Fifth Circuit Holds Confidential Information Policy Protecting Company Financial and Personnel Information Violates the NLRA

In an opinion likely effecting many Texas employers, the Fifth Circuit Court of Appeals held that an employer's confidentiality policy that prohibited employees from disclosing all company financial and personnel information without a carve-out for employee wage information violated the National Labor Relations Act.

Flex Frac, a non-union employer, required all of its employees to sign the following confidentiality policy:

Confidential Information


Employees deal with and have access to information that must stay within the Organization. Confidential Information includes, but is not limited to, information that is related to: our customers, suppliers, distributors; Silver Eagle Logistics LLC organization management and marketing processes, plans and ideas, processes and plans, our financial information, including costs, prices; current and future business plans, our computer and software systems and processes; personnel information and documents, and our logos, and art work. No employee is permitted to share this Confidential Information outside the organization, or to remove or make copies of any Silver Eagle Logistics LLC records, reports or documents in any form, without prior management approval. Disclosure of Confidential Information could lead to termination, as well as other possible legal action.


Following her termination, a former employee filed a charge with the NLRB and the Acting General Counsel for the Board issued a complaint charging the employer with maintaining a rule prohibiting employees from discussing employee wages.  The ALJ found that while there was no specific prohibition against employees discussing their wages with one another, the policy might be reasonably interpreted as restricting employees' right to discuss their wages with one another and therefore violated Section 7 of the NLRA.

On appeal to the federal court of appeals, the court restated the long-standing, well-established rule that "a workforce rule that forbids the discussion of confidential wage information between employees" violates the NLRA.  In analyzing the confidentiality provision at issue, the court concluded that it could be reasonably construed to prohibit employee discussion of wages both inside and outside the company and ordered that the NLRB's order prohibiting Flex Frac from promulgating and maintaining its confidentiality policy be enforced. 

There are likely many Texas employers that have confidentiality policies that cover and protect company financial and personnel information but do not explicitly carve out employee wage information from the definition of that protected information.  Employers with simiar confidentiality provisions may want to consider revising those policies to explicitly exclude employee wages from coming within the scope of their policies so they are not subject to a charge that they have committed an unfair labor practice.

You can download the full copy of Flex Frac v. NLRB here.

Fifth Circuit Rejects Argument that Class Action Waivers in Arbitration Agreements Violate the NLRA

I first wrote about the NLRB's decision that pre-dispute arbitration agreements waiving the right to assert claims as part of a class action violated federal labor law in January 2012 (post).  Back then, I thought it was prudent for employers to wait for the result of the the inevitable appeal that would follow before revising or throwing out their arbitration agreements containing class action waivers. 

The Fifth Circuit Court of Appeals held recently that D.R. Horton's pre-dispute arbitration agreement requiring the builder and its employees to arbitrate disputes on an individual, non-class action basis did not violate the NLRA.  The Court affirmed, however, the Board decision to the extent it required D.R. Horton to clarify to its employees that the arbitration agreements did not waive their right to file unfair labor practice charges with the National Labor Relations Board.

The takeaway from the Court's decision is that arbitration agreements with class action waivers are enforceable under the Federal Arbitration Act and employers may still consider these kinds of agreements as part of their alternative dispute resolution programs.  However, employers should clarify in those agreement that they do not eliminate the employee's right to file or pursue unfair labor practice charges with the National Labor Relations Board. 

You can access a complete copy of the opinion here

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Fifth Circuit Confirms Use of Fluctuating Workweek Method of Overtime Calculation in Misclassification Case

In settlement negotiations and trial of FLSA overtime misclassification cases, there is usually a disagreement between the parties as to how the unpaid overtime should be calculated. Attorneys representing employees typically want overtime calculated using a 1.5 times the regular rate of pay for each overtime hour that was worked. Attorneys representing companies typically want to utilize the “fluctuating workweek” method of calculating overtime. A recent case from the Fifth Circuit Court of Appeals confirms that the proper method of calculating unpaid overtime in a misclassification case if the use of the fluctuating workweek method.

In Ransom v. M. Patel Enterprises, Inc., fifteen executive managers of an Austin-based party retail store secured a jury verdict that they had been misclassified as exempt employees and where therefore entitled to unpaid overtime. After the issue of liability was resolved, the presiding judge assumed responsibility for calculating the damages. The judge determined that the fixed-salary paid to the employees was for a set 55 hour workweek. The judge then divided the number of total hours in the workweek by the employees’ salary to determine a regular rate of pay. Concluding that the hours worked in excess of forty per workweek were uncompensated, rather than compensated at straight time, the judge then multiple one and a half times the regular rate of pay times all hours worked in excess of forty per workweek. The Court of Appeals held that that this improperly inflated the amount of overtime the trial judge awarded.

