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A recent case from the United States Court of Appeals for the Sixth Circuit demonstrates the ongoing struggle to apply the Fair Labor Standards Act (“FLSA”) to the “side gigs” that have come to signify the modern employment market. In Acosta v. Off Duty Police Services, Inc., United States Court of Appeals for the Sixth Circuit, Nos. 17-5995/6071 (February 12, 2019), the Sixth Circuit held that security offers working for Off Duty Police Services (“ODPS”) as a side job were employees entitled to overtime pay under the FLSA.
ODPS workers were either sworn law enforcement officers who worked for law enforcement entities during the day, or unsworn workers with no background in law enforcement. All workers had the same duties, but sworn officers earned a higher hourly rate. Duties included “sitting in a car with the lights flashing or directing traffic around a construction zone.” They were free to accept or reject assignments, but would be punished by withholding future assignments if they did so. When they accepted an assignment, ODPS instructed the workers where to report, when to show up, and who to report to upon arrival. ODPS provided some equipment, but workers did have to use some of their own equipment. Workers followed customer instructions while on assignment, and only occasionally received supervision from ODPS. ODPS paid workers for their hours upon submission of an invoice. Workers did not have specialized skills, as sworn officers and unsworn workers had the same duties.
ODPS treated the workers as “independent contractors.” As the facts set forth in the Sixth Circuit opinion demonstrate, the factors relevant to determining whether a worker is an independent contractor or employee do not provide a clear answer. The United States District Court for the Western District of Kentucky broke the tie this way: the court held that “nonsworn workers” were employees, but that the sworn officers were independent contractors because they “were not economically dependent on ODPS and instead used ODPS to supplement their incomes.”
The Sixth Circuit disagreed, noting that the FLSA is a broadly remedial and humanitarian statute, designed to improve labor conditions. The Sixth Circuit applied the “economic reality” test to determine that the sworn offers were also employees and not independent contractors, and to uphold the finding that unsworn workers were employees. Specifically, the Court noted that the officers provided services that represented an integral part of the business, and that the work required no specialized skills, that the officers made only limited investment in equipment, and that the workers had little opportunity for profit or loss. The Court noted that the facts did not “break cleanly in favor of employee or independent contractor status” regarding the right to control the work for the sworn officers.
In the last segment of this series, we focused on concerns for employers in drafting and enforcing restrictive covenants. The choices for employees are fewer, and none of them are good. Employees are generally asked to sign restrictive covenants at two points: either at the beginning of their career or upon a promotion or other significant improvement in employment status. Such agreements diminish employees’ choices should they want to move on from their current employment, whether or not the restrictions are actually enforceable.
Some employers require employees to sign a restrictive covenant at the outset of their employment. If the employee was recruited and has other employment choices, the employee has some bargaining power to reduce the duration or scope of the restrictions. But this is seldom the case, and the law recognizes that employees generally have limited (or no) bargaining power in these situations. The law disfavors restrictive covenants for precisely this reason: the agreement imposes a post-employment restriction that may hinder the employee’s ability to earn a living at a time when the employee has little or no bargaining power to negotiate the restriction.
This calculus changes a little when the employee is required to sign a restrictive covenant in conjunction with a promotion or other benefit, such as participation in a stock option or bonus program. Then the employee has to decide whether the value of the promotion or other benefit is enough to justify agreeing to the post-employment restriction. Where it is not, the employee can refuse to sign, forcing the employer to decide how valuable this employee is to the employer. However, the employee should factor into this decision that the employer is free to terminate the employee for refusing to sign. And, this might be a good thing, as the employee will be leaving the employer without a noncompete.
Frequently, employees breach the restriction without consulting an attorney first based on the widely held, mistaken, belief that courts do not enforce noncompetes. Let’s be clear: courts will enforce noncompetes where the law permits them to do so. More importantly, the old employer will sue the employee and the employee’s new employer for breach of the agreement. The new employer may terminate the new employment to avoid the costs of litigation. Litigation regarding these matters is expensive, time-consuming and stressful. Practically speaking, most employers will refuse to hire an employee with a restrictive covenant even if it is unenforceable for any number of technical reasons we have discussed in this series.
At the very least, employees should consult an attorney prior to signing, even if they have limited bargaining power, to understand the restrictions in place. We can help employees with that review, and we can help employees navigate the minefield of finding new employment when they have a noncompete in place.
Business partnerships are like marriages; sometimes they work great from the start and before you know it you are celebrating a 25 year anniversary with a big party with all of your clients and customers in attendance. And sometimes; not so much. For reasons unique to business relationships and the personalities involved, business partners sometimes find they can no longer function together, no longer share the same vision, and can no longer tolerate sharing the responsibilities or benefits of common ownership. We refer to the painful and expensive process of separation as “business divorce”.
