Stolen Employee Data: Pennsylvania Supreme Court Decision Breaks New Ground

In late 2018, the Pennsylvania Supreme Court decided that employees may sue employers for the release of stolen confidential employee data. The Court’s decision in the Dittman vs. University of Pittsburgh Medical Center, allowed University of Pittsburgh Medical Center (“UPMC”) employees to bring a class action for negligence after a data breach from UPMC’s computer systems.

The Decision’s Impact

The Court’s decision will have a far-reaching impact. First, the decision will require employers to use reasonable care to protect employees’ personal and financial information. Second, the decision allows negligence lawsuits even where the plaintiffs’ losses were purely economic and no physical injury or tangible property damage occurred. As such, the decision limits the “economic loss doctrine” that courts had used to dismiss such lawsuits.

The Back Story

The cyber attack took place in 2014. The data breach led to the theft of 62,000 employees’ names, addresses, birth dates, social security numbers, salaries, or tax and bank information. The hackers taking the information then used the stolen data to file fraudulent tax returns and steal employees’ tax refunds.

The Lawsuit

Right after the breach, a group of employees sued UPMC for negligence and breach of implied contract. The employees contended that UPMC had a duty to use reasonable care to protect employees’ personal and financial information from being compromised, lost, stolen, misused, and /or disclosed to unauthorized parties. The employees claimed that UPMC had breached this duty. Specifically, UPMC had (1) failed to undertake adequate security measures, (2) failed to monitor network security, (3) allowed unauthorized access to information, and (4) failed to recognize that information had been compromised. The employees alleged that UPMC failed to meet current standards for encryption, firewalls, and authentication.

UPMC filed preliminary objections seeking immediate dismissal of the complaint. UPMC argued that no duty of care existed to protect against data breaches, and that the economic loss doctrine barred negligence claims.

The Lower Courts Dismiss the Case

The Allegheny County Court of Common Pleas agreed with UPMC and dismissed the employees’ suit. The Court both relied on the economic loss doctrine and held that courts should not create a new affirmative duty of care to protect against data breaches. The Court had concerns that this new duty of care would flood the court system with lawsuits. The Court also said that data breach liability was a policy issue to be addressed by the legislative branch.

The employees appealed to the Superior Court, where a three judge panel upheld the lower court in a 2-1 decision. One dissenting judge stated that employers have a duty of care to protect against data breaches.

The PA Supreme Court Allows Employees to Sue for Data Breach

After accepting the case for appeal, the Pennsylvania Supreme Court overturned the two lower court decisions on both the duty of care and the economic loss issues. The Supreme Court held that UPMC had the duty to protect employee information since UPMC had taken the affirmative step to require employees to provide certain information. The Court said that this duty existed despite the intervening third party theft, because theft was foreseeable without proper data protection.

On the economic loss issue, the Court allowed a negligence claim for economic loss where a duty existed outside the parties’ contractual relationship. The Court found that the employees alleged that UPMC had a duty, outside any contract, to act with reasonable care in collecting and storing personal and financial information on computer systems. The Court’s decision is a setback for efforts to invoke the economic loss doctrine in defending against business-related tort claims.

Practical Implications: Employers Need to Use Reasonable Care to Protect Employee Data

What are the practical implications of the UPMC ruling? Employers will have to take additional steps to lock down confidential employee information. The decision will affect every employer, since all employers collect confidential data in the course of setting up basic transactions like direct deposit and tax and social security withholding. Legislative action may also provide more specific guidance on data protection. The decision will have a continuing effect in the workplace and in development of new data protection policies.

What is garden leave?

What is garden leave (also known as ‘gardening leave’)?

The term sounds pastoral, but its use is practical. Very simply, it is an agreed-upon period when an employer pays a departing key employee not to work before the employee joins a competitor.

Originating in England, it means that the employee is to stay “in the garden” for the term of the leave.Garden leave is similar, but not identical, to other contracts where an ex-employee is paid in lieu of working for a competitor. On occasion, an employer agrees to a “safety net” or “bench pay” and pays the ex-employee’s salary  for the length of a non-compete. The ex-employee must first show that the noncompete prevents them from obtaining suitable work. Garden leave, by contrast, is unconditional. Also, in garden leave, the employee remains on the payroll; in a “bench pay” situation, the employee has already left.While the employee is on garden leave, the previous employer has the opportunity to contact the departing employee’s customers in an attempt to retain them. The departing employee has what amounts to a paid vacation and must not work for a competitor during this period. Once this period ends and the employee starts with the new firm, it is open season: both the departing employee and the old employer may solicit and pursue business freely.

How long does it last?

Garden leave can range from several months through a year. During the leave period, the employee does no work for either the old employer or the prospective employer. The employee defers the start date with the new employer until the end of the leave period.

Who uses it?

Garden leave is used most often in the investment banking and financial service sectors. In effect, it takes the place of non-competition and non-solicitation agreements. Many of the firms using garden leave are in the Northeast and Mid-Atlantic regions. During the past ten years, courts in these areas have begun to deal with garden leave provisions. This trend is likely to continue.

What are some of the advantages and disadvantages of garden leave?

The employer gains a brief period when only the employer can contact the departing employee’s clients without fear of competition from the employee. However, this period is far shorter than the periods that courts have found to be reasonable in enforcing non-competes.The employee bears the burden of separation from customers and the possible stigma of not being active in the industry for a brief period. In exchange, the employee knows that, after expiration of a much shorter restrictive period, the former employer’s customers are fair game.The employee must realize that the no-contact rule during garden leave is very important. Because the employee is still on payroll, any attempt by the employee to divert business to a new firm would violate multiple obligations, including the garden leave contract itself; the duty of loyalty that employees owe to employers; and possibly the obligations to preserve confidential employer information and trade secrets.

Why do employers use garden leave?

Garden leave has the benefit of being a less costly, more certain way to sever ties with an employee who poses a competitive threat.Its use depends on an ex-employers motivation to pursue and secure business that might otherwise migrate with the departing employee. The goal for the employer becomes how to retain this business. This is a more positive focus than the that of non-compete litigation, where the goal is to keep the departing employee from retaining customers or entering into competition.If you are in need of legal advice related to garden leave or any other employment law matter, please contact Thomas D. Rees at 610-275-0700 or trees@highswartz.com.

You Must be a Current Employee to Review your Personnel File!

