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Archive for May, 2021

“No Poach Approach”? Hostility Toward No-Hiring Provisions Continues To Grow

Posted on: May 26th, 2021

By: Justin Boron

Businesses should be wary of entering anti-poaching provisions with their competitors.

If there wasn’t enough evidence that these provisions create legal risk, a Pennsylvania Supreme Court decision at the end of April should finally pique the concern of business competitors who have entered into agreements not to hire or solicit each other’s employees as part of mergers, acquisitions, or franchise and sales relationships.

Plaintiffs’ attorneys representing employees and the Department of Justice had already given fair warning in the last few years that they considered no-poach agreements per se, unreasonable restraints of trade in violation of the Sherman Act that can result in both civil and criminal antitrust liability.[1]

But the Pennsylvania Supreme Court’s decision advances this theory into state law governing restrictive covenants. In Pittsburgh Logistics Sys. V. Beemac Trucking, LLC,[2] it held that a no-hire provision between competitors was void in violation of public policy and unenforceable.

The Beemac opinion discussed several other state court opinions reaching the same result. And given the judicial hostility to restrictive covenants in general, it would not be surprising to see other courts take up the concern motivating the Pennsylvania Supreme Court, the DOJ, and Plaintiffs’ attorneys—that anti-poaching provisions are oppressive to the employees because they typically have no knowledge of them and do not sign them.

With such weigh against anti-poaching provisions, businesses will need to consider whether their value is worth the risk.

For more information, please contact Justin Boron at [email protected].

[1] In re Ry. Indus. Emple. No-Poach Antitrust Litig., 395 F. Supp. 3d 464, 481-82 (W.D. Pa. 2019); In re Papa John’s Emple. & Franchisee Emple. Antitrust Litig., No. 3:18-CV-00825-JHM, 2019 U.S. Dist. LEXIS 181298, at *9 (W.D. Ky. Oct. 21, 2019)

[2] No. 31 WAP 2019, 2021 Pa. LEXIS 1853 (Apr. 29, 2021)

Supreme Court of Georgia Rewards Bad Behavior While Increasing The Exposure To Insurers for Failing to Settle Within Policy Limits

Posted on: May 24th, 2021

By: Phil Savrin

The Supreme Court of Georgia has dealt a severe blow to an insurance company’s ability to require advance notice of a lawsuit against its insured before being exposed to extra-contractual liability for the full amount of the judgment that may be returned. In GEICO Indemnity Company v. Whiteside, Bonnie Winslett was using the named insured’s vehicle with permission when she collided with a bicyclist named Terry Guthrie.  GEICO rejected Guthrie’s demand for the $30,000 policy limit but made numerous attempts to reach Guthrie’s lawyer to follow up on a counteroffer GEICO had made. Instead of engaging GEICO, Guthrie had already sued Winslett for personal injuries. Although Winslett was served with the lawsuit, neither she nor Guthrie’s lawyer notified GEICO as required by both the language of the policy and a Georgia statute for coverage to apply. For her part, Winslett assumed GEICO was handling the matter and threw the summons away. With Winslett having defaulted, Guthrie proceeded to obtain a judgment of $2.9 million. No sooner was the ink dry a week later when Guthrie forwarded the judgment to GEICO.  A clearer case of setting up the insurance company for a bad faith claim could hardly be crafted. 

In reviewing the judgment against GEICO, the Supreme Court first determined that the notice requirement is a matter of contract to obtain coverage under an insurance policy whereas a failure to settle claim is based on tort law – specifically, whether GEICO was negligent in not meeting the policy limit demand based on information that was known at the time. So viewed, the question was whether GEICO should have reasonably foreseen that Guthrie would file a lawsuit and that Winslett would not provide notice. The tort exposure, in other words, was not for the amount of coverage owed by GEICO but for its negligence in failing to settle when the limits was demanded. 

Applying tort principles, therefore, the question was whether Winslett’s failure to provide notice was an intervening act that cut off any exposure to GEICO for negligence.  Based on the facts presented, the Supreme Court determined that a jury could conclude that Winslett’s failure to give notice was foreseeable as she was an unsophisticated person who was not the named insured and who had driven the vehicle without a license, among other factors. As such, “but for” Geico’s negligence in not settling the exposure, the lawsuit and the judgment by default would not have resulted. 

