Employment Law

Defend Trade Secrets Act Becomes Law

Why it matters

Passed by an overwhelming majority of the federal legislature, the Defend Trade Secrets Act (DTSA) became law with President Barack Obama's signature on May 11, 2016. The measure establishes for the first time a private right of action for misappropriation of trade secrets under federal law and permits companies to pursue an injunction against violations of trade secret theft as well as damages for violations that have already occurred. Intended to create a uniform national standard for trade secret law, the DTSA does not preempt state law. The statute provides authorization for ex parte seizure orders but includes immunity provisions for certain employee activities, such as making disclosures of confidential information to the government. Employers should familiarize themselves with the new law, which took immediate effect.

Detailed discussion

With the enactment of the Defend Trade Secrets Act (DTSA), employers have a private right of action under federal law for trade secret misappropriation for the first time. The bill—which passed the House of Representatives with a 410-2 margin and the Senate by a vote of 87-0—took immediate effect. The amendment to the Economic Espionage Act granted federal district courts original jurisdiction over trade secret disputes, including contract and tort claims.

Pursuant to the new statute, employers may sue for unlawful misappropriation and may also seek an injunction against trade secret theft that occurs on or after the date of enactment. Employers may recover damages for actual loss caused by the misappropriation, as well as damages for unjust enrichment (to the extent not addressed by actual loss), and a reasonable royalty is permitted where damages cannot be measured by other methods. For willful misappropriation, employers may double their damages.

"Trade secret" is defined to include all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and regardless of whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if the owner has taken reasonable measures to keep such information secret and the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by the public.

The DTSA broadly defines "misappropriation" as "the acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means" or the "disclosure or use of a trade secret of another without express or implied consent by a person who (i) used improper means to acquire knowledge of the trade secret; (ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was (I) derived from or through a person who had used improper means to acquire knowledge of the trade secret, (II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret, or (III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or (iii) before a material change of the position of the person, knew or had reason to know that (I) the trade secret was a trade secret and (II) knowledge of the trade secret had been acquired by accident or mistake."

"Improper means" covers theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, and espionage through electronic or other means but excludes reverse engineering, independent derivation, or any other lawful means of acquisition.

The DTSA provides for ex parte civil seizure of property when a plaintiff can show it is "necessary to prevent the propagation or dissemination of the trade secret," without a hearing or answer from the defendant. However, the statute made clear that seizure orders should only be used in "extraordinary circumstances" and crafted as narrowly as possible to achieve the stated intent (with a requirement that the plaintiff demonstrate the defendant has "actual possession" of the trade secret or property, among others).

Defendants can also seek damages (such as lost profits, for example) if a seizure is implemented and later found to be wrongful.

The law carves out an exception providing both criminal and civil immunity for employees under the DTSA for making disclosures of confidential information to the government to investigate potentially illegal activity, in court filings, or in connection with whistleblower retaliation claims. Pursuant to the statute, employers must provide workers with notice about their immunity in any contract or agreement that involves trade secrets or confidential information. The failure to provide notice precludes employers from later recovering attorneys' fees and exemplary damages in a subsequent DTSA action.

State law claims of trade secret theft are not preempted by the statute, leaving employers with the option to pursue multiple theories of misappropriation under both federal and state law. The DTSA contains a three-year statute of limitations.

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Transgender Bathroom Use: DOJ Lawsuit, Guidance From EEOC

Why it matters

Last week, the Equal Employment Opportunity Commission (EEOC) published a fact sheet reiterating its position related to the issue of transgender bathroom use, reiterating its position that any such discrimination is a violation of Title VII. The issue of bathroom use by transgender individuals has been in the headlines after the state of North Carolina enacted a law limiting access to public restrooms for transgender individuals, requiring people to use the bathroom correlating to their sex assigned at birth. After sending a warning letter, the Department of Justice (DOJ) filed suit against the state, which responded with its own lawsuit against the federal government. The EEOC's fact sheet, published last week, reiterates the agency's position that discrimination based on a person's transgender status constitutes sex discrimination under Title VII and that the denial of equal access to a bathroom corresponding to the employee's gender identity qualifies as sex discrimination. State or local laws to the contrary are not a defense to liability under the statute, the EEOC added. "Gender-based stereotypes, perceptions or comfort level must not interfere with the ability of any employee to work free from discrimination, including harassment," the agency wrote.