As in any divorce, emotions run high. The natural instinct is to assess blame and recruit those close to the business to one “side” or the other. Such recruiting efforts implicate disclosure of sensitive, often damaging information with the idea that inflicting pain will induce a desired course of conduct. Rarely is such an ill-conceived plan rewarded with success.
The reality is that preservation of the business as an asset should be the primary concern. Often that means preserving the opportunity for the business venture to continue operations without interruption, modification or additional added pressures attendant to disharmony. Whether the business can be divided according to an acceptable plan among the shareholders, sold as a going concern, or liquidated in an orderly fashion, continued successful operations are essential to return on the shareholders’ investment.
Successful operations are a function of several factors. First and foremost, management, employees, contractors and staff must be confident in the direction of the entity. Public disclosure of disputes among ownership breeds workforce instability, discontent, mass departure and potential competition on the part of key employees with the capacity to do so.
Customer relationships must also be protected. Instability will most certainly cause a client to search for an alternative provider of the same product or service. A client will not risk their own business by not addressing the potential impacts of instability in yours.
The bank can become concerned as well. Lending relationships are complicated. Often businesses obtain term loans or lines of credit which must be “rested” (reduced to zero) from time to time. A borrower’s options upon maturity can be limited and, notwithstanding a long and happy banking relationship, the bank may not be required to extend credit on the same terms and conditions. The bank may even take the position, under certain circumstances and certain loan agreements that the bank is insecure as a result of dissention thus forcing very difficult financial decisions.
Finally, in all likelihood, public disclosure of internal disputes results in the parties becoming entrenched in their respective positions such that a future together is impossible. Even a sale under such circumstances is likely to net less than market as a buyer is quick to assert pressure on one shareholder or the other in an effort to negotiate the best deal.
Really no good can come of a public airing or an internal dispute. Just like a married couple should not publicize their grievances on Facebook, business owners should take care to keep their disputes in house while seeking resolution through any number of mechanisms – at least until it becomes apparent that such resolution is not possible. Even then, the minimum amount of information necessary to effectuate a course of conduct should be disclosed in the least applicable public way.
As family law attorneys and parties to custody orders can attest, shared custody and co-parenting arrangements are often fraught with ongoing tensions, stress and conflict. Using the court system to litigate smaller disagreements in the aftermath of a custody order is inefficient, costly and time-consuming. In addition to the burden it places on the Court system, it is a strain on not only the parents, but most importantly, the children who are subject to the order. Fortunately, a common sense alternative is soon returning which can mitigate some of the strife of custody disputes in the future.
On March 1, 2019, the Parenting Coordination program, which was terminated in May 2013, is being reinstated by the Pennsylvania Supreme Court. The rule allows the Court to appoint a parenting coordinator to resolve parenting issues arising from the final custody order issued in the case. The rule clearly establishes that parenting coordination is not intended for every case. Coordinators will not be appointed where there is a protection from abuse order in effect between the parties to the custody action, a finding by the Court that a party has been a victim of domestic violence by a party to the custody action during the case or within 36 months of the filing of the custody action or where a party has been the victim of a personal injury crime.
A parenting coordinator will be appointed for a period not to exceed 12 months; however, this may be extended. The rule also sets certain qualifications that must be met prior to the coordinator’s appointment. Once appointed, the parenting coordinator will have the authority to recommend resolutions to the court on specific custody related issues including, but not limited to: deciding on locations and conditions for custody exchanges; temporary variations of the custody schedule due to special or unique events and circumstances; and any school-related issues.
There are, however, specific areas into which the coordinator is explicitly prohibited from making any decisions such as: changing legal or primary physical custody; changing the custody schedule (a permanent change, rather than a “temporary” one); changing the child’s residence or their relocation; financial issues; major decisions affecting the health, education or religion of the child; and any issues limited by the appointing judge.
Under the new rule, after giving the parties or their counsel the appropriate notice and the opportunity to be heard on the issue(s), the coordinator submits to the court, and serves copies on the parties or their counsel, a written summary and recommendation within two days after hearing from the parties on the issues. An objecting party has five days from the service of the summary and recommendation to file a petition appealing the coordinator’s recommendations on all or specific issues. If neither party appeals the recommendation, the court undertakes one of the following options: approve the recommendation and make it an order of court; approve the recommendation in part and hold a hearing on the remaining issue(s); remand the recommendation back to the coordinator for more specific information; decline to enter the recommendation as an order and conduct a hearing on the issues. If a timely objection is made and a hearing is required, the recommendation will become an interim order pending the hearing and issuance of a further order by the court.
Custody matters are typically the most high-conflict and costly type of family law cases. By reintroducing the amended parenting coordination rule, the Supreme Court has returned a functional tool to the courts, attorneys and litigants to expedite custody disputes and reduce stress and costs for all parties involved. The hope is that this additional tool will assist all parties involved in achieving the best interests of the children in custody cases.