July 18, 2018By Thomas D. Rees, EsquirePersonnel FileLast year, the Pennsylvania Supreme Court held that only current employees have the right to review their personnel files under the Pennsylvania Personnel Files Act.  This decision in Thomas Jefferson University Hospitals, Inc. v. Pennsylvania Department of Labor and Industry, 162 A.3d 384 (Pa. 2017), does not seem surprising.  After all, the statute defines “employee” as a person “currently employed” or someone on layoff with rights to return to work or on leave of absence.Pennsylvania’s Personnel Files Act gives employees the right to review their own employer-maintained personnel files to determine the employee’s own qualification for employment, promotion, compensation, or termination.  The Department of Labor and Industry has the power to enforce the Act.  By not allowing ex-employees the right to review personnel files, Pennsylvania’s statute differs from the majority of state statutes that provide for access to personnel files.  However, many states do not have any statute permitting employees to review their personnel files.The Jefferson Hospital decision resolved 20 years of uncertainty in the law.  The uncertainty stems from both vague drafting of the statute and the Commonwealth Court’s 1996 decision in Beitman v. Department of Labor and Industry, 675 A.2d 1300 (Pa. Cmwlth. 1996).  The Beitman decision refused to allow a terminated employee to inspect her own personnel file two years after termination.  But the Court stated that an employee could inspect a personnel file within a reasonable time after termination in order to ascertain the reason for termination.  This statement about a “reasonable time” was dictum– a fancy legal term for a statement that was not essential to the Court’s ruling.The Beitman decision became known more for this dictum on what an employee might be able to do (review a personnel file reasonably soon after termination) than its denial of review to the plaintiff employee.  And so terminated employees started asking to review their files.  The Bar and the Department of Labor and Industry then had to figure out when after termination it was too late to inspect a file.  Was one week too late?  One month?  Six months?  Labor and Industry decided that 30 days after termination was a logical cutoff date.In 2013, a terminated Jefferson Hospital employee asked to inspect her file a week after termination.  The hospital rejected her request.  Labor and Industry ruled in favor of the employee and the hospital appealed to the Commonwealth Court, which upheld her right to review the file.The Supreme Court reversed the Commonwealth Court unanimously.  The Supreme Court held  that “current employee” means an individual who is presently employed.  The Court overruled the statements in Beitman allowing ex-employee review to the extent that these statements were more than dictum. The Supreme Court’s decision helps to restore certainty to the law.  In effect, the Court has held that the Act means what it says and means what most readers initially thought it meant.  There is always the chance for future disputes, however, over when one ceases to be an employee.  For example, can a terminated employee with two weeks of accrued vacation review a personnel file as a current employee during the two weeks after termination?  Stay tuned.If you have any questions, please contact Thomas D. Rees at 610-275-0700 or via email at trees@highswartz.com. The High Swartz employment law attorneys provide businesses and nonprofit organizations throughout the Pennsylvania region, including Bucks County, Montgomery County, Delaware County, Philadelphia and Chester County with sound advice and excellent representation.The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Watch out for Non-Hire and Anti-Poaching Agreements!

You are the CEO of Company A, a cutting-edge developer of new software.  Over golf (or sushi), you agree with the CEO of equally cutting-edge Company B that each of you will not hire or try to hire away the other’s top talent.Is anything wrong with this?  Yes! The Sherman Antitrust Act prohibits contracts in restraint of trade or competition.  And an agreement that has no purpose besides conspiring to limit competition for talent is a per se violation of the Sherman Act.  The Sherman Act carries serious criminal and civil penalties.  So the two CEOs should re-think their approach, to put it mildly.Both CEOs have tried to enter into non-hire and anti-poaching agreements, where competing employers agree to refrain from hiring or recruiting (poaching) each other’s employees.  A typical agreement prohibits cold calling and bidding wars for each other’s employees and requires notification when recruiting each other’s employees.Non-hire and anti-poaching agreements raise several key policy and economic concerns.  First, the agreements make it hard for employees to move between employers.  Most employees are at-will employees who may leave one employer for another at any time, for any reason or no reason.  Second, these agreements operate to suppress employee salaries; competition for talent drives salaries up, and restraints on competition have the opposite effect.  Third, the agreements may not even be known to employees who try to find a new job (or to recruit from other companies), only to find they have violated a policy set by those at the top.Non-hire or anti-poaching agreements are also unnecessary.  Employers can use less harsh measures to protect against a talent drain, by using agreements that are ancillary to a business relationship and reasonable in scope.  Post-employment non-competition and non-solicitation agreements may limit an employee from working for a competitor or accepting or soliciting business from customers.  These agreements are enforceable if supported by consideration, where the restrictions reasonably relate to a legitimate business interest and are reasonable in time and geographic scope.  Employers may also contract to restrict a departing employee from soliciting or hiring former co-workers to join a new employer during a short post-employment period.  This type of anti-raiding agreement is enforceable in Pennsylvania to prevent a competitor from crippling or destroying another business, but not to prevent a competitor from hiring away talent.  And courts are reluctant to find that an ex-employee has solicited anyone absent active pursuit of a former colleague: it is not solicitation to tell someone about an opportunity or a job posting.  Beyond that, courts have allowed no-hire agreements in limited circumstances where one employer places a consultant or expert with another business.  An employer may also require employees to repay training costs where an employee receives training and then  leaves shortly afterward.  Unions have the same power where a trainee takes a non-union job after training.Like many employment law trends, scrutiny of anti-poaching agreements seems to have started in California.  The courts first addressed a class action by employees in the technology industry complaining of concerted action to prevent poaching.  The next major class action, settled last year, dealt with the animation industry.  But non-hire agreements have also arisen in less high-flying or glamorous industries.  Earlier this year, the U.S. Department of Justice negotiated an antitrust settlement that banned non-hire agreements by two major competitors in the rail equipment industry.  This settlement led to a private civil antitrust class action by employees of the two competitors.  And in March 2018, a Pennsylvania Superior Court panel affirmed a lower court order invalidating a no-hire agreement in the trucking industry, as contrary to public policy.  The Superior Court has since granted reargument en banc and has withdrawn the panel decision.  The en banc decision will tell us whether Pennsylvania will join those who have rejected no-hire agreements, like Wisconsin, or will permit suitably narrow agreement like many other states.And finally, the fast food industry has come under fire for using no-hire agreements that prohibit employees from working at more than one chain location at the same time.  Early in July, attorneys general in 11 states demanded documents from eight well-known fast food chains regarding the use of these no-poaching provisions.  So non-poaching agreements are seemingly in use, and under attack, at both the high end and more basic sectors of the economy.If you have any questions about non-hire agreements, please contact Thomas D. Rees at 610-275-0700 or trees@highswartz.com. Our employment law attorneys provide businesses and nonprofit organizations throughout the Pennsylvania region, including Bucks County, Montgomery County, Delaware County, Philadelphia and Chester County with sound advice and excellent representation. Our employment law attorneys deal with workplace issues in an ever-changing environment, and seek to minimize the risk of employee lawsuits for our clients.The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Avoiding Traps for the Unwary in College and School Vendor Contracts

