Tennessee Business Litigation Law Blog

Creating an ombudsman position at your business can assist with effectively dealing with internal conflict short of litigation. Most employment litigation is originated because an employee feels like he or she has a legitimate dispute and no one in management either cares or listens. The feeling that "no one will listen to me" gives rise to a sense of disrespect and worthlessness. Lost in the sea of feelings is whether there is a real conflict and how it can be resolved. It seems that once an employee latches onto the negative feelings about either a situation or a particular manager/co-employee, the idea of a resolution becomes second priority.

The ombudsman does not replace the human resources function. The ombudsman is an additional position that is neutral and therefore should be touted as different from human resources, which many employees see as part of management. In other words, employees have an option available if they feel that human resources will simply toe the company line or, for some reason, not give them a fair shake. For example, for years many government agencies have employed an ombuds person for these very reasons.

The ombudsman position can be a very effective tool which provides an outlet for disgruntled employees to air disputes and reinstate respect in the workplace. A large percentage of litigation, including employment litigation, is spawned from misunderstanding. Imagine how much money a business can save by having an experienced neutral person review and assess a dispute before lawyers become involved. An ombudsman can also educate managers about dealing with workplace conflict and identify certain weaknesses in specific managers relating to interpersonal dealings that can be valuable come evaluation time.

The bottom line is that hiring an ombudsman is a little money spent internally to save a lot of money being sent externally to litigators. Read an interesting article on this topic relating specifically to retaliation claims here.

There are several blogs I try to review on a regular basis. Today, I was reading the Wall Street Journal's law blog and it had an entry about a blog I hadn't read before. It is very funny -- something I think attorneys and business people need more of in their lives. It is written by Ford & Harrison (Atlanta) employment attorney Julie Elgar based on the popular NBC television series "The Office." Using humor, as well as her employment law knowlege, she critiques the show and most significantly the antics of lead character Michael Scott from an employment lawyer's point of view. Then, she places a price tag on how much Michael's manager misconduct would cost a company in the real world. The blog, called "That's What She Said," is an interesting spin on the routine blog.  Read it here.

By the way, speaking of blogs, a torts-guru and super lawyer I know (colleague John Day), recently posted on his blog a listing of the blogs he regularly reads. See his list here.

An important employment law question will be decided by the U.S. Supreme Court with a couple of Nashville lawyers on the case. The issue is “cat’s paw” liability and the employer is represented by Todd Presnell and Kara Shea in the Nashville office of Miller & Martin PLLC.

The so-called cat’s paw occurs in discrimination matters when another person (here the manager/employer) is held liable for the bias of someone else (here a subordinate employee) which influenced the adverse employment decision made by the manager. So, in this situation, an African American employee was terminated by a human resources manager based mainly on information from the employee’s direct supervisor. The HR manager was in a different location and did not know the employee’s race. The EEOC, which brought the case, alleged that the employee’s direct supervisor was racially biased and motivated the HR manager’s termination decision. The cat’s paw comes into play because the decision maker is acting as a conduit for the discriminatory bias of someone else.

The formal question presented to the Supremes is: "Under what circumstances is an employer liable under federal anti-discrimination laws based on a subordinate’s discriminatory animus, where the person(s) who actually made the adverse employment decision admittedly harbored no discriminatory motive toward the impacted employee."

Hopefully, the court will give clear guidance on this issue since the federal circuits have been split. The case is BCI Coca-Cola Bottling Co. v. EEOC and comes from the Tenth Circuit, which reversed the district court’s dismissal. Oral argument will take place in the Spring.

Is cooperating with a sexual harassment investigation enough to give an employee protection under Title VII’s “opposition” and “participation” clauses? Not necessarily, according to the Sixth Circuit Court of Appeals. Title VII’s anti-retaliation provisions protect employees who “oppose” unlawful acts and who “participate” in investigations, proceedings, or hearings.

In a recent case, a Metropolitan Government of Nashville 30-year employee was fired after cooperating as a witness in an internal sexual harassment investigation. The court held that there was no protection for the employee under either clause. There was not the kind of overt opposition required under Title VII because the employee merely cooperated with the investigator’s request for an interview, during which she related unfavorable information about the alleged harasser. The employee did not initiate a complaint prior to participating in the investigation nor did she take any further action following the investigation – actions generally seen as overt opposition.

In addition, because there was no formal EEOC charge that prompted the investigation (there was just an internal complaint), the employee was not protected under Title VII’s participation clause. The court followed the general rule that an employee seeking protection under this clause must have been involved in an investigation involving a formal EEOC charge, rather than an internal, in-house investigation, which was the case here. Read the opinion here.