Unmarried people in relationships cohabitate all the time. The stigma our parents warned us would follow really no longer applies. That being said, societal acceptance of cohabitation does not mean that co-ownership of real property by unmarried people is not fraught with peril. It is. As the number of couples deciding to delay or forego marriage rises, the number of clients we see who have elected to purchase real estate in joint names without the protection of the divorce code is also on the rise. By the time the client sees us for professional guidance, the damage is often done, the relationship has ended and the real estate becomes an instrument of torment or the method by which one party seeks to extract an emotional toll.
Before I go any further, let’s clear one thing up, I am not a divorce attorney - I am a litigator. So why, you ask, am I writing a blog to warn against the purchase of property in joint names with anyone other than a spouse? The answer gets at the very point of this blog, if you buy property without the benefits of marriage, you will not enjoy the protections afforded by the divorce code, and you will need to hire a litigator to untangle the complications which follow if the relationship goes south. .
Unmarried individuals as co-owners of real property enjoy the absolute right of “partition” under Pennsylvania law – meaning that the law will not require co-owners of real property to remain co-owners of that property. An entire section of the Pennsylvania Rules of Civil Procedure is devoted to the mechanism by which ownership is consolidated whether by agreement, division, consolidation of title or, in certain circumstances, private or public sale. At minimum, the co-owners are set to expend significant sums which can be taxed to the real property.
Partition is an equitable proceeding. The Court is empowered to appoint a Master to review, investigate and report on a number of equitable issues such as possession, respective contributions, credit for improvements and value. The Court receives the Master‘s report but is not bound to the Master’s findings and can conduct its’ own evidentiary hearing at its’ discretion. Every step of the way is an argument and evidence gathering endeavor, the impact of which is never fully in either party’s control.
The best way to avoid the potential for a partition action is to maintain title in a single name unless and until married. The parties can agree on shared expenses, application of mortgage payments and any other number of factors in a Co-Habitation Agreement. That Agreement can provide for reimbursement in the event the relationship fails, a lien against the property for contributions or even an option to purchase if the parties so choose. The point is, co-habitating parties, without the complicating factor of title, can decide in advance how to procced and avoid the costs, time and uncertainties of a partition action. The time to do so is in advance and not after a transfer of title into joint names.
The Pennsylvania Supreme Court has recently held that an employer may be liable to its employees for a data breach involving the employees’ “personal and financial information including names, birth dates, social security numbers, addresses, tax forms and bank account information…”
The case, Dittman v. UPMC d/b/a The University of Pittsburgh Medical Center and UPMC McKeesport (“UPMC”), involved a class action complaint on behalf of 62,000 current and former employees of UPMC. The employees asserted that their personal and financial information (described above) was stolen from UPMC’s computer systems and “used to file fraudulent tax returns on behalf of the victimized [e]mployees, resulting in actual damages”. Significantly, the employees also asserted that the information accessed and stolen was information they were required to provide their employer as a condition of employment.
The employees’ claims against UPMC were based on their employer’s alleged negligence in failing to properly maintain and protect the employees’ personal and financial information. Two lower courts had ruled against the employees, resulting in a dismissal of their claims.
On appeal, the Pennsylvania Supreme Court reversed the lower courts and concluded that an employer has a legal duty to exercise reasonable care in collecting, storing and safeguarding its employees’ personal and financial information where the employer chooses to store such information on an “internet accessible computer system” and the employees are required to provide such information as a condition of employment.
Based on the Court’s recognition of this duty, the issue in the case then turned on the question as to whether the UPMC could be said to have been negligent in the performance of its duty to its employees. As with any matter, where one party is claiming injury because of another party’s negligence, the ultimate outcome is fact- specific. In this case, the Court held that the employees had stated a potential claim where they asserted that their information was negligently “collected and stored on its [employer’s] internet-accessible computer system without the use of adequate security measures, including proper encryption, adequate firewalls and an adequate authentication protocol.”
The Court did not accept UPMC’s defense that the data breach occurred as result of criminal activity rather that UPMC’s own negligence: the criminal activity would be “ ’within the scope of risk created’ “ by UPMC and thus something against which it would have to provide protection.
Also rejected by the Supreme Court, was the lower courts’ application of the economic loss doctrine. This doctrine, as interpreted by the lower courts, would have barred the employees’ claims because they alleged no physical injury or property damage-only an economic loss. The Supreme Court held that this doctrine was not applicable to the claims in this case because the employees’ claims were not based on a contract claim but based on a tort, namely the alleged negligence of the UPMC in undertaking its duty to protect the employees’ information.
The Supreme Court, having set forth the employer’s duty to its employees, sent the case back to the trial court for new proceedings consistent with the Supreme Court’s ruling. (The Supreme Court did not actually make a factual determination by this case that the employer was negligent).
The decision in this case should cause an employer to triple-check the safeguards attached to the data it maintains and to further consider what personal data and financial data(if any) of its employees the employer actually needs to retain. Any data breach may be litigated and analyzed against what protections were in place, what protections could have been in place and whether the employer used reasonable care to protect the information.