Martin v. Spring Break '83 Productions, LLC ... the Sequel or Part Deux? The Supreme Court is Asked to Review Whether a Private Settlement Agreement Dismissing FLSA Claims is Enforceable

Posted on November 9, 2012 by Sara Hutchins Jodka

As you might recall, in August we blogged on Martin v. Spring Break '83 Productions, LLC, a case involving the blockbuster movie "Spring Break '83" [stated with sarcasm], where the Fifth Circuit became the first federal appellate court to enforce a private FLSA settlement. In that blog, available here, we crossed our fingers and hoped the Fifth Circuit's decision would come to a jurisdiction near you. Well, that hope is one step closer to reality as the plaintiffs/appellants – now the Petitioners – filed a Petition for Writ of Certiorari (the "Petition") and asked the United States Supreme Court to review the case. One of the two questions the Court has been asked to review is:

Whether a settlement agreement executed by a union and an employer relating only to collectively bargained for rights can preclude union members from filing individual claims for minimum wage and overtime under the Fair Labor Standards Act [("FLSA")].

In arguing for certiorari, the Petitioners argued that the Fifth Circuit's decision creates a split of authority on whether claims under the FLSA can be compromised in a private settlement and whether unions can collectively bargain away individuals' rights under the FLSA.

Turning to the first argument, if the Court grants certiorari, the potential impact of this decision is quite significant, as it stands to undo the 30-year-old Lynn's Food Stores, Inc. v. United States case, in which the Eleventh Circuit noted that there are only two ways to compromise claims under the FLSA: (1) under a Department of Labor supervised settlement; and (2) for an employee to bring a lawsuit and have the settlement reviewed by the court. As the Petitioners' brief notes, the Fifth Circuit's decision rejected the Eleventh Circuit's reasoning when it held "a private compromise of claims under the FMLA is permissible where there exists a bona fide dispute as to liability."

The Petitioners also argue that the Fifth Circuit’s ruling conflicts with the Supreme Court’s Barrentine v. Arkansas-Best Freight Sys., decision, another over 30-year-old case, where it held that a union cannot waive individual FLSA rights through collective bargaining. The Fifth Circuit distinguished Barrentine, in Martin and found, "[i]n Barrentine, the plaintiffs' grievances based on rights under the FLSA were submitted by the union to a joint grievance committee that rejected them without explanation, a final and binding decision pursuant to the collective bargaining agreement. Here, appellants accepted and cashed settlement payments. Appellants' FLSA rights were adhere to and addressed through the Settlement Agreement, not waived or bargaining away." The Fifth Circuit went on, "FLSA substantive rights may not be waived in the collective bargaining process, however, here, FLSA rights were not waived, but instead, validated through settlement of a bona fide dispute, which Appellants accepted and were compensated for."

Currently, Martin's reach is limited to the three states in the Fifth Circuit: Louisiana, Mississippi, and Texas. Should the Supreme Court grant certiorari, it would resolve the split between the Fifth and Eleventh Circuits concerning private FLSA settlement and clarify whether unions may settle their members' FLSA claims. Better yet, should the Supreme Court uphold Martin, employers could engage in private, confidential FLSA settlements and unions would have the authority to settle their members' FLSA claims under certain circumstances. Even in a worst case scenario, which would occur if the Supreme Court chooses not to review the case or reverses it, employers are in no worse shape, and the reason for this is simple: Employers have been following Lynn's Food Stores, Inc. and Barrentine for over 30 years now, so most already know they must either obtain DOL supervision or get court approval to settle employee FLSA claims and that FLSA settlements are not issues for collective bargaining.

We expect a decision on whether or not the Supreme Court will take up this case by Spring Break '13.

To be continued...
 

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Supreme Court Upholds Constitutionality of Government Background Screens in NASA v. Nelson

Posted on January 19, 2011 by Brian Hall

The U.S. Supreme Court today issued its decision in NASA v. Nelson, a case that we previewed back in October.   As you will recall, the respondents in Nelson were a group of California Institute of Technology employees who worked under a contract with NASA at its Jet Propulsion Laboratory.  Pursuant to a Presidential directive, the Department of Commerce required all contract employees with long-term access to federal facilities to complete a standard background check by no later than October 2007.  NASA modified its contract with Cal Tech to reflect this requirement, but shortly before the deadline, the respondents filed their lawsuit.  

Respondents contended that two specific aspects of the background check process violated their constitutional right to “informational privacy.”  Specifically, they challenged a question asking them to state whether they had received treatment or counseling in the last year for illegal drug use and a questionnaire that would be sent to the employees’ references asking open-ended questions about their suitability for federal government employment.

In a unanimous decision (with Justice Kagan not participating), the Supreme Court assumed, without actually finding, that a constitutional right to informational privacy exists.  The Court then upheld the background checks as a reasonable exercise of  the government’s right to “reasonably investigate applicants and employees to aid in ensuring the security of its facilities and in employing a competent, reliable work force.”  Not only were the disputed background check inquiries reasonable, but the Court also found that the respondents’ rights were substantially protected against public disclosure by the federal Privacy Act.

 

Not surprisingly, the Court was swayed by the fact that the inquiries at issue are “similar to those (that) became mandatory for all candidates for the federal civil service in 1953” and are “part of a standard employment background check of the sort used by millions of private employers.”  With respect to the inquiry regarding treatment or counseling for the use of illegal drugs, the Court noted that it was a reasonable follow-up to the prior question about using, possessing, supplying or manufacturing drugs during the previous year and, importantly, that the government used the response to the “treatment or counseling” question as a mitigating factor.  Similarly, the Court held that the open-ended inquiries made to the employees’ references were “reasonably aimed at identifying capable employees who will faithfully conduct the Government’s business.” 