The jury that considered GEICO’s negligence did apportion 30% of the fault to Winslett for having defaulted without providing notice to GEICO, with the remaining 70% assessed against GEICO. Curiously, though, the Supreme Court made no mention whatsoever of Guthrie’s role in refusing to engage the insurer who was attempting to negotiate settlement, in not disclosing that a lawsuit had been filed, and in then laying in wait until the default judgment was entered — all in a concerted effort to tag the insurer with bad faith.  

With the reasoning in this case, Georgia law on failure to settle continues to morph from an obligation owed to the insured to one that must also consider the interests of the claimants. Insurers are well-advised to maintain a watchful eye when demands are made and to be ever-vigilant to counter tactics that are being condoned by the courts in troublesome cases

For more information, please contact Phil Savrin at [email protected].

Executive Order on Improving the Nation’s Cybersecurity issued following Colonial Pipeline Ransomware Attack

Posted on: May 21st, 2021

By: Caitlin Tubbesing

On the heels of the May 7th ransomware attack on Colonial Pipeline—resulting in a temporary shutdown of its 5,5000 mile pipeline system carrying 45% of the East Coast’s fuel supply— President Biden issued an Executive Order aimed at modernizing and improving the country’s defenses against these ever-increasing and malicious cyberattacks. The Order was originally drawn up following the SolarWinds “supply chain” attack, which exposed significant gaps in American cyber defenses in both the public and private sectors.

Although the Order does not specifically address critical infrastructure systems like oil and gas pipelines, power, and water, it directs the Commerce Department’s National Institute of Standards and Technology (NIST) to publish cybersecurity guidelines for supply-chain security, and standards for private companies selling software services to the government. Other provisions in the 34-page Order:

  • direct government agencies to move to secure cloud services and a zero-trust architecture, including a mandate to deploy multifactor authentication and encryption;
  • require IT government contractors to report data breaches posing a potential danger to federal networks to the Office of Management and Budget and the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) within three days;
  • urges the creation of a standardized playbook and set of definitions for cyber incident response by federal departments and agencies;
  • calls for the formation of a Cybersecurity Safety Review Board, similar to the National Transportation Safety Board, that will study and report how significant breaches occurred; and
  • seeks a national labeling system for software programs that will give consumers information regarding the security level.

The hope is that these measures will not only enable the government to more effective defend against and respond to breaches as they occur, but also that these measures will have a ripple effect in the private sector and critical infrastructure and improve national and global cybersecurity as a whole.  To that end, the White House has urged private sector companies to follow the federal government’s lead and to make necessary investments in cybersecurity and implement ambitious measures to minimize future cyberattacks.

For more information, please contact Caitlin Tubbesing at [email protected].

Don’t Tell Me Where to Live! – New Jersey Public Employee Residency Requirements Deemed Unconstitutional

Posted on: May 19th, 2021

By: Stephanie Greenfield

A recent decision from the Superior Court of New Jersey held that the New Jersey First Act (“Act”) and its residency requirements are unconstitutional in their present form.

The Act, signed by Gov. Chris Christie in 2011, says nearly all public officers and employees must live within the state borders unless they are granted an exception for financial, health or other reasons. At the time, Christie and other supporters of the law said workers paid by New Jersey taxpayers should also be living in the state and paying state taxes. See N.J.S.A. 52:14-7. The limited exceptions apply to certain temporary or per-semester higher education teaching staff members and to those persons who are employed full-time by the State but spend a majority of their time working outside the State. For all other public employees required to maintain their principal place of residence in New Jersey, the Act contains a waiver provision, which provides in pertinent part that “[a]ny person may request an exemption from the provisions of this subsection on the basis of critical need or hardship from a five-member committee hereby established to consider applications for such exemptions.” N.J.S.A. 52:14-7.

In Somerville Bd. of Educ. v. Drake, Docket No. SOM-L-465-19 (decided Feb. 11, 2021), the Defendant Rebecca Drake (“Drake”), a tenured teacher in the Somerville School District (“District”), was terminated from employment because in or about August 2017, she moved from her principal residence in New Jersey to Pennsylvania.  Prior to moving to Pennsylvania, Drake sought a waiver, but her request was denied. She subsequently submitted a second waiver request (after she had already been living in Pennsylvania), which was ultimately granted. In or about March 2018, the District advised Drake that by her having moved to Pennsylvania prior to obtaining a waiver, she was in violation of the Act.  Drake was given the option to resign or the District would pursue legal action to separate her from employment.  Drake refused to submit a letter of resignation and, thus, in or about April 2018, the District filed suit against Drake to separate her from employment.