What can an educational administrator do when a vendor performs poorly under a long-term contract?  Unless the college or school has tightened its procedures for contract drafting and approval, the answer may be “not much”.  More than a few educational institutions have tried to cancel contracts with underperforming suppliers – ranging from yearbook publishers to laundry companies to phone vendors – only to confront a form vendor contract lasting far into the future and providing no right to cancel.  Aside from multi-year terms, these contracts may have automatic renewal clauses, technical jargon, and microscopic print.  A non-administrative employee, such as a yearbook or drama faculty advisor or cafeteria manager, may have signed the contract for the school.  This employee may have inadvertently bound the school for years, since the vendor will say (with good reason) that the employee had apparent authority to act for the school.In this situation, a school has two options – one short-term and one long-term.  The short term option is to renegotiate the specific contract or cancel the contract and litigate a breach of contract case.  Litigation will be costly, but the school will have taken a stand that it will no longer acquiesce to burdensome agreements.The longer term, practical option is to tighten up on the procedures for drafting and signing contracts.  Here are some steps that colleges and schools can take:
  • Centralize all review, approval, and signature of contracts with the business office.
  • Notify both outside vendors and in-house personnel that business office approval and signature are required for all contracts and that all non-conforming future contracts will be invalid.
  • Insist on shorter term contracts with rights to cancel at will, or for cause, or for either party’s financial distress.
  • End all “evergreen” clauses that renew the agreement automatically if a party misses a deadline for advance notice of non-renewal.
  • Simplify the contract by requiring vendors to put all terms in one document, rather than having separate purchase, license, and service agreements.
  • Resist the vendor’s attempt to burden-shift to the institution through warranty disclaimers or indemnity clauses.
  • Insist that the contract be governed by your home state law. The contract will be performed at your site, and should not be subject to another state’s laws.
  • Insist that all disputes be resolved in your jurisdiction, preferably by arbitration, rather than in a remote location such as the vendor’s home state or city.
  • Use your own standard contracts for outside speakers, concerts, or hosted events such as weddings.
  • Preserve the school’s rights to use intellectual property, such as the right to stream or rebroadcast or copy published items.
It’s also important to make sure that contracts are in plain English.  Pennsylvania’s plain English law applies only to consumer contracts, but this limitation should not prevent a college or school from insisting on a clear, readable contract.  A clear, well written contract should address the basic questions of who (the parties’ identities), why (the reasons for the contract, generally in the recitals), what each party will do, when and where the parties’ performance will take place, and how the goods and services will be delivered and paid for.  Then the contract should address these same questions if it becomes necessary to end the relationship.  Finally, the contract should specify how notice is given, whether the contract may be assigned, and how to amend the agreement, and should state that the written contract is the parties’ entire agreement that supersedes all other understandings.Most educational institutions are either government units or independent nonprofits, responsible to either taxpayers or donors (as well as accrediting and licensing agencies).  Educational institutions are also businesses, whether or not they regard themselves as such.  Many colleges and schools are the largest employers in their geographic areas.  In addition to imposing cost controls through the bidding process, it makes sense to standardize and streamline the contracting process, so the institution follows sound business practices and is on a level playing field with all its suppliers.If you have questions about Education Law or vendor contracts, please contact Thomas D. Rees at (610) 275-0700 or trees@highswartz.com. The experienced lawyers in our Education Law practice provide a full range of legal services to educational institutions in Bucks and Montgomery counties, ensuring that our clients can focus on their primary mission.The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Child Care Workers’ Challenge to Firing for Reporting Abuse

July 25, 2017By Thomas D. Rees, Esq.On May 23, 2017, the Pennsylvania Superior Court issued an important employment law decision, affecting everyone who works with children.  In Krolczyk v. Goddard Systems, Inc., ___ A.3d ___, 2017 WL 2255554 (Pa. Super. May 23, 2017), the Court allowed ex-employees to sue for wrongful discharge after being fired for planning to report suspected child abuse. Krolczyk arose after a Harrisburg Goddard preschool terminated two child care teachers for planning to report suspected home abuse of a 4-year old preschooler to the state.  The child had a long pattern of violent and disruptive physical and verbal conduct toward teachers and other children.  Such conduct is one indicator of possible abuse.  The matter came to a head after the child bit one of the teachers and had to be restrained.  The teachers then called the Department of Education hotline to ask how to address their suspicions of abuse.  The hotline told the teachers to discuss their suspicions with the center’s manager and then make a formal report of suspected child abuse to the Department of Public Welfare (“DPW”).  The teachers informed the manager of the suspected abuse and told her of their intent to report to DPW.  The manager fired the teachers later that day, and then sent a letter to school parents stating that the dismissal was carried out for the good of the children.The teachers sued Goddard for discharging them in violation of a clear Pennsylvania public policy protecting children.  The teachers claimed that the Pennsylvania Child Protective Services Law requires teachers who have direct contact with children to make a report when there is reasonable cause to suspect child abuse.  Thus, the teachers had a legal duty to report the suspected abuse.  The teachers also sued for defamation based on the manager’s letter to parents.The trial court dismissed the teachers’ claims and granted Goddard summary judgment.  The court held that there was a legitimate basis for the discharge, since the teachers had not followed proper procedures in restraining the child.  The court stated that where two grounds exist for an employee discharge, and one ground is reasonable, the discharge should be upheld.The Superior Court overturned the trial court’s dismissal of the wrongful discharge claim, allowing the claim to go to a jury, while upholding dismissal of the defamation claim.  The Superior Court rejected the trial court’s analysis and held that the school terminated the teachers for reporting the suspected abuse.  The court noted that Goddard had not fired other employees who had been accused of restraint violations.  Only the plaintiffs had been fired, right after expressing an intent to report suspected abuse.  In essence, the court concluded that the restraint issue was a pretext, or a make-weight, used to support the teachers’ dismissal.The Superior Court’s decision is sound, given the statutory duty to report child abuse.    Child care workers and teachers who report abuse now join the small class of employees who can bring wrongful discharge claims.  Such claims are available only employees with no contract that limits the employer’s ability to discharge.  The employee must show that the discharge results from either the employee’s exercise of a legal right, performance of a legal duty, refusal to perform an illegal act, or reporting an illegal act.  Further, if a statute provides a remedy for a discharge, the employee must use the statutory remedy rather than sue for wrongful discharge.If you have any questions, please contact Thomas D. Rees at 610-275-0700 or via email at trees@highswartz.com.The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation. 

Second Circuit Upholds NLRB’s Reinstatement of Employee Who Posted Profane Blog About Boss’s Mother

