CONGRESS INTRODUCES FEDERAL TRADE SECRET PROTECTION LEGISLATION

Businesses looking for nationwide consistency in trade secret protection may soon be in luck if legislation recently introduced in Congress gains steam.  In late July 2015, Senator Orrin Hatch introduced the “Defend Trade Secrets Act of 2015” (the “Act”) which would give businesses a powerful new statute to protect their trade secrets and go after individuals or entities that misappropriate their sensitive business information.  This statute would create federal jurisdiction for trade secret misappropriation claims and give businesses new legal options for securing their trade secrets.  Some of the key provisions include:

• Federal jurisdiction for civil claims for trade secret misappropriation.  Currently, while many states have passed a Uniform Trade Secrets Act, businesses have limited access to the federal courts for trade secret misappropriation claims unless the parties are diverse.  As a result, businesses with operations beyond one state must deal with differing legal standards as to what constitutes trade secrets and what legal recourse they have when those trade secrets have been taken.  The opportunity to bring trade secret misappropriation claims under one federal statute across state lines and before federal district court judges who, on the whole, are generally considered better judges than their state court counterparts would be a welcome development for businesses concerned about trade secret protection.
• Courts are expressly authorized to issue ex parte injunctions for preservation and seizure of evidence.  Often, where competitors or former employees wrongly take company trade secrets, there is a very real concern that evidence will be destroyed or distorted if the wrongdoer is given advance notice.  Particularly with technologies like Internet-based email (think Gmail, Yahoo, etc.) that make it very difficult to find a forensic record of deletions, companies have limited confidence that they have recovered all copies of their trade secrets or they have all been destroyed.  This provision would lessen this risk by not giving bad actors advanced notice and the opportunity to destroy or hide evidence.  To address concerns about abuse, the Act contains provisions governing the use of these injunctions, including:  (1) placing the burden on the plaintiff business to demonstrate that the defendant would destroy evidence if given notice; (2) requiring notification be given to the US Attorney in the district in which the injunction is ordered; (3) requiring damages to the defendant in the event of a wrongful seizure.
• Five year statute of limitations.  As it is often difficult to identify misappropriation, this lengthy limitations period would give company years to bring claims and allow claims to be brought where the company only identifies the misappropriation after a competitor product hits the market years later.  This limitations period does raise evidentiary questions regarding the likelihood evidence would be preserved over so many years, and there is the potential for abusive tactics by suspicious competitors looking for discovery into a competitor.
• The potential federal recognition of the inevitable disclosure doctrine.  This doctrine essentially provides that an employee must inevitably disclose or rely upon the trade secrets of his or her prior employer because of the assigned job duties for the new employer.  By way of an obvious example, if a beverage scientist responsible for Coke’s formula was hired by Pepsi to improve its soda’s formula, that scientist could not possibly perform that duty without relying on the knowledge of Coke’s formula.  The scientist simply could not forget the knowledge from Coke or ignore such knowledge when working for Pepsi.  Here, the Act authorized injunctions for actual or threatened misappropriations and it is the latter option that raises the inevitable disclosure possibility.  Currently, the inevitable disclosure doctrine has not been adopted by all states, and thus is available as an argument only in some jurisdictions.
• Treble damages and/or attorneys’ fees for willful and malicious misappropriation.  While damages are often difficult to prove, the threat of triple damages and attorneys’ fees may act as a deterrent to some and as a just punishment for those proven to have violated the Act.
• No preemption of state law.  This is an interesting provision given the abundance of state law trade secret statutes which may conflict with the Act.  If enacted, courts will have to wrestle with the contradictions between available statutes that address the same wrong and plaintiffs will have to make strategic decisions as to what claims to bring.  

While this legislation has bi-partisan support, any fan of Schoolhouse Rock knows that the process in which a bill becomes a law is slow and fraught with opportunities for derailment.  There is no guarantee the Act will be enacted, and businesses should not passively wait for it to go through Congress.  Businesses would be wise to affirmatively take steps to ensure that they are protecting their trade secrets and confidential information, including: 1) entering into restrictive covenant agreements containing non-disclosure, non-competition, and non-solicitation provisions with key employees; 2) drafting policies that protect trade secrets and restrict access to those who need it for legitimate business purposes; 3) working with cybersecurity professionals to make sure their IT security can withstand outside attacks and internal misconduct; and 4) developing practices consistent with the written policies and a workforce that appreciates the importance of trade secret protection.  

By:  Jonathan S. Krause
jkrause@klehr.com

THIRD CIRCUIT HOLDS SUSPENSION WITH PAY IS NOT “TYPICALLY” AN ADVERSE EMPLOYMENT ACTION

On August 12, 2015, in Jones v. SEPTA, the Third Circuit for the first time decided whether a suspension with pay constitutes an “adverse employment action” in a case for discrimination under Title VII and the Pennsylvania Human Relations Act (PHRA).  The Third Circuit held that it “typically” does not.