Rather, the court of appeals held that the trial judge should have divided the employee’s weekly salary by the number of total hours worked in a the workweek to determine the regular rate of pay. Having determined the regular rate of pay, and applying the fluctuating workweek method of calculation, the Court explained that the trial judge should have then applied ½ of the regular rate of pay to only the overtime hours (i.e., the hours in excess of forty per week) to arrive at the unpaid overtime premium the misclassified employees were entitled to receive.

The takeaway from this case is that when a misclassified employee works fluctuating hours during the workweek, the amount of unpaid overtime should be calculated using the fluctuating workweek method of calculation. This decision has the effect of reversing the published opinion in In re EZ Pawn LP Fair Labor Standards Act Litig., 633 F.Supp. 2d 395 (W.D. Tex. 2008) that plaintiff lawyers frequently cite to support a more generous overtime calculation. You can review download the full opinion in Ransom v. M. Patel Enterprises, Inc. here.

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Court Holds that Reasonableness of Physician Buy-Out Clauses in Noncompetition Agreements Can be Challenged Even When Parties Previously Agreed to Amount

I have written several posts outlining the unique requirements that employers must include to create a valid noncompeteition agreement with a physician. (posts here and here). A recent case from the Beaumont Court of Appeals holds that even when a physician noncompetition agreement contains a reasonable buy-out clause, the employer may still have to arbitrate the reasonableness of that buy-out amount at the time the physician seeks to be released from the noncompetition agreement.

In Sadler Clinic Association, P.A. v. Hart, the Clinic sued a former physician seeking to enforce a covenant not to compete precluding the physician from competing within a twenty-two mile radius of the Clinic for eighteen months. The noncompetition agreement contained a buy-out clause that allowed the physician to buy-out of the noncompete for a set amount, but did not provide for arbitration in the event a party believed the buy-out amount was unreasonable. The trial court declared the noncompetition agreement unenforceable stating that it lacked a reasonable buy-out amount. On appeal, however, the appellate court held that the agreement contained a buy-out clause and an amount the physician could pay to be released from the restrictive covenant. Moreover, the court of appeals further allowed that if either party believed the buy-out amount to be unreasonable, the party could elect to have the buy-out amount determined by an arbitrator (despite the absence of any contractual provision authorizing arbitration over a previously agreed to buy-out amount). In essence, the court substituted an arbitration mechanism for a party to revisit the reasonableness of the buy-out amount that the parties themselves had not negotiated and to which they never agreed.

The impact of the Sadler decision is that a physicians and their employers have little certainty that the contractually agreed buy-out clauses they negotiated and agreed to will be honored and not challenged through arbitration by the party who disagrees with the amount at the end of the relationship and at the time of competition. Moreover, parties are not incentivized to agree to a reasonable buy-out amount at the inception of the relationship in order to avoid the time and expense of an arbitration at the end of the relationship when either party can have the negotiated buy-out amount challenged through arbitration.

You can read the full opinion in Sadler Clinic Assoc., P.A. v. Hart here.

Follow me on Twitter @RussellCawyer.

Fifth Circuit Holds that Employee's Internal Complaints of Securities Violations Do Not Qualify for Dodd-Frank Whistleblower Protection

In a recent opinion of the Fifth Circuit Court of Appeals, the federal appellate court held that a former employee terminated after making internal complaints to his employer about possible securities violations, but who never made complaints to the S.E.C., was not a whistleblower under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd Frank"). 

Khaled Asadi was hired by G.E. Energy ("G.E.") in 2006 as its Iraq Country Executive.  In 2010, Iraqi officials reported to Asadi a concern that a new female G.E. employee had been hired to gain favor with an Iraqi official in negotiating a joint venture agreement.  Believing that this conduct could potentially violate the Foreign Corrupt Practices Act, Asadi reported this information to his supervisor and other G.E. officials.  Thereafter, Asadi received a negative performance review and was terminated within one year following the report.

Asadi sued claiming that his termination violated the Dodd Frank whistleblower-protection provisions.  G.E. moved to dismiss on the grounds that because his complaint was made internally to G.E., Asadi did not qualify as a Dodd Frank Whistleblower and arguing that the Dodd Frank Act did not apply extraterritoriality.  The trial court concluded that the Dodd Frank Act did not apply to whistle-blowing activity outside the U.S. and dismissed the complaint without addressing whether Asadi was a whistleblower.

On appeal, the Fifth Circuit examined the provisions of the Dodd Frank Act to determine whether Asadi was entitled to whistleblower protections.  First, the court analyzed the statute's definition of the term "whistleblower" and concluded that the statute mandates a report to the SEC to be included within the term's definition.  Second, the court rejected an SEC regulatory definition of "whistleblower" concluding that the Commission's definition improperly expanded the Congressional definition of a whistleblower and was therefore entitled to no deference.  Because Asadi had made no report of securities violations to the SEC, he was not a Dodd Frank whistleblower.  Stated another way, the court held that the "whistleblower-protection provision creates a private right of action only for individuals who provide information relating to a violation of the securities laws to the SEC."