June 27, 2017By Thomas D. ReesTwo years ago, I blogged about a National Labor Relations Board decision restoring an employee’s job after the employee posted a profane blog about his supervisor’s mother- “Can You Insult Your Boss’s Mother at Work and Avoid Dismissal?  Maybe so!”After a recent Second Circuit decision, we can now change “Maybe so” to “Yes!”  In National Labor Relations Board v. Pier Sixty, LLC, 855 F.3d 115 (2d Cir. 2017), the Circuit Court unanimously affirmed the NLRB’s reinstatement decision.The original NLRB decision, Pier Sixty, LLC and Perez, 362 NLRB 59 (March 31, 2015), arose after a supervisor issued harsh, loud orders to employees.  Right away, one employee (Perez) posted comments on Facebook calling the supervisor an obscene name.  Then Perez directed obscene Facebook  comments at the supervisor’s mother and “entire family”.  The employer fired Perez.  By a 2-1 vote, the National Labor Relations Board (NLRB) held that the firing violated the National Labor Relations Act, and ordered Perez’s reinstatement, because Perez had engaged in protected, concerted activities.The factual context of the case is important.  The employer was a New York City caterer.   The employees had complained about management mistreatment.  A union election was imminent.  The employer had imposed a “no talk” rule on employees pending the election.  At  a banquet, the  supervisor loudly told the employee and other servers to “stop chitchatting” and then loudly ordered the staff to “Spread out, move, move” within guests’ earshot.The supervisor’s order upset Perez.  A co-worker suggested that Perez take a break to cool down.  While on break, Perez posted his  Facebook messages.  After the obscene comments, Perez concluded by saying, “Vote YES for the UNION!!!!!!!”The NLRB found that Perez addressed supervisory mistreatment of employees and  sought redress through the union election, and so his comments were protected concerted activity.  Perez’s vulgarity was an impulsive act that did not turn his outburst into unprotected activity.  The NLRB also considered whether the employer found the language offensive and prohibited the language, and whether firing Perez was disproportionate to his offense.  The NLRB noted that vulgar language filled the workplace.  (None specifically was directed at others’ families, however.)  Employer rules prohibited profanity, but no such rule was produced during the NLRB proceedings.The NLRB decision did not end the  battle, however.  The NLRB petitioned to the Second Circuit to enforce its decision.  Pier Sixty petitioned to review and overturn the decision.  The appellate courts’ review of NLRB decisions defers strongly to the agency.  On factual findings, the Second Circuit must uphold the NLRB if “substantial evidence in light of the record as a whole” supports the NLRB.  “Substantial evidence” means “such relevant evidence as a reasonable mind would accept as adequate” to support the NLRB’s conclusion.  On legal issues, the courts have more latitude to overturn an agency but must still give considerable deference to the Labor Board.Applying these standards, the Second Circuit upheld the NLRB.  The Second Circuit recounted the adversarial labor/management atmosphere at Pier Sixty and the fact that profanity was tolerated in the workplace.  The court also noted that the comments appeared on an online forum, not in front of customers, and that the employee had removed the post after learning that the post was being viewed publicly.  The court did hold, however, that the Facebook post was “at the outer bounds of protected, union-related comments” and referred to the need to be sufficiently sensitive to employer’s legitimate disciplinary concerns.Given the Second Circuit’s cautionary language, and a possible rollback on pro-union decisions with a new NLRB, the Pier Sixty decision may stand alone for the foreseeable future.  But the issue of what an employer may do to limit workplace speech without violating labor laws will arise again and again in this era of social media communication.If you have any questions, please contact Thomas D. Rees at 610-275-0700 or via email at trees@highswartz.com.The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation. 

Courts, Schools Can Limit Contact by Difficult Parents – in Custody Cases and Elsewhere

February 8, 2016By: Thomas D. Rees, Esq. and Elizabeth Early, Esq.high swartz, difficult kidTom Rees is a partner in High Swartz’s employment and litigation group and devotes significant time to representation of independent schools.  Liz Early is an associate in High Swartz’s family law group. Continue reading “Courts, Schools Can Limit Contact by Difficult Parents – in Custody Cases and Elsewhere”

Just Hang Up! The Perils of Pocket Dialing and Accidental Calls.

January 28, 2016By: Thomas D. Rees, Esq.high swartz, cell phoneDialing mistakes are no longer just material for late night comedy.  Several recent employment cases show the consequences of “pocket dialing” on cell phones.  The mistaken calls disclosed plans to fire executives, disrespect for management, conflicts of interest, and affairs with co-workers.  The misdialing employees and supervisors emerged from the incidents with lost jobs and lost respect- and then lost lawsuits over use of information from the mistaken calls. Continue reading “Just Hang Up! The Perils of Pocket Dialing and Accidental Calls.”

When is a worker an Employee versus an Independent Contractor?

December 23, 2015By: Thomas ReesPair of contracts containing generic text and fictious signatures with a pen on the grey surface of a deskIn the drive to reduce overhead, many businesses have hired individuals to work as independent contractors.  These contractors work not only at the office but also from home and even from neighborhood coffee shops.  Businesses use the independent contractor model to save having to pay benefits like social security, unemployment insurance, and health coverage.  A business may designate a  hire as project-related, rather then permanent, to make it more likely that the worker will be found to be an independent contractor.  The best-known business using independent contractors right now may well be Uber, whose contractors provide the company’s core service –   picking passengers up and driving to where the passenger wants to go. Continue reading “When is a worker an Employee versus an Independent Contractor?”

What Makes a Post-Employment Restrictive Covenant Enforceable?

November 20, 2015

By Thomas D. Rees, Esquire

In a previous post, I detailed the types of restrictive covenants. Click here to read that post.

Restrictive CovenantsObtaining an employee’s signature on a post-employment restriction is easy work compared to court enforcement of a restrictive covenant. The former is like a level road with a few curves; the latter is like a twisting mountain highway. Courts do not view post-employment restrictions favorably, because the law prohibits restraints on competition. The courts will restrain an ex-employee from violating a restrictive covenant only when the circumstances make it reasonable to enforce the covenant. (However, if the ex-employer sues for damages, not an injunction, a Pennsylvania court will look only at the terms, not the reasonableness, of the agreement.)

There are four essential requirements that make post-employment non-compete and non-solicit covenants enforceable in the eyes of the court. It helps to use the word ACRE to remember these four elements: Ancillary, Consideration, Reasonable Terms, and Equitable to Enforce.

Ancillary – A non-compete or non-solicit must be ancillary to an employment relationship or other legally enforceable relationship. The vast majority of restrictive covenants accompany employment relationships. Other relationships that support restrictive covenants include independent contractor agreements, sales of businesses, franchises, distributorships, and joint ventures.

Consideration – The non-compete or non-solicit must be supported by consideration. Consideration is found in the commencement of employment, but an employer who extends a comprehensive pre-employment offer must include information about a restrictive covenant with the offer. For current employees, consideration must include a significant enough benefit to the employee to offset the burden of new post-employment restrictions. The test of what benefit is enough is very much a case-by-case analysis. Mere continuation of at-will employment is not sufficient; “sign or hit the road” is clearly inadequate. In the case of Socko v. Mid-Atlantic Systems, the Pennsylvania Supreme Court has just held that consideration is still needed when a current employee signs a non-compete stating that the parties intend to be legally bound, although Pennsylvania’s Uniform Written Obligations Act provides that a contract will not be unenforceable for lack of consideration where the parties recite that they intend to be legally bound.

Reasonableness – The non-compete or non-solicit must be reasonably necessary to protect the employer’s legitimate interests and reasonable in length and geographic scope. The employer’s legitimate interests include goodwill, customer relations, trade secrets, confidential business information, and specialized skills or training. Reasonableness of length depends on the time the employer needs to hire and train a new employee and restore customer relations and goodwill. Covenants of one year are generally reasonable for employees. Longer (sometimes much longer) durations are reasonable in the sale of a business. Reasonableness of geographic scope depends on the area that is necessary to protect the employer’s business. Generally a covenant that covers the territory served by the employee will be reasonable. Greed does not pay: An employer who asked the court for protection everywhere except “the North Pole and Tibet” left court without an enforceable covenant.