After responsive pleadings had been filed, Drake filed a motion to dismiss (or, in the alternative, a motion for summary judgment) and the District filed a cross-motion for same.

Many cities and local governments around the country have residency laws requiring police officers, firefighters and other public employees to live within their borders. However, Drake’s attorneys argued in court that New Jersey may be the only state in the nation to require all public employees, including teachers, to live in state.

Under the Act, the only exceptions are for workers who can prove a financial hardship, cite a health reason or provide a letter from their employer that they are “critical” in their workplace. In addition, any employee who was already living out of state when the law was signed in 2011 is grandfathered in and doesn’t need to move, according to the law.

On February 11, 2021, the Court issued an opinion granting Drake’s motion for summary judgment and dismissing the Complaint.  The Court held that The Act’s waiver provision does violate due process principles in that the standards applicable to waiver requests [are] unconstitutionally vague. The statutory standard of ‘critical need or hardship’ provides only a vague standard that is likely subject to a different interpretation by virtually every person who considers it.” 

The takeaway from this case is that public employers must be mindful of the Court’s holding in Drake prior to separating a public employee from employment because the employee violated the Act’s residency requirements.  The decision will also likely force lawmakers in New Jersey to revisit a decade-old law.

For more information, please contact Stephanie Greenfield at [email protected].

Massachusetts Appeals Court Holds Massachusetts Commission Against Discrimination Failed to Put Employer on Notice of Claims Tried in Public Hearing

Posted on: May 18th, 2021

By: Victoria Fuller and Matthew Schwartz

In 15 LaGrange Street Corporation v. MCAD, Civ. A. No. 20-P-726, the Massachusetts Appeals Court partially vacated a judgment entered by the Massachusetts Commission Against Discrimination (the “Commission”) against an employer to the extent it was based on the Hearing Officer’s finding that the complainant-employee was unlawfully terminated on the basis of race.  The Appeals Court held that the Commission failed to provide sufficient notice of the “substance and nature of the grounds” of the claim against the employer, in violation of the employer’s due process rights and the Massachusetts Administrative Procedures Act. 

In 15 LaGrange Street, the employee had filed a complaint with the Commission alleging that he was terminated for reporting discriminatory and illegal practices occurring at the workplace.  The investigating commissioner issued a probable cause determination and certified the case to a public hearing.  The employee’s complaint was attached to the certification, but the certification failed to identify the specific claims to be tried.  The investigating commissioner waived the certification conference and instructed the parties to raise issues at the prehearing conference with the hearing officer.  The employer contested the investigator’s waiver of the certification conference.  Nevertheless, no certification conference was held, and the Commission did not issue a complaint in its own name or identify the issues to be certified.

The Public Hearing proceeded.  The hearing officer determined that the employee failed to show his termination was retaliatory as pleaded.  The hearing officer found, instead, that the complainant’s termination was discriminatory on the basis of race – a claim that had not been previously identified by the complainant or Commission. The employer exhausted its administrative appeals with the Commission without success.

In its decision, the Appeals Court itemized each missed opportunity the Commission and the complainant had to put the employer on notice of the claim: the complaint did not allege that complainant was terminated because of his race; the complainant and Commission failed to cure the defective pleading through amendment; the complainant’s counsel failed to reference the claim in a statement given at the commencement of the Public Hearing; and the investigating commissioner failed to hold a certification conference or issue an order identifying the complainant’s claims certified to the Public Hearing.

Importantly, the Court held that “[w]hile the commission ‘is allowed to relax the application of the regulations where necessary in the interests of justice’ it must not do so where it would ‘prejudice the substantial rights of a party.’”

It is also worth noting that the Appeals Court upheld the Commission’s finding that the complainant had been submitted to a hostile work environment.  Importantly, the Appeals Court rejected the employer’s argument that it could not be liable because the former employee was able to get his work done despite the harassment.

The takeaway from 15 LaGrange is that employers defending against a complaint in the MCAD need to vigorously defend their right to a fair proceeding. They must also keep their eye on the long game.  Indeed, like in 15 LaGrange, employers may need to pursue several rounds of appeals after a Public Hearing.

For more information, please contact R. Victoria Fuller at [email protected] or Matthew Schwartz at [email protected].