Detailed discussion

The state of North Carolina has become a lightning rod for a national debate over the use of bathrooms by transgender individuals. Earlier this year, the city of Charlotte adopted an ordinance prohibiting discrimination against gay or transgender people and specifically allowing individuals to use bathrooms and locker rooms that conform to their gender identity.

In a one-day special session, the state legislature responded by enacting House Bill 2, the Public Facilities Privacy and Security Act, restricting access to restrooms and locker rooms based on an individual's sex assigned at birth. Governor Patrick L. McCrory signed the bill into law, which took immediate effect March 23.

Federal agencies made their positions known immediately. The Department of Justice (DOJ) sent a letter to Gov. McCrory, explaining that HB 2 violated both Title VII of the Civil Rights Act as well as Title IX of the Education Amendments of 1972, and giving the state a deadline of May 9 to confirm it did not plan to implement or enforce the law.

Defying the warning, Gov. McCrory filed suit against the DOJ in North Carolina federal court, seeking a declaration that the state is not violating any federal law by following HB 2, characterizing the agency's position as "a baseless and blatant overreach." A few hours later, the DOJ filed its own lawsuit, arguing that HB 2 "constitutes a pattern or practice of employment discrimination on the basis of sex in violation of" Title VII, Title IX, and the Violence Against Women Reauthorization Act, placing federal funding for the state on the line.

While the battle over the North Carolina law plays out in the courtroom, employers seeking to avoid litigation should consider not only the DOJ's position but also a new fact sheet from the Equal Employment Opportunity Commission (EEOC) on the issue. Defining the term "transgender" as "people whose gender identity and/or expression is different from the sex assigned to them at birth (e.g. the sex listed on an original birth certificate)," the fact sheet stated that a medical procedure is not necessary for a person to be considered transgendered.

Discrimination based on transgender status is sex discrimination in violation of Title VII, which applies to all federal, state, and local government agencies, as well as private employers with 15 or more workers, the agency explained, citing a decision by the Commission from 2012. Last year, the Commission built upon the 2012 decision in Lusardi v. Department of the Army, when the EEOC held that "denying an employee equal access to a common restroom corresponding to the employee's gender identity is sex discrimination," according to the fact sheet, and "an employer cannot condition this right on the employee undergoing or providing proof of surgery or any other medical procedure."

Further, employers cannot avoid the requirement to provide equal access to a common restroom by restricting a transgender employee to a single-user restroom instead, the agency said, although the employer can make a single-user restroom available to all employees who might choose to use it.

Importantly, the EEOC added that any state law to the contrary is not a defense under Title VII. For support, the agency referenced a recent ruling from the Fourth Circuit Court of Appeals "deferring to the Department of Education's position that the prohibition against sex discrimination under Title IX requires educational institutions to give transgender students restroom and locker access consistent with their gender identity."

Gender-based stereotypes, perceptions, or comfort level must not interfere with the ability of any employee to work free from discrimination, including harassment, the EEOC emphasized. Quoting the Commission in the Lusardi decision, "[S]upervisory or co-worker confusion or anxiety cannot justify discriminatory terms and conditions of employment. Title VII prohibits discrimination based on sex whether motivated by hostility, by a desire to protect people of a certain gender, by gender stereotypes, or by the desire to accommodate other people's prejudices or discomfort."

To read the complaint in McCrory v. United States, click here.

To read the complaint in United States v. North Carolina, click here.

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DOL Publishes New FMLA Poster, Guidance

Why it matters

In Family and Medical Leave Act (FMLA) news, the Department of Labor (DOL) announced the arrival of a new poster and released new guidance on the statute for employers. Pursuant to the statute, employers must "prominently" post a copy of the General FMLA Notice in each location "where it can be readily seen by employees and applicants for employment," regardless of whether there are any FMLA-eligible employees at that location. The revamped poster does not contain new information, the agency explained, but was reorganized to be more reader-friendly. Similarly, the "Employer's Guide to the Family and Medical Leave Act" doesn't feature new interpretations of the law but answers common questions about the statute, intended to "provide essential information about the FMLA, including information about employers' obligations under the law and the options available to employers in administering leave under the FMLA." The guide includes a "Road Map to the FMLA" offering an overview of the statutory process with flowcharts and "Did You Know?" sections about key provisions of the statute.