The takeaway from Asadi is that an employee in Texas, Louisiana and Mississippi seeking the whistleblower protections of the Dodd Frank Act (and the incentive programs) must make a report of alleged securities violations directly to the SEC.

You download a complete copy of Asadi v. G.E. Energy (U.S.A), LLC  here.

Follow me on Twitter @RussellCawyer.

Which Employees Should Receive the Most Rigorous Background Check?

Employers conduct variety of background checks on employees and applicants depending on the level of hire and the duties performed. Of the background checks that employers conduct, which category of employees should receive the most rigorous background checks --the CEO, Comptroller, Treasurer? All worthy choices. 

As the Edward Snowden NSA leak teaches, those who have broad access to a company’s computer systems can do significant damage. Consequently, the most rigorous background check should be conducted on the IT Director. The IT Director has virtually unfettered, unchecked access to your company files, data, e-mails and electronic information. The IT Director can access computer passwords, create back door access to computer systems that may be active even after the IT Director leaves the firm and can review all of the company’s confidential, proprietary and trade secret information. Most employers are not even equipped to monitor and oversee the activities of the IT Director because that is what the IT Director is hired to do.

For these reasons, I believe the IT director should receive the most in-depth, rigorous background check prior to being hired for employment. Who do you think should receive the most rigorous background check?

Follow me on Twitter @RussellCawyer.

Death of Google Reader and Subscription to the Texas Employment Law Update

Google is shutting down Google Reader on July 1, 2013.  If you subscribe to this blog (and others) by way of Google Reader's RSS feed, you need to take steps to preserve your subscriptions prior to next week.  At a minimum, you must export your subscriptions to your computer before July 1, 2013, so they will be available to you after Google Reader's last gasp.  LifeHacker tells you how to export those subscriptions here.

I've converted to The Old Reader (TOR).  TOR is a free RSS reader that has the look and feel of Google Reader.  TOR also allows you to import your existing RSS subscriptions from Google Reader and upload them to its platform by following the instructions after registering for the free service (so long as you do so before July 1st).

Kevin O'Keefe, at Lexblog has identified a few other RSS reader that you might want to experiment with:

If you're looking for a direct replacement to Google Reader—another RSS reader, plain and simple—Feedly is a good fit. Feedly is available in a website interface; as a browser application for Chrome, Safari and Firefox; and for mobile apps on both the iOS and Android platforms.

If you're open to trying something a bit different, mobile-only magazine-style apps Flipboard and Zite are excellent for discovering new content. Both are available for iOS and Android, for your smartphone and tablet.

Flipboard and Zite each offer a personalized magazine based on your RSS feeds and social networks. I’ve described Zite as a Pandora for content because it gets smarter regarding your content preferences over time.

Finally, if finding a new RSS reader and exporting your subscriptions sounds too intimidating, you can continue to receive new posts from the Texas Employment Law Update by registering for an e-mail subscription.  Just go to the site and subscribe to the feed by e-mail.  If you have any questions about subscribing by e-mail or want me to add you to the e-mail subscription list, send me a note in the comments.

Follow me on Twitter @RussellCawyer.

U.S. Supreme Court Adopts "But For" Causation Standard for Title VII Retaliation Cases

In a case appealed from the Fifth Circuit Court of Appeals, the U.S. Supreme Court held that a plaintiff in a Title VII retaliation case may prevail only when he shows that he would not have suffered an adverse employment action “but for” his engaging in protected activity.

In the first retaliation case in several years to side with the employer’s position, the Court held that Title VII retaliation plaintiff’s “claims must be proved by traditional principles of but-for causation.” Stated another way, the plaintiff must prove that the “unlawful retaliation would not have occurred in the absence of the alleged wrongful action or actions of the employer.” 

In reaching its conclusion, the majority noted the increase in retaliation filings and the importance of having a fair and responsible allocation of resources in the judicial and litigation systems. The Court also observed that setting a lower standard of causation could contribute to the increase in the filings of frivolous claims. Justice Kennedy described a hypothetical that one can image occurs all too frequently in reality.

Consider . . . the case of an employee who knows that he or she is about to be fired for poor performance, given a lower pay grade, or even just transferred to a different assignment or location. To forestall that lawful action, he or she might be tempted to make an unfounded charge of racial, sexual, or religious discrimination; then, when the unrelated employment action comes, the employee could allege that it is retaliation.

It is unlikely, however, that the more direct “but-for” standard of causation will stem the rising tide of retaliation charges.