The Tennessee Attorney General recently took on the Tennessee Department of Labor (TDOL) by opining that employers may follow their own vacation pay policies, pursuant to the Tennessee Wage Payment Act. The law, which applies to private employers employing five or more employees, provides that “final wages” paid to an employee who quits or is terminated “shall include any vacation pay or other compensatory time that is owed to the employee by virtue of company policy.” The last year or so has seen a drastic shift in how TDOL interpreted the law, which is that these commonly employed “use it or lose” it vacation policies providing that accrued leave is forfeited upon termination, are illegal. TDOL says that these policies in employment handbooks are unenforceable unless the handbook is presented by the employer as a binding contract, which they most often are not. In fact, most employers include a disclaimer in the handbook that its contents do not create a contract.

Keep in mind that Tennessee employers are not required to provide employees with vacation pay or other paid leave. The Attorney General disagreed with TDOL in its opinion that an employer is not required to pay a separating employee for accrued leave unless its leave policy or a labor agreement specifically requires such payment, as long as the policy is clearly written and applied consistently. Remember that an Attorney General opinion is not law that agencies or courts are bound to follow, but it seems likely that TDOL will do so or openly challenge it. Read the AG’s opinion here.

As we have mentioned on this blog a number of time before, Covenants Not to Compete must be supported by a protectable business interest in order to be enforceable.  One such interest may be the skills that the business has imparted to its employees.  However, what sort of "skills" will support a non-compete agreement? 

As the Court of Appeals has noted, "an employer does not have a protectable interest in the general knowledge and skill of an employee."  Vantage Technology, LLC v. Cross, 17 S.W.3d 637, 645 (Tenn.Ct.App.1999).  Nevertheless, an employer may have a protectable interest in the unique knowledge and skill that an employee receives through special training by his employer, at least when such training is present along with other factors tending to show a protectable interest.  Id. 

Ultimately, whether an employer has a protectable interest in its investment in training an employee depends on whether the skill acquired as a result of that training is sufficiently special as to make a competing use of it by the employee unfair.  Id.  As anyone who has tried these types of cases will know, this question can often turn into a bitter point of contention between the employee and the employer.  Attorneys should be prepared to demonstrate in detail how the skills in question were acquired, what training was involved, and how the use of such skills in the local market would affect the employer.

This is a complaint by Rebecca Blair and James Streett for an injunction to stop a former employee from violating a covenant not to compete. It includes a request for a temporary restraining order at the outset of the case, a temporary injunction while the case is pending, and a permanent injunction at its conclusion. Download this Complaint for Violation of a Covenant Not to Compete.

Tennessee currently has two distinct causes of action for retaliatory discharge: (1) a common law tort remedy, and (2)a statutory remedy under the Tennessee Public Protection Act. Although the two causes of action are very similar in many respects, they are not identical.

The elements of these two causes of action are aptly laid out in a recent opinion from the Eastern District, Southmayd v. Apria Healthcare, Inc. 412 F.Supp.2d 848 (E.D.Tenn., 2006).

"To establish a claim for retaliatory discharge under the TPPA, Southmayd must show (1) his status as an employee of Apria; (2) his refusal to participate in, or remain silent about, illegal activities; (3) his termination; and (4) an exclusive causal relationship between his refusal to participate in or remain silent about illegal activities and his termination by Apria. Under the common law cause of action for retaliatory discharge, Southmayd must show that (1) an employment-at-will relationship existed; (2) he was discharged; (3) the reason for his discharge was that he attempted to exercise a statutory or constitutional right, or for any other reason which violates a clear public policy evidenced by an unambiguous constitutional, statutory, or regulatory provision; and (4) that a substantial factor in Apria's decision to discharge him was his exercise of protected rights or compliance with clear public policy."

Southmayd at 412 F.Supp. at 862.

Interestingly, there was allot of back and forth in the late 1990's about whether the statutory remedy supplanted the common law cause of action. This question had serious implications as the statutory remedy requires that the employee show an exclusive relationship between the alleged action and his or her firing, while the common law claim only requires a showing that the alleged action was a substantial factor in the employee's discharge. This question was resolved by the Tennessee Supreme Court in Guy v. Mutual of Omaha, 79 S.W.3d 528 (Tenn. 2002) where it held that the statutory cause of action is a cumulative remedy that does not preempt the common law cause of action.