Detailed discussion

Hoping to aid employers with Family and Medical Leave Act (FMLA) compliance, the Department of Labor (DOL) published a more reader-friendly version of the notice mandated by the statute as well as new guidance.

The FMLA mandates that employers display—and keep displayed—a poster prepared by the DOL summarizing the major provisions of the statute and informing employees how to file a complaint. The poster must be displayed "in a conspicuous place" where employees and applicants can see it, and displayed at all locations even if there are no FMLA-eligible employees present.

While the DOL said the new poster is easier on the eyes, the prior version "is still good," the agency said, and can be used to fulfill the posting requirement.

The agency also published new guidance, "The Employer's Guide to the Family and Medical Leave Act." The 76-page guide "is designed to provide essential information about the FMLA, including information about employers' obligations under the law and the options available to employers in administering leave under the FMLA," the EEOC explained.

Organized to correspond to the order of events from an employee's leave request through medical certification to restoration of the employee to the same or equivalent job at the end of the employee's FMLA leave, the guide features an 11-step road map beginning with a determination that an employer is a covered entity.

Scattered throughout the guidance are "Did You Know?" sections highlighting specific facts about the statute. For example, one section explains that two (or more) businesses may simultaneously employ a worker, making them joint employers; another section notes that the FMLA does not require employees to use any specific certification form, listing half a dozen options.

The EEOC also included a chapter on military family leave as well as a chapter summarizing FMLA prohibitions for employers.

To view the DOL's new FMLA poster, click here.

To read the new guidance, click here.

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Ninth Circuit Affirms Validity of Rounding Payment System

Why it matters

The Ninth Circuit Court of Appeals rejected an employee's argument that by rounding his time stamps to the nearest quarter hour his employer deprived him of overtime pay, affirming summary judgment for the employer. The employer used an online timekeeping system for its call center that linked a worker's time stamps to a phone system that needed activation before employees could begin taking customer calls. Time was rounded to the nearest quarter hour. One employee filed suit challenging the rounding policy, alleging that although he gained or broke even in 58 percent of his shifts, he lost a total of $15.02 in compensation during his employment, in violation of the Fair Labor Standards Act and California state law. Finding the rounding system neutral on its face and in practice, a district court granted summary judgment in favor of the employer. The Ninth Circuit agreed, noting that federal regulations have endorsed the use of rounding practices for more than 50 years, and a 2012 California appellate court decision confirmed the same recognition under state law. Further, the employee failed to demonstrate that the policy was not neutral either facially or as applied to him, the unanimous three-judge panel wrote.

Detailed discussion

Time Warner Entertainment-Advance/Newhouse Partnership (TWEAN) operates a call center in San Diego, California, where workers field telephone calls from customers. The company used an online timekeeping platform that linked an employee's time stamps to the phone system that must be activated before employees can begin taking customer phone calls.

The employer incorporated a rounding procedure into its compensation policies with regard to the system, rounding each time stamp recorded to the nearest quarter hour. So where an employee clocks in at 8:07 a.m. and clocks out at 5:11 p.m., her wage statement would reflect a clock-in time of 8:00 a.m. and a clock-out time of 5:15 p.m.

Andre Corbin worked for TWEAN from July 2007 to June 2011 as a technical support agent. During that time, he worked 269 shifts subject to the rounding policy and gained compensation or broke even in 58 percent of them. In total, however, he lost $15.02 in aggregate compensation. Corbin filed suit alleging the rounding policy violated both California state law and the Fair Labor Standards Act (FLSA) because it deprived him of the full amount of his earned wages, specifically overtime compensation.

A federal court judge granted summary judgment in favor of TWEAN and a unanimous panel of the Ninth Circuit Court of Appeals affirmed.