You can read a full copy of the UTSW v. Nassar here [pdf].

Follow me on Twitter@RussellCawyer.

U.S. Supreme Court Adopts Objective Test for Determining Title VII Supervisor Status

The U.S. Supreme Court adopted an objective test for determining an employee’s Title VII “supervisory status” in Vance v. Ball State University. The question in Vance was what level of authority must an individual have to qualify as a “supervisor” for purposes of Title VII vicarious liability. This is an important issue because the employee’s status often makes the difference in whether the employer is held liable for the actions of its employee that subject a co-worker to harassing conditions.

An employee who is subjected to a tangible employment action at the hands of a harassing supervisor can subject the employer to strict liability for the harassment. Conversely, an employee who is subjected to harassment by a non-supervisory co-worker can only establish employer liability only upon a showing of negligence (i.e., that the employer was aware of the harassment that was so severe or pervasive as to effect the terms and conditions of employment and failed to take prompt remedial action designed to end the harassment). Consequently, an accused harasser’s status as supervisor or non-supervisor has important ramifications for determining an employer’s liability for Title VII harassment.

The Court adopted the objective choice of the two tests advanced by the parties. In its opinion, the Court held that an alleged harasser is a “supervisor” for purposes of Title VII vicarious liability when the individual is empowered to take tangible employment actions against the victim. Stated another way, the “supervisor” must be empowered by the employer to hire, fire, discipline, promote, demote or transfer the victim. The authority to direct some of the employee’s daily work assignments or tasks, is not sufficient to render the harasser employee a supervisor. 

Having an objective test to apply and govern who is and is not a supervisor should make that determination readily apparent early in litigation and provide parties with more predicable outcomes in Title VII harassment cases. 

You can download a complete copy of Vance v. Ball State University here [pdf].

Follow me on Twitter @RussellCawyer.

Fifth Circuit Holds that Volunteer Firefighter is not an "Employee" for Purposes of Title VII

In an issue of first impression in this Fifth Circuit, the Court held that a volunteer firefighter making a Title VII claim of sexual harassment is not an “employee” for purposes of the statute and therefore had no legal claim.

The case arose from a suit filed by a former firefighter for the Livingston Parish Fire Department who claimed that she was subjected to sexual harassment during her tenure with the Department. She filed a charge of discrimination and later sued. The Department defended on the grounds that as a volunteer, Juino was not an “employee” for purposes of Title VII and therefore could not bring a claim. Further, the Department argued that it was not an employer for Title VII purposes because while its membership roster had approximately 70 firefighters, only three were paid employees and therefore they lacked the threshold 15 employees for Title VII coverage.

The trial court accepted the Department’s arguments and entered judgment in its favor. On appeal, the Fifth Circuit Court of Appeals was charged with deciding, for the first time in the Circuit, whether (and under what circumstances) volunteers are employees for purposes of Title VII.

The Court analyzed the two different approaches considered by the Circuit Courts that have addressed the issue --the threshold remuneration test and the incidents of employment relationship test. In the threshold remuneration test adopted by most of the Courts addressing the issue, the plaintiff-volunteer must make a threshold showing that she received remuneration or some other significant indirect benefit. The incident of employment test, adopted by two Circuits, treats remuneration as merely one factor in determining the overall employment relationship rather than the dispositive factor. The Fifth Circuit concluded that the threshold remuneration test was the proper test to apply in its jurisdiction.

Having determined that the threshold remuneration test was the appropriate test to apply, the Court analyzed Juino’s engagement with the Department to determine whether she was an employee. Juino received $2 per emergency call; life insurance; uniform and badge; emergency response gear and training. During her engagement, Juino responded to 39 calls for a total monetary remuneration of $78. These benefits, the Court concluded, were merely incidental to her volunteer service for the District and unlike the significant indirect benefits received by volunteer firefighters in other reported cases where the volunteers were determined to be employees (e.g., retirement and pension benefits, life insurance, death benefits, disability insurance, tax exemptions for unreimbursed business expenses, scholarships for dependents, reduced rates on commemorative license plates and limited medical benefits). The Court concluded that Juino’s indirect benefits were too insignificant to pass the threshold remuneration test and she was therefore not an employee for Title VII purposes.

The takeaway from this opinion is not only that volunteers are not covered by the protections of Title VII, but unpaid interns are also likely not covered. Moreover, if volunteers and unpaid interns are not “employees” for Title VII purposes, it follows that their numbers should not be counted in determining “employer” coverage under the statute.  Moreover, given that other federal employment statutes use the same definition of "employee", it is likely that volunteers and unpaid interns lack coverage under those statutes as well.

You can read the entire opinion in Juino v. Livingston Parish Fire District No. 5 here.

Follow me on Twitter @RussellCawyer.