has been on the decline for a decade, and that marijuana use accounted for just 2% of positive tests in 2012.)
The State-by-State Smackdown Keeps On Rolling: Alabama Refuses to Enforce Noncompete Clause Based on the Timing of the Employee’s Signature
An interesting ruling is hot off the press from the U.S. District Court for the Southern District of Alabama. Earlier this week, a federal judge in Dawson v. Ameritox, Ltd. denied Ameritox’s motion for a preliminary injunction seeking to enforce its noncompete agreement with Eric Dawson, a former employee of Ameritox. Ameritox had been seeking an injunction to prevent Dr. Dawson from taking a position as the National Director of Clinical Affairs with Millennium Laboratories, Inc., one of Ameritox’s direct competitors.
The court held that Ameritox’s noncompete agreement was void as against the public policy of Alabama under state law; we unpack exactly how the court reached that conclusion – and what lessons all of us can draw from this ruling. Read More ›
As Massachusetts continues to consider whether to eliminate the enforceability of employee covenants not to compete in that state, we’ve brought you not only the legal standards at issue, but some of the public policy issues that underlie the debate as well. The two people who are probably at the forefront of this research are Professors On Amir of the Rady School of Management at the University of California San Diego and Orly Lobel of the University of San Diego School of Law. Last year, Amir and Lobel wrote an insightful piece for the Stanford Technology Law Review entitled “Driving Performance: A Growth Theory of Noncompete Law,” which argued that reducing constraints on employee mobility increased economic growth and innovation.  (And if you follow our Twitter feed, we directed you to Prof. Lobel's new book, Talent Wants to Be Free, back in November.)
Amir and Lobel are back at it, with a piece published a few days ago for the Harvard Business Review entitled “How Noncompetes Stifle Performance.” They pull no punches, concluding that “limits on future employment not only dim workers’ external prospects but also decrease their perceived ownership of their jobs, sapping their desire to exert themselves and develop their skills.” Read More ›
From all of us here at Suits by Suits, we wish you and yours a very happy holiday season. To keep you entertained over the next few weeks, we'll be featuring a number of our holiday and all-time favorite posts.
Kicking things off today, we revisit a popular series from this time last year, where we told you about the origins of Christmas as a holiday. If you've ever been curious as to why celebrants drink spiced eggnog, decorate evergreen trees, or hang mistletoe, be sure to check out Part 1 and Part 2 of "The Origins of Christmas." And if you want to know how that day and other social traditions turned into legal holidays, check out our post "Exactly How Many Holidays Do We Have, Anyway?"
If you feel we've missed anything, please drop us a line. Happy holidays!