In Jones, the plaintiff, Michelle Jones, was suspended with pay from December 1, 2010, until February 22, 2011, pending an investigation into whether she had submitted fraudulent time sheets and falsely reported her time worked.  When the results of that investigation confirmed that she had engaged in this conduct, Jones was terminated.  Jones filed a lawsuit against SEPTA and her supervisor claiming that, among other things, by suspending her with pay, defendants discriminated and retaliated against her in violation of Title VII, the Pennsylvania Human Relations Act, the Family Medical Leave Act, and 42 U.S.C. § 1983 of the Equal Protection Clause.  The trial court granted summary judgment to SEPTA on all of these claims.  Jones appealed to the Third Circuit, but the Third Circuit agreed with the trial court.

The Third Circuit noted that to establish discrimination under Title VII (and the PHRA), the plaintiff must show she suffered an adverse action, which is an action “that is serious and tangible enough to alter an employee’s compensation, terms, conditions, or privileges of employment.”  A paid suspension, the court held, is neither a refusal to hire nor a termination, and does not even alter compensation (by design).  Notably, the court also found that it does not result in a serious alteration of the terms, conditions or privileges of employment “because the terms and conditions of employment ordinarily include the possibility that an employee will be subject to an employer’s disciplinary policies in appropriate circumstances.”  The Third Circuit was not alone in its finding.  In fact, the Jones decision merely falls in line with the relatively long established law in the Second, Fourth, Fifth, Sixth, Eighth, and Ninth Circuits that a suspension with pay, alone, does not constitute an adverse employment action under the substantive provisions of Title VII.  

The Jones decision is not without its caveats, though.  First, the Court was careful to leave some room for exceptions when it held that a paid suspension “typically” does not constitute an adverse employment action.  Thus, presumably a paid suspension could, under the appropriate circumstances, constitute an adverse employment action.  The court did not elaborate on when that might be the case, though.  Second, the court specifically noted that it did not have to consider and did not decide whether a paid suspension is an adverse employment action on a retaliation claim.  The plaintiff had not appealed the dismissal of her retaliation claim.  The court’s statement could have some significance because the definition for an adverse employment action in the retaliation context is different (and some say easier to meet) than the definition regarding a discrimination claim.  The former is defined as just that which would dissuade a reasonable worker from making or supporting a charge of discrimination.

Despite these qualifications or limitations, the Jones opinion nevertheless gives employers some sense of security that, when they are faced with serious allegations or suspicions of misconduct by an employee such that the employer does not want the employee working if they are true, the employer can suspend the employee with pay pending an investigation without opening itself up to significant risk of being sued for discrimination by the employee for that suspension.

By:  Lee D. Moylan
lmoylan@klehr.com

WAGE CLAIMS HIT THE BIG LEAGUES: 
MINOR LEAGUE PLAYERS AND SCOUTS CRY FOUL

There has been much talk recently of the Department of Labor’s proposed revisions to the Fair Labor Standards Act (“FLSA”) overtime regulations, including an increase in the minimum salary required to classify an employee as “exempt,” and the possible inclusion of nondiscretionary bonus payments in determining an employee’s standard salary level.  Under the current regulations, employers are required to pay all employees covered by the FLSA at a rate of one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek.  Certain executive, administrative and professional workers are exempt from overtime if they meet specific criteria including a minimum annual salary./1 

In the midst of this brewing debate on overtime and minimum wage, Major League Baseball (“MLB”) has come under much scrutiny for its pay practices.  In the last two years, MLB has been hit with multiple lawsuits alleging that its pay practices violate the FLSA and/or federal antitrust law.  Two lawsuits filed in 2014 allege that MLB teams routinely fail to pay their minor league players either the minimum wage or overtime.  Another class action suit filed last month alleges that MLB teams have also violated the FLSA by failing to pay minimum wage and overtime to their scouts.  

In response, MLB argues that the federal and state minimum wage and overtime laws were not intended to apply to professional athletes such as minor league baseball players.  Furthermore, it argues that it is not obligated to comply with the wage and overtime regulations of the FLSA because its teams are covered by an exception under that law for seasonal amusement or recreational establishments (under which a business that operates for seven months or less per year, or generates the bulk of its income over a six month period, is not required to comply with the FLSA’s minimum wage and overtime requirements).  However, even if the courts agree that MLB is not bound by the FLSA, many state-level minimum wage acts do not contain similar exceptions for seasonal recreational establishments.   

Contrary to what most people believe, minor league baseball players are not represented by a union.  Rather, only those players who are on a club’s 40-man major league roster are represented by the Major League Baseball Players Association.  And in stark contrast to the earnings of their major-league counterparts, minor league players earn roughly $3,000 to $7,000 over a five-month season while generally working 50 to 70 hours per week, and are not paid for their required spring training sessions or other off-season training./2 

Much like the DOL’s proposed revisions to the FLSA, it is likely that the issues raised by the suits against MLB will not be resolved any time soon.  In the meantime, MLB is purportedly lobbying Congress to amend the FLSA to create a specific exemption for baseball players, while an attorney for the minor league players has stated that he has been in discussions with certain unidentified unions to possibly organize the players for bargaining purposes.  
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  1  While the regulations currently require a minimum annual salary of $23,660 to classify as exempt, the DOL’s proposed changes would increase the minimum salary to $50,440 per year.

2   Similarly, minor league scouts allege that they routinely work more than 50-60 hours per week and are paid at a rate of approximately $5.00 per hour, far less than the federal minimum wage rate of $7.25 per hour.

By:  Carianne P. Torrissi
ctorrissi@klehr.com