 

Furthermore, the Court stated:

Asking an applicant’s designated references broad, open-ended questions about job suitability is an appropriate tool for separating strong candidates from weak ones.  It would be a truly daunting task to catalog all the reasons why a person might not be suitable for a particular job, and references do not have all day to answer a laundry list of specific questions. 

 

So, what lessons can we take from the Court’s decision?  One is that it is clear that the Court – particularly, Justices Scalia and Thomas who concurred in the Court’s opinion -- has no interest presently in addressing whether a constitutional right to informational privacy exists.  Nevertheless, the Court felt it significant that the government was obligated to maintain the privacy of the information obtained through the background inquiries.  As a result, employers, even private employers to whom no constitutional obligations attach, should strive to ensure that any applicant or employee background inquiries are reasonably related to the job position at issue and to protect the privacy of the information obtained through such inquiries.  

 

Finally, employers should also recognize that the ADA plays a role here as well.  Employers may not ask applicants for employment about treatment or counseling for illegal drug use until after a conditional job offer is made and may not ask employees unless the inquiry is job-related and consistent with business necessity.
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A Case of Mind Control: Ohio Employers Can Stop Former Employees From Using Memory to Misappropriate Trade Secrets

Posted on February 11, 2008 by Kevin Griffith
In a unanimous decision debunking the common misunderstanding that former employees can use information they retain through memory (as opposed to information contained in materials pilfered from former employers) without violating trade secret law, the Ohio Supreme Court ruled that a company’s confidential customer list is a protected trade secret even if a former employee accesses it strictly from memory.

In Al Minor & Assoc., Inc. v. Martin, 2008-Ohio-292, Martin, a pension analyst, signed neither a non-competition nor a non-solicitation agreement during his employment with Al Minor. When he resigned to establish a competing business, Martin contacted and successfully solicited 15 clients using information that he memorized while working for Al Minor. Al Minor sued Martin for misappropriating its trade secret client information. Following trial, Martin was ordered to pay nearly $26,000 in damages to Al Minor, representing lost earnings from former clients successfully solicited by Martin. Although Martin appealed, the Franklin County Court of Appeals upheld the trial court’s decision. Martin then appealed to the Ohio Supreme Court where his arguments in support of his actions were once more rejected.

In particular, the Supreme Court answered “yes” to the following question on appeal: “whether customer lists compiled by former employees strictly from memory can be the basis for a statutory trade secret violation.” Looking to the plain language of the Uniform Trade Secrets Act, adopted by Ohio in 1994, the Court noted that the Act expressly governs confidential listings of client names, addresses, and phone numbers. The Court also concluded that nothing in the Act’s language distinguished between memorized information and information reduced to tangible form, such as documents or computer discs. Accordingly, the Court held that protected information does not lose its protected status simply because it is not in physical form. This decision puts Ohio in line with the majority of states on this issue – i.e., that memorized confidential information can serve as the basis for a trade secret violation.

At its core, the Al Minor decision clarifies for Ohio the rather unremarkable notion that a trade secret is a trade secret regardless of whether it is memorized or in a more tangible form. The Supreme Court did not, however, provide details regarding the trade secret at issue in Al Minor other than to call it a “confidential client list.” As a result, the decision muddies, to some extent, the question of exactly what types of memorized information are entitled to trade secret status. Most significantly, the Court refused to consider Martin’s argument that the client list did not constitute a trade secret because it contained public information that could be accessed on the internet due to Martin’s failure to raise the argument in a timely manner. Furthermore, although the Court acknowledged that not every “casual” memory retained by an employee from the ordinary course of employment will constitute a trade secret under Ohio law, it offered no guidance as to what constitutes a “casual” memory.

These ambiguities are not just theoretical; they have the potential to present real-life dilemmas to employers and employees alike. For example, the decision provides little guidance as to what the outcome should have been if Martin, hypothetically, had used an internet search engine, such as Google, to obtain contact and other information about a handful of Al Minor clients that he recalled off the top of his head. In this scenario, could Martin have used the information obtained from Google to solicit business without violating the Act even though the client names (but not other company data) were part of Al Minor’s confidential client list? It is not yet clear the extent to which Martin could have avoided liability by separately compiling and using client information from publicly available sources such as the internet in order to solicit business or whether the simple knowledge that the Al Martin clients were in need of pension analysis services would have trumped the publicly available information to preserve the protection of the trade secret.   Or could Martin have avoided liability by arguing that the client names were merely “memories casually retained from the ordinary course of employment.” Because the Supreme Court left such questions unanswered while creating the impression that employers may prevent former employees from contacting clients even in the absence of non-competition or non-solicitation agreements, the Al Minor decision likely will lead to increased trade secret litigation.

Considering Al Minor from the perspective of a hiring employer also yields uncertainty.  Employers concerned with avoiding liability based on hiring decisions generally ask whether potential employees are encumbered by non-solicitation or non-competition agreements. Cautious employers also generally admonish new hires not to bring with them to their new jobs any documents or computer files from their former jobs. Now, although Al Minor highlights the additional importance of ensuring that new employees do not use memorized confidential information from prior employment, the decision does nothing to help employers ensure compliance. Will hiring employers now face the risk of trade secret liability simply by allowing prospective employees to recount their work with specific clients?

The Al Minor holding – that intangible confidential information — can be a protected trade secret – makes sense under Ohio’s Trade Secret Act and puts Ohio in line with the majority of the states that have addressed the issue. But, by deciding the issue in the context of a client list and by providing little descriptive information about what exactly that client list entailed, the Court, unfortunately, has opened the door to questions and possible confusion for Ohio’s employers and employees alike.   

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