Equitable – Finally, the court will look to the case’s facts to ensure that it is fair to enforce a restrictive covenant. The court may refuse to enforce a non-compete if the employer has discharged the employee through no fault on the employee’s part. Examples of a no-fault discharge include a layoff or termination for poor performance despite the employee’s best efforts. Other facts that may lead a court to deny enforcement are

  • sexual harassment of the employee
  • failure to pay an employee
  • poor handling of business that makes the loss of business the employer’s own fault
  • the employer’s past violation of a restriction in hiring the employee it now seeks to restrict.

It is important to remember that Pennsylvania follows the “blue pencil” rule that allows courts to modify restrictive covenants so that the terms are reasonable to enforce. Therefore, before enjoining an ex-employee, the courts always consider whether it is necessary to limit the terms of the non-compete or non-solicit agreement. Even where the law and facts support enforcement, there is no complete guarantee that a restrictive covenant will be enforced fully.

For more information, including what it takes to draft and enforce a valid restrictive covenant, feel free to contact Thomas Rees via email, trees@highswartz.com.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

“The Magnificent Seven”- 7 Types of Restrictive Covenants to Know

November 17, 2015

By Thomas D. Rees, Esquire

Most people have heard, and are likely familiar with, the term non-compete. It’s not uncommon for an employer to ask an employee to sign a non-compete clause, which sets limitations on competing employment after the employee’s current job ends. You may have heard of non-competes because of high-profile cases involving executives or broadcast personalities who are invited to join a competing employer.

Restrictive Covenants

But, media spotlight aside, post-employment restrictions come in multiple varieties and the non-compete covenant is the most burdensome of all post-employment restrictive covenants. Other restrictions that are easier to create and manage may serve an employer just as well.

Pennsylvania recognizes two types of non-competes. The “general non-compete” prohibits an ex-employee from working for a competing employer for a stated time period after leaving a job. The “specific non-compete” is narrower- it keeps the ex-employee from doing business with customers for a set time period, but does not prohibit working for a competitor.

A third and less strict restrictive covenant is the “customer non-solicitation covenant,” which prevents the former employee only from initiating contact with customers (or even prospects) after leaving a job. A non-solicit does not bar an ex-employee from doing business with a customer that initiates contact with the ex-employee.

Further down the ladder is the “employee non-solicitation covenant,” sometimes called an anti-piracy clause. These agreements prohibit ex-employees from soliciting other former co-workers to leave and join up with the new employer. The courts hesitate to enforce anti-piracy clauses without evidence of an intention to destroy a competitor.

The fifth type of restriction is the “confidentiality or non-disclosure clause.” These agreements prohibit ex-employees from using or disclosing the employer’s confidential business information. Technically these clauses are not essential to protect confidential information. Trade secret law, now embodied in the Pennsylvania Uniform Trade Secrets Act, does this job as well. But many employers also want an explicit prohibition on misuse of employer secrets to bolster any trade secret claim.

The sixth and newest restriction is the “garden leave” requirement. This restriction is really a “pre-post-employment” restriction and is most common in high-end financial services work. Once the employer has notice of an employee’s impending departure, the employer sends the employee home to “the garden” for an extended period. During garden leave, the employee is still on the old employer’s payroll, but may not perform any work for the old or new employer and may not contact clients or customers. The employer uses the employee’s garden leave to cement relations with the employee’s clients so the clients do not follow the ex-employee to the new employer. A variation on garden leave is “bench pay,” where an employer has to pay an ex-employee who can show that the non-compete has prevented acceptance of a new position during the restricted period.

The seventh restriction is the assignment of property rights, generally the rights to own, patent, copyright, or trademark items developed during employment. This assignment is essential where an employee develops inventions of possible value to the employer.

This is a basic introduction to the world of restrictive covenants. For more information, including what it takes to draft and enforce a valid restrictive covenant, feel free to contact Thomas Rees via email, trees@highswartz.com.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Full Reference or Directory Reference? That is the Question!

Providing References About Former Employees

October 15, 2015

By Thomas D. Rees, Esquire

What should employers say about an ex-employee seeking a new job, particularly after letting the employee go?  Many employers use only “directory references”- name, hire and departure dates, duties, and perhaps final compensation. Other employers describe duties and performance, either in an individual letter or a more general “to whom it may concern” letter. A third possibility, recognized by Pennsylvania’s statutes, is to obtain the employee’s prior consent to the reference in exchange for the employer’s immunity from suit.

None of these options is defect-proof.  To paraphrase the Miranda warnings, any reference statement or omission may be used against an employer.

Employee References

In discrimination cases, too little information can create liability for discrimination if the employer provides more detail  for different classes of ex-employees, but a favorable letter can undermine employer defenses in a discrimination claim.

In tort law, too little information may lead to liability if an ex-employee is dangerous, but negative information can create liability for defamation.

Even the immunity statutes require employers to provide truthful information. (Since truth is a defense to defamation, these statutes do not expand the protection against defamation claims.)

In recent years, negative references have also led to claims under the Fair Credit Reporting Act.

Though directory information is the safest policy, this policy may not fit all situations. A directory  information policy can hinder an ex-employee’s job search, exposing the ex-employer to longer unemployment claims. A more complete description of duties and skills may make sense where the employee leaves because of economics, timing, or fit rather than poor performance or conduct. Additionally, a full reference may be necessary for certain jobs.

The directory reference policy can also be sidestepped. Prospective employers can first ask if an ex-employer has a policy against re-hiring ex-employees. If the answer is no, the inquirer can then ask whether the ex-employer would re-hire a specific ex-employee. A negative answer to the second question yields a negative reference, without the need for any more comment.

In all events, an employer must honor any agreement or understanding with the departing employee on what will be said in any reference. Employment law is a field in which words and actions have to be consistent. This is particularly true in providing references. It is important for employers to establish a reference policy, or to agree on a specific type of reference in an individual case, and then stick to the policy or agreement.

For more information about employment law, feel free to contact Thomas D. Rees at (610) 275-0700 or by email at trees@highswartz.com. Visit his attorney profile here.

Visit the firm’s Employment Litigation page here.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Can a Nonunion Teacher Keep a Job After Calling the School’s Head a Liar, “Not Moral” and “Not Intelligent”? An Administrative Law Judge Says “Yes”!

July 27, 2015By Thomas D. Rees, Esq.

Upon hearing a legal point in Charles Dickens’ Oliver Twist, Mr. Bumble says “If the law supposes that, the law is an ass… an idiot”.   You may reach the same conclusion about the preliminary National Labor Relations Board (“NLRB”) NLRB administrative law judge (“ALJ”) reinstated a private school teacher who insulted his school’s head. ruling in Dalton School and David Brune. In Dalton School, an NLRB administrative law judge (“ALJ”) reinstated a private school teacher who insulted his school’s head. Coming on the heels of the NLRB decision in Pier Sixty, LLC, discussed in my May blog, the Dalton School decision poses this question: When (if ever) may an employer discipline an employee who launches a verbal attack on management under the guise of concerted employee activity?