For more than fifty years, federal regulations have endorsed the use of "rounding" practices, the court said, which permit employers "to efficiently calculate hours worked without imposing any burden on employees" as well as offering "a neutral calculation tool" and "a practical method for calculating work time."

That federal recognition was extended to California in a 2012 opinion from the California Court of Appeal that held "the federal rounding rule also applies to California state labor claims, so long as a company's 'rounding-over-time policy is neutral, both facially and as applied.' "

"Here, Corbin alleges that if an employee loses any compensation due to the operation of a company's rounding policy, that policy should be found to violate the federal rounding regulation," the court said. "In other words, Corbin argues that unless every employee gains or breaks even over every pay period or set of pay periods analyzed, an employer's rounding policy violates the federal rounding regulation, a contention that would serve to wholly invalidate the rounding method as an acceptable form of timekeeping. The district court was right to reject such a claim."

The plaintiff's interpretation would read an additional requirement of an "individual employee" into the federal regulations that does not exist, the panel noted. "If the rounding policy was meant to be applied individually to each employee to ensure that no employee ever lost a single cent over a pay period, the regulation would have said as much."

Corbin also "completely misunderstands" the purpose of a rounding policy, the court added. "Employers use rounding policies to calculate wages efficiently; sometimes, in any given pay period, employees come out ahead and sometimes they come out behind, but the policy is meant to average out in the long-term," the court explained. "Corbin's preferred interpretation would require employers to engage in the very mathematical calculations that the federal rounding regulation serves to avoid."

If employers had to "un-round" every employee's time stamps for every pay period to verify that the rounding policy had benefitted every employee, why would an employer bother to implement a rounding policy at all, the court asked. Accepting the plaintiff's argument would also encourage strategic pleading, the panel said, permitting employees to selectively edit their relevant employment windows to include pay periods they came out behind.

The court disagreed with the plaintiff that overtime minutes presented a different proposition. Corbin argued that not all rounded time is created equal because employees are entitled to one and one-half times the regular rate of pay. For example, if an employee clocked out at 5:03 p.m., he would lose three minutes of compensable time at a higher rate due to an overtime premium under the plaintiff's argument.

Not only did the plaintiff fail to cite any precedent endorsing this perspective, the court could "discern no reason to analyze overtime minutes any differently than regular-time minutes," reiterating that in a neutral rounding system, "employees stand to gain as well as lose time. The rounding rule simply presumes that, over time, it will all even out."

Having established the legality of rounding generally, the panel said TWEAN's rounding system was neutral on its face and as applied to Corbin.

"TWEAN's policy is facially neutral, as TWEAN rounds all employee time punches to the nearest quarter-hour without an eye towards whether the employer or the employee is benefitting from the rounding," the Ninth Circuit said. "Corbin can just as easily bank unworked minutes as he can lose worked minutes." The system operated without managerial oversight and was fully walled off from supervisory editing, the court noted.

Further, Corbin's own compensation records demonstrated the policy was neutral in application. "Sometimes Corbin gained minutes and compensation and sometimes Corbin lost minutes and compensation," the panel wrote, with the numbers of unworked time fluctuating from pay period to pay period. "TWEAN's rounding policy operated exactly as the federal rounding regulation intended, and Corbin has not shown the existence of a material fact as to whether or not, 'over a period of time,' he was not properly compensated for his work."

A second claim that TWEAN failed to properly compensate Corbin for one minute when he accidentally logged into the wrong system before clocking into the phone timekeeping system also failed as the time at issue was de minimis, the panel found, "a miniscule amount of time when considered over Corbin's multi-year employment tenure."

To read the opinion in Corbin v. Time Warner Entertainment, click here.