A few days ago I noted that Tennessee Covenants Not to Compete are only enforceable where the employer has a protectable business interest. A good overview of what makes an interest “protectable” can be found in Vantage Technology, LLC v. Cross, 17 S.W.3d 637, 644 (Tenn.Ct.App.1999). As outlined in Vantage, the facts have to be such that without the covenant, the employee would gain an unfair advantage in future competition with the employer. In making this determination, the court should consider:

(1) whether the employer provided the employee with specialized training;
(2) whether the employee is given access to trade or business secrets or other confidential information; and
(3) whether the employer's customers tend to associate the employer's business with the employee due to the employee's repeated contacts with the customers on behalf of the employer.

These considerations may operate individually or in tandem to give rise to a properly protectable business interest.

Covenants not to compete are disfavored in Tennessee, but are strictly enforceable if certain elements are met. The issue of enforceability comes up enough that it’s a good rule of thumb to have these elements handy. They require that:
(a.) there is a legitimate business interest to be protected; and
(b.) the time and territorial limitations in the covenant are reasonable.
Factors relevant to whether a covenant is reasonable include:
(1) the consideration supporting the covenant;
(2) the threatened danger to the employer in the absence of the covenant;
(3) the economic hardship imposed on the employee by the covenant;
(4) whether the covenant is inimical to the public interest;
(5) that the time and territorial limits must be no greater than necessary

See Murfreesboro Medical Clinic, P.A. v. Udom, 166 S.W.3d 674, 678 (Tenn. 2005).

What business information of a company is confidential and protected? This is the first question to ask in lawsuits alleging unfair competition, breach of a non-compete agreement, or suits against a competitor (particularly a former employee) for using the company's information. Tennessee law has largely equated protected, confidential information with trade secrets. (Take a look at Venture Exp., Inc. v. Zilly for example).

The appellate courts have set out six nonexclusive factors that should give you some guidance:

• 1) the extent to which information is known outside of business,
  
• 2) the extent to which it is known by employees of business,
  
• 3) the extent of measures taken to guard the secrecy of the information,
  
• 4) the value of the information to the business and its competitors,
  
• 5) the amount of money or effort expended in developing the information, and
  
• 6) the ease or difficulty with which the information could be properly acquired or duplicated by others.

Look to B&L Corp. v. Thomas & Thorngren, Inc. for a good primer in any case alleging use of confidential business information.

For those of you keeping up, Google hired former Microsoft Vice President of speech recognition technology Kai-Fu Lee to head up Google's operations in China. Microsoft sued Google and Lee, claiming the new position would violate Lee's non-compete agreement with Microsoft. The state court just granted Microsoft's request for a temporary injunction preventing Lee from starting work at Google similar to the work he performed at Microsoft.

Why is this important (besides just seeing two of the biggest new economy companies duking it out publicly over an executive)? Because juries do read the newspaper, and form their own opinions about what the law should be. If you have an employer-employee dispute, you need to consider that this is the kind of baggage that the potential jury pool brings in.

The Tennessee Supreme Court held yesterday that covenants not to compete are unenforceable against physicians "except for restrictions specifically provided for by statute." The narrow exception applies to hospital and faculty practice plan employers of physicians, and even then only in limited circumstances. The Supreme Court concluded that all others are against public policy. Read the opinion here.

In Money & Tax Help, Inc. v. Tom Moody, the Eastern Section Court of Appeals looked to the rule of reasonableness for non-compete agreements. The rule allows a court to hack down an unreasonable covenant not to compete until it is narrow enough to be enforceable. The agreement in Moody prohibited the defendant from working or being associated with a tax return business within 50 miles of Knoxville for three years. The Court of Appeals scaled back the non-compete, construing it to last three years, but only prohibit the defendant from performing services for persons who were the plaintiff’s clients when the defendant left.
This was a bit of a hollow victory for the defendant. By the time of the Court's ruling, the three years had already expired, and the plaintiff's damages were based only on that same client list.

Linda Woolf recently published an excellent broad view summary of the law of non-competition agreements. The article identifies most of the core concepts involved in litigation over covenants not to compete (i.e., the enforceability of an agreement based upon its scope and purpose, and the procedural aspects of suits for alleged violations of non-compete agreements). The article does not go into great detail in analyzing each issue, but instead provides a good checklist of issues to have at your disposal when thinking about a non-compete case. For example, is a non-compete agreement assignable? What remedies are appropriate if a breach is proven? The article does not provide all of the answers; for those, you must look to the specifics of the jurisdiction governing the contract.

For a good primer on Tennessee law requiring reasonable time and geographical restrictions in a covenant not to compete, see Outfitters Satellite, Inc. v. CIMA, Inc. As the Court of Appeals notes: A determination of reasonableness includes consideration of both a time and geographical component, as well as a requirement that the restraint must not exceed “what is needed to protect the employer’s legitimate interests.” The Court of Appeals affirmed an injunction against the defendant from competing with the plaintiff in the United States for a term of one year.