The Dalton School is an independent, nonunion day school on Manhattan’s Upper East Side. The NLRB controversy arose after Dalton’s middle school planned to stage the musical “Thoroughly Modern Millie.” Some members of the School community questioned the play’s negative portrayal of Asians. Shortly before the show, students re-wrote the play to remove any stereotyping, with the playwright’s consent. The show was a success, but the School community’s effort to re-do the show on short notice was stressful.

After the show, a theatre teacher at the School emailed others in the theatre department in an alleged effort to “redress grievances”. The teacher said that the Head of School and school administration “lied” and should apologize for “not being honest, forthright, upstanding, moral, considerate, much less intelligent or wise.” At the time, the School had renewed the teacher’s contract for the upcoming school year. The Head of School learned of the teacher’s email, asked the teacher about any negative communications, the teacher denied any communications, and the School then rescinded the teacher’s contract.

The teacher brought an unfair labor practice charge with the NLRB. The ALJ held that the School had violated the National Labor Relations Act (“NLRA”) by interfering with the teacher’s right to engage in concerted activities. The ALJ also ordered the School to reinstate the teacher with back pay and to post a notice of its own violation of the NLRA. The School filed exceptions to the ALJ decision, and so the full NLRB will decide the case.

The ALJ’s Dalton School decision may present an even greater threat to management’s ability to discipline an employee for insubordinate attacks than Pier Sixty, LLC. In Pier Sixty, an employee made an obscene comment about his boss and his boss’s mother. The employee’s outburst responded to the manager’s humiliating public order to the employee, and occurred during a union campaign in a workplace where profanity was common. The teacher’s email in the Dalton case was a long, thought-out document, not a spur-of-the-moment outburst. The email contained not only personal attacks but a challenge to management’s supervisory authority (“And then leave us alone to do our job, which we have been doing very well, thank you, for years without your intervention.”)

What this means for employers 

Whatever the final result in Dalton, employers will want to proceed with caution in disciplining employees for any communications that involve activity in concert with other employees. Employers will also want to review policies and procedures on insubordination and profanity to be sure not to run afoul of the NLRB’s increased scrutiny. The NLRB has said that policies that prohibit rudeness, profanity, and even misuse of confidences may violate the NLRA by chilling concerted activities. However theoretical and illogical the NLRB may be, it makes sense to prohibit what is still prohibited and to try to avoid the risk of a federal labor law violation. Employers may still prohibit communications that are disloyal or attack the quality of the employer’s product or services or contain defamatory statements. Bullying, harassing, or discriminatory messages may also be prohibited. Employer policies will more likely survive scrutiny if accompanied by specific examples of misconduct.

But in the meantime, if the NLRB affirms the ALJ’s decision, it may be accurate to characterize the NLRB’s view of permissible workplace communication with the name of another popular school play- Cole Porter’s Anything Goes.

For more information feel free to contact Thomas D. Rees at (610) 275-0700 or by email at trees@highswartz.com. Visit his attorney profile here.

Visit the firm’s Employment Litigation page here.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

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And Now, Another New Practice Area! Drone Law!

May 27, 2015

By Thomas D. Rees, Esquire

Drones, or unmanned aircraft, are not just military devices.  Drones have thousands of civilian uses.  These uses range from the humanitarian (medicine delivery to remote areas) to law enforcement (searching for contraband or illegal activity), and from infrastructure maintenance (checking building or bridge conditions) to conservation (tracking endangered species).  More everyday uses include traffic control and commercial advertising.  Some drone uses seem unnecessary and even frivolous, such as pizza or beer delivery.One thing is certain: all this new drone activity will raise new legal and regulatory issues.  The Federal Aviation Administration has proposed regulations for small unmanned aircraft systems, but these rules address only part of the picture.  The regulations cover small devices, weighing less than 55 pounds, operating less than 500 feet above ground and within sight of the operator.One immediate legal issue that comes to mind is a property owner’s right to exclude drones.  Traditionally, a landowner owns all the airspace over his or her property, literally from the ground up to the heavens.  This principle is limited by Federal law setting aside airspace for aviation, however.  Will the use of drones expand the public right to airspace, thereby allowing your quiet evening to be interrupted by a low-flying drone delivering a pepperoni with extra cheese to your neighbor?  Not necessarily.  An organization called NoFlyZone.org allows property owners to register their land as a no-fly zone.  All that is needed is your property’s latitude and longitude.  Some, but not all, drone manufacturers have agreed to honor the no-fly registration.The right to privacy is closely tied to property rights.  The courts in most states allow individuals to sue for damages for invasion of privacy.  Conduct in the open is rarely protected under privacy law, but the idea that an aerial device could spy on someone’s driveway (for visitors) or yard (for activity) is sure to arouse concern.  Statutes in some states criminalize the capture of visual images on others’ property unless all participants consent.  Other states (including Pennsylvania) criminalize many audio recordings that are made without all parties’ consent.  Some state statutes prohibit commercial use of photographs without full consent and allow victims the right to sue for unauthorized use.   It is reasonable to expect that the use of drones will lead to many test cases under our patchwork of privacy laws.Then there is the question of visual and noise pollution.  How will people react if they look at the sunset and see hundreds of small devices flying around, or hear these devices while taking an afternoon nap?Every new technology creates new risk management issues.  What insurance will drone operators have to buy?  Will homeowners’ insurance protect against damage done by drones?  And just what will the rules of the road be in airspace?  Air traffic controllers deal with larger aircraft, but managing smaller aircraft is a very different task.  And finally, what role will states and municipalities have in the aviation field, which has had a strong and overriding federal presence?There seem to be no final answers to these questions yet.  So it is important to follow the issue, through regulators like the FAA, through the press, and through online publications.  Bard College even has a Center for the Study of the Drone.  And, since the industry doesn’t like the military connotation of the word “drone”, but “unmanned aircraft” does not inspire a sense of security, a more appealing word may take over as the common term for these new devices.Thomas D. Rees is a partner at High Swartz,  LLP.  He practices in the area of employment law and litigation; he has also handled a number of transportation and regulatory matters, leading to his interest in drone law. To learn more about Thomas D. Rees, visit his attorney profile. The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Can You Insult Your Boss’s Mother at Work and Avoid Dismissal? Maybe so!