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NLRB Gets Negative on T-Mobile's Positive Employee Handbook

Why it matters

The National Labor Relations Board (NLRB) took a negative stance on T-Mobile's preference for positive employee communications, ruling that a handbook provision requiring workers "to maintain a positive work environment by communicating in a manner that is conducive to effective working relationships" violated the National Labor Relations Act (NLRA). The unanimous three-member panel of the Board determined that the policy provision was vague, ambiguous, and would reasonably chill workers in the exercise of their Section 7 rights. "Because labor disputes and union organizing efforts frequently involve controversy, criticism of the employer, arguments, and less-than-'positive' statements about terms and conditions of employment, employees reading the rule here would reasonably steer clear of a range of potentially controversial but protected communication in the workplace for fear of running afoul of the rule," the Board wrote, rejecting T-Mobile's contention that the rule was necessary to implement business objectives of "efficiency, productivity and cooperation." The Board also invalidated the handbook's ban on workplace recordings and affirmed a ruling from an administrative law judge (ALJ) striking down several other provisions (including that employees need "to treat others with respect" and requiring all media inquiries be directed to the company without comment). The decision continues the NLRB's crackdown on employment policies and handbook provisions.

Detailed discussion

T-Mobile USA's employee handbook featured a section entitled "Workplace Conduct" that stated: "[T-Mobile] expects all employees to behave in a professional manner that promotes efficiency, productivity, and cooperation. Employees are expected to maintain a positive work environment by communicating in a manner that is conducive to effective working relationships with internal and external customers, clients, co-workers, and management."

The handbook also contained a rule prohibiting employees from making recordings in the workplace "[t]o prevent harassment, maintain individual privacy, encourage open communication, and protect confidential information."

In a complaint filed by the National Labor Relations Board (NLRB), the agency alleged that these rules—and several others—were unlawful and violated the National Labor Relations Act (NLRA). An administrative law judge (ALJ) found many of the other challenged provisions (such as confidentiality rules, rules about communications with the media, and requirements in the code of business conduct) to violate employees' Sections 7 and 8(a)(1) rights but determined that the positive workplace environment and ban on recordings passed muster.

On appeal, a three-member panel of the Board affirmed the ALJ's determination as to the other handbook provisions but reversed with regard to the other two sections. The undefined phrases "positive work environment" and "communicating in a manner that is conducive to effective working relationships" are ambiguous and vague, and would reasonably chill employees in the exercise of Section 7 rights, the Board wrote.

"We find that employees would reasonably construe the rule to restrict potentially controversial or contentious communications and discussions, including those protected by Section 7 of the Act, out of fear that [T-Mobile] would deem them to be inconsistent with a 'positive work environment,' " according to the decision. "Because labor disputes and union organizing efforts frequently involve controversy, criticism of the employer, arguments, and less-than-'positive' statements about terms and conditions of employment, employees reading the rule here would reasonably steer clear of a range of potentially controversial but protected communication in the workplace for fear of running afoul of the rule."

Turning to the prohibition on workplace recordings, the Board relied upon decisions issued since the ALJ's ruling that found photography and audio or video recording (as well as the posting of photographs and recordings on social media) may be protected by Section 7 if employees are acting in concert for their mutual aid and protection and no overriding employer interest is present.

"Such protected conduct may include, for example, recording images of protected picketing, documenting unsafe workplace equipment or hazardous working conditions, documenting and publicizing discussions about terms and conditions of employment, documenting inconsistent application of employer rules, or recording evidence to preserve it for later use in administrative or judicial forums in employment-related actions," the Board wrote.

T-Mobile's rule did not differentiate between recordings protected by Section 7 and those that are not, the NLRB said, and included recordings made during nonwork time and in nonwork areas. "[B]ecause of the rule's broad language, employees would reasonably read the rule to prohibit recording that would be protected by Section 7 of the Act," the panel said.

The employer's reasoning behind the rule—maintaining employee privacy, promoting open communication, and protecting confidential information—did not cure the rule's overbreadth, the panel added. T-Mobile did not tailor its prohibition to reflect state laws on nonconsensual recording, for example, nor did it cite laws regarding workplace harassment. "Thus, [T-Mobile's] proffered rationales cannot justify the rule's broad restriction that employees would reasonably read as prohibiting activity protected by Section 7," the Board concluded.

The panel ordered T-Mobile to cease and desist from using the handbook provisions at issue, distribute a revised handbook, and notify employees of the changes.

To read the decision and order in T-Mobile USA, click here.

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