May 19, 2015By Thomas D. Rees, EsquireMy foreman on one of my college summer jobs used to vent his frustration by saying, “There’s a limit to how much you can take.”  This quote (heavily censored here) became a good-natured rallying cry for the crew.Fired from Job“Limits to what you can take” must have been on the employer’s and employee’s minds  in Pier Sixty, LLC and Perez, 362 NLRB 59 (March 31, 2015).  Here, a supervisor issued harsh, loud orders to employees.  Right away, one employee (Perez) posted comments on Facebook calling the supervisor an obscene name.  Then Perez directed obscene Facebook  comments at the supervisor’s mother and “entire family”.  The employer fired Perez.  By a 2-1 vote, the National Labor Relations Board (NLRB) held that the firing violated the National Labor Relations Act, and ordered Perez’s reinstatement, because Perez had engaged in protected, concerted activities.The factual context of the case is important.  The employer was a New York City caterer.   The employees had complained about management mistreatment.  A union election was imminent.  The employer had imposed a “no talk” rule on employees pending the election.  At  a banquet, the  supervisor loudly told the employee and other servers to “stop chitchatting” and then loudly ordered the staff to “Spread out, move, move” within guests’ earshot.The supervisor’s order upset Perez.  A co-worker suggested that Perez take a break to cool down.  While on break, Perez posted his  Facebook messages.  After the obscene comments, Perez concluded by saying, “Vote YES for the UNION!!!!!!!”The NLRB found that Perez addressed supervisory mistreatment of employees and  sought redress through the union election, and so his comments were protected concerted activity.  The Board ruled that Perez’s vulgarity was an impulsive act that did not turn his outburst into unprotected activity.  The NLRB also considered whether the employer found the language offensive and prohibited the language, and whether firing Perez was disproportionate to his offense.  The NLRB noted that vulgar language filled the workplace.  (None specifically was directed at others’ families, however.)  Employer rules prohibited profanity, but no such rule was produced during the NLRB proceedings.One NLRB member dissented, based on Perez’s slurs toward the manager’s mother and family (none of whom worked for the employer).  To the dissenter, these vulgarities differed from other profanities that were tolerated in the workplace.  The dissenter said that Perez’s insults “typically cause irreparable damage to working relationships” and that “It serves no discernible purpose for the Board to stretch beyond reason to protect beyond-the-pale behavior that happens to overlap with protected activity.”The NLRB decision again raises the issue of what an employer may do to limit workplace speech without violating labor laws. Profane slurs against a manager’s family, who are not involved with the workplace, seem less deserving of protection than comments during a labor dispute or a union campaign. Under this new NLRB decision, “the limit to how much you must take” seems very broad indeed.Thomas D. Rees is a partner at High Swartz, LLP.  He practices in the area of employment law and litigation. The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.  

PA Supreme Court Will Review Superior Court’s Decision on Non-compete Consideration

January 19, 2015By Thomas D. Rees, Esq.

In my June 16, 2014 blog, I reported on the Pennsylvania Superior Court’s decision upholding the requirement of consideration for a non-competition agreement with a current employee. Socko v. Mid-Atlantic Systems of CPA, Inc., 99 A.3d 928 (Pa. Super. 2014). The Pennsylvania Supreme Court has now granted the former employer’s request to review the Superior Court’s decision. Socko v. Mid-Atlantic Systems of CPA, Inc. 2014 WL 6991669 (Pa. Dec. 11, 2014). The issue before the Supreme Court is whether the Pennsylvania Uniform Written Obligations Act, 33 P.S. § 6 (“UWOA”) eliminates a current employee’s ability to require consideration for a non-compete agreement that states that the parties intend “to be legally bound”. The former employer, who is appealing, says that consideration is unnecessary in these circumstances. The ex-employee asserts that consideration is required. The parties agree that the employer did not give consideration for the non-compete. The ex-employee brought the suit by seeking a judgment that the non-compete was unenforceable. The ex-employee won summary judgment without a trial in the Court of Common Pleas, and the Superior Court upheld this decision.

The Supreme Court rarely grants petitions for review. In the majority of recent non-compete cases where the Supreme Court has decided to review the Superior Court, the Supreme Court has overturned the Superior Court.

If the Supreme Court reverses the Superior Court, greater enforcement of post-employment non-competes may take place in Pennsylvania. This trend would run counter to trends in states such as California and Massachusetts. California prohibits non-competes by statute, but the state’s courts protect trade secrets vigorously. Massachusetts is now considering legislation to prohibit non-competes and (finally) considering enactment of the Uniform Trade Secrets Act. California attributes its vibrant high-tech economy partly to the fact that trade secret protection has primacy over non-compete enforcement.

So it is worth staying tuned on Socko. All commercial and employment lawyers will want to follow this case through briefing and argument. They may also want to ask themselves how “Uniform” the UWOA really is when Pennsylvania is the only state where the act is in effect.

 For more information regarding non-compete agreements or employment law, please contact Thomas D. Rees at 610-275-0700 or by email at trees@highswartz.com.The information above is general; we recommend that you consult with an attorney regarding your specific circumstances. The content contained herein is not meant to be considered as legal advice or as a substitute for legal representation. 

High Swartz Partner Receives King of Prussia Rotary Award and Chair Appointment

NORRISTOWN, Pa. – (Aug. 13, 2014)Thomas D. Rees, partner at law firm High Swartz, has received the Carl A. Beck Vocational Excellence Award from the King of Prussia Rotary. The award is presented annually to a Rotary member, who is professional and businessperson in the local community, for outstanding vocational and labor relations achievements and for exemplifying Rotary’s objectives and ideals.  The Award honors the late Carl Beck, a longtime leader in the King of Prussia business community. Rees, who heads High Swartz’s litigation and employment law practice, also was appointed as the Rotary’s Speakers Committee chair for a one-year term.Focusing primarily on employment law, Rees represents employers in litigations over such matters as employment terminations, restrictive covenants, and trade secrets, as well as employment discrimination, sexual harassment and employment contract disputes. He also serves employers in a wide variety of non-litigation matters, including contract negotiation, preparation of policies and procedures, and hiring and termination. In addition, Rees handles complex litigation and dispute resolution in the areas of land use and zoning law, education law, and government regulation.Celebrating its 100th year, High Swartz LLP has a track record of legal excellence for clients in Pennsylvania, Southern New Jersey and other Mid-Atlantic states, as well as dedication to the community. The firm counsels clients in a broad range of areas including litigation, business, employment, real estate, and municipal and governmental law. 

Noncompetes: Is Consideration Needed, or Just the intention to be Legally Bound?

By Thomas D. Rees, EsquireJune 16, 2014It has long been an article of faith – and precedent – that a Pennsylvania employer must provide an employee with consideration for an enforceable agreement prohibiting post-employment competition with the employer. In short, the employer must provide the employee with a benefit to offset the burden on an employee who may be unable to work freely after employment.Now, in the aptly-named case of Socko v. Mid-Atlantic Systems of CPA, Inc., 2014 WL 1898584, 2014 Pa. Super. 103 (May 13, 2014), the consideration requirement is being tested. So far, the courts have upheld the requirement, but Socko raises important issues and warrants a review of the law on consideration for post-employment restrictions.

Post-Employment Restrictions

For new employees, the start of employment itself is enough of a benefit to constitute consideration. For current employees, the employer has to provide valuable benefits in addition to continued employment. Why has additional consideration been necessary for current employees? The answer is that Pennsylvania is an employment-at-will state; therefore, continued employment itself does not provide any benefit to offset the burden of the non-compete. Also, non-competes are disfavored under Pennsylvania law because the restrictions interfere with employees’ rights to earn a living.The consideration requirement has led to a number of court decisions on questions, like, “How much in pay or benefits is enough consideration?” for current employees; or, “When does employment actually begin?” for new employees. On the latter question, some courts have required employers to treat new employees as current employees (and thus to provide additional benefits) if the employer fails to inform the employee of the non-compete while extending a comprehensive employment offer.

The Uniform Written Obligations Act

Pennsylvania’s Uniform Written Obligations Act, 33 P.S. §6 (“UWOA”), throws a wild card into this debate. The UWOA provides, “[A] written release or promise, hereafter made and signed by the person releasing or promising, shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound.” In short, no consideration is necessary when the agreement provides that the parties “intend to be legally bound.” Despite UWOA’s “uniform” name, Pennsylvania is apparently the only state that has enacted and retained the UWOA. (Utah enacted the law but later repealed it.)“Uniform” or not, the UWOA is all-encompassing; the law contains no exception for non-competition or non-solicitation agreements. The UWOA seems at odds with the time-honored requirement of consideration for non-competes. By and large, the courts have overlooked the UWOA until recently. The great majority of Pennsylvania courts have required additional consideration beyond continued employment in actions to enforce a non-compete. These courts have not even mentioned the UWOA in ruling on the issues. Even those courts that have expressed support for the UWOA have often found ways to side-step the issue. Some courts have held that the UWOA eliminates the need for consideration, but have gone on to find that the employer gave the employee enough consideration to enforce the non-compete. Other courts have used the UWOA to dispense with the need for consideration but have gone on to find that the non-compete itself was too burdensome to be enforced. In this uncertain context, Pennsylvania employment lawyers have continued to advise employers to provide consideration to employees who sign non-competes.As mentioned, in Socko v. Mid-Atlantic, the consideration requirement appears to have won the battle against the UWOA. Socko dealt with a waterproofing company’s enforcement of a non-compete against an individual who had signed the document while a current employee. The covenant contained the key UWOA clause: “intending to be legally bound hereby.” The employer had provided no consideration other than continued at-will employment. The Superior Court, affirming the trial court’s grant of summary judgment, held that the non-compete was unenforceable for lack of consideration. Continued at-will employment plus an intent to be legally bound were not enough to support the restrictions. Actual valuable consideration in the form of a benefit or change in job status was necessary to support the non-compete.

What the Future May Bring

The Superior Court’s decision preserves the status quo, for now. But it is important to keep an eye on this issue. The Superior Court’s decision is likely to be challenged by petition for allowance of appeal. And, whatever the final result, questions will remain: If the courts continue to require valuable consideration, what is the purpose of the UWOA? On the other hand, if the courts say that the UWOA governs, what are the implications of dispensing with consideration for restrictive agreements that the courts disfavor?If you wish to learn more about consideration and other employment issues, feel free to contact Tom Rees at 610-679-9588 or trees@highswartz.comThe information above is general: we recommend that you consult an attorney regarding your specific circumstances. The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Employees Using Social Media, Can Anything You ‘Post’ Be Used Against You?

iStock_000016428789XSmallBy Thomas D. Rees, Esq.May 2, 2014 Sometimes I think that, before they post about individual employment issues on social networking sites, social media users should see a warning similar to the Miranda warning: “You have the right to remain silent; anything you say may be used against you!”In two recent cases, heeding this warning could have prevented a job loss or loss of a valuable settlement. Case #1:  Sometimes, you may even have a duty to remain silent!Employers and employees settle termination and discrimination cases every day.  Typically, the employer pays the employee an agreed upon sum, the employee releases the employer from all liability, and both parties agree to keep the settlement confidential. Keeping the settlement confidential suggests the following rule: No discussion on social networking sites!In Gulliver Schools v. Snay, So.3d, 2014 WL 769030 (Fla. App. Feb. 26, 2014), the plaintiff’s college-age daughter violated this rule, with disastrous results.  She used Facebook to discuss her father’s confidential $80,000 settlement of his employment dispute with a private school.  The daughter said, “Mama and Papa Snay won the case against Gulliver.  Gulliver is now officially paying for my vacation to Europe this summer.  S**K IT.” The daughter sent the posting to 120 Facebook friends right after the parties entered into the settlement.The school found out about the post.  The school refused to make the settlement payment, contending that the daughter’s Facebook post breached the settlement agreement. (The agreement required the plaintiff to disgorge the whole settlement amount on the breach of the confidentiality agreement.)  The father sued to enforce the agreement, won at the trial court level, but lost on the school’s appeal.  The father said he had not told the daughter that he had won his case, but he had mentioned the settlement to the daughter, even though the agreement allowed only disclosure to his spouse.  Ironically, the daughter had no plans to go to Europe.The temptation to vent is strong, and social media is an available vehicle to vent. But a confidential settlement agreement of an individual employment claim is just that – confidential– and therefore not a wise subject for a social media posting. Case #2: Don’t air dirty family laundry and expect to keep your job in a family concern!In Smizer v. Community Mennonite Early Learning Center, 538 Fed. Appx. 711 (7th Cir. 2013), affirming 2013 WL 1154263 (N.D. Ill. Mar. 19, 2013), three generations of one family worked in a nonprofit preschool.  The mother was the Executive Director, the grandmother was a volunteer, and the son worked as a teacher’s assistant.  The son supported his sister in a bitter custody dispute over the sister’s daughter; the mother and grandmother took the opposite side.  When the court ruled for the sister, the son apparently posted a profanity-laden tirade on Facebook, directed at the mother and grandmother.  The mother learned about the post through various employees and individuals who were the son’s Facebook friends.  The mother fired her son for insubordination because of the Facebook post.  The son sued for gender discrimination, and denied making the Facebook post.  The courts upheld the termination on summary judgment, citing the mother’s reasonable belief that the son had posted the offensive message.The Gulliver and Smizer decisions lead to one more rule for employees, totally aside from the importance of the confidentiality issues: It’s a good idea not to gloat in public when you win a point on your employer, particularly in profane or snarky terms.Finally, before posting a controversial Facebook message, individual employees would do well to remember the lament of one of our least effective Presidents, Warren G. Harding.  As his presidency unraveled because of the corruption of his Ohio cronies, Harding said: “I have no trouble with my enemies….  But my friends, my g*d-d**ned friends, they’re the ones who keep me walking the floor at night!”  NOTE:  This blog addresses social media postings regarding individual issues and employers in the private sector.  It does not address the possibility that postings about working conditions might be treated as a concerted activity that is protected by the National Labor Relations Act (aka the Wagner Act).  Nor does it address issues related to postings by public employees, which may in certain situations be protected constitutionally. For more about these cases or employment law, please contact Thomas D. Rees at 610-275-0702 or by email at trees@highswartz.comThe information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.