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While 2009 saw the enactment of many new employment laws by Congress, 2010 was a busy year in the courts as current and former employees turned to the judiciary for relief. The medtech industry was a prominent figure in many of these lawsuits, and, like all employers, medtech companies can learn from these lawsuits and take precautionary steps to avoid (or at least minimize) costly litigation. While it is not possible to chronicle all the employment law developments that came out of the courts in 2010, here is a representative sampling.
Non-Compete and Trade Secrets Litigation
At the forefront for medtech companies was the continued presence of non-compete and trade-secrets litigation. Medtech companies vigorously sought to assert and defend their rights in preventing or securing competitive hires, and found themselves locking horns in hard-fought litigation. Given the patchwork of varying restrictive covenant laws in the 50 states and an increasingly competitive marketplace for top talent, restrictive-covenant litigation is expected to increase or remain steady in 2011.
Medical Device Companies Continue to Battle in the Courts
In a high-profile case in Minnesota, St. Jude Medical sued its former group president and alleged that he had breached his non-compete obligations by accepting employment at rival Medtronic. In the end, a state trial court enforced the former St. Jude executive's non-compete and prevented the executive from working at Medtronic for one year. In reaching its decision, the court concluded that a restriction on employment by a direct competitor is frequently necessary, writing, "The cases almost universally recognize the necessity of some sort of restriction on former employees in order to protect the business interests of their former employers. In this case, St. Jude has an obvious interest in protecting its confidential business information. Accordingly, restricting a former employee's right to work for a direct, actual competitor is a necessary restriction." While non-compete agreements are scrutinized closely by the courts, they are frequently enforced in many states—such as Minnesota—under the right circumstances.
Applying the Inevitable Disclosure Doctrine to Trade-Secret Cases
In an interesting case outside the medtech industry, the U.S. Court of Appeals for the Third Circuit reaffirmed the validity of the "inevitable disclosure doctrine," at least under Pennsylvania law. The court affirmed the issuance of a preliminary injunction prohibiting a former Bimbo Bakeries executive from moving to a rival firm, finding that there was a "substantial threat" that the executive would disclose Bimbo's trade secrets. One of the keys to Bimbo's success at the injunction hearing was its ability to put on expert evidence that the former executive had accessed sensitive strategic documents on Bimbo's network soon after he told Bimbo that he was moving to a competitor. In ordering injunctive relief, the trial court also concluded that the former executive gave "confusing" deposition testimony regarding his use of USB devices, and ultimately found the executive's testimony "simply not credible." Thus, even though there was limited evidence that the executive had used Bimbo's trade-secret information, the trial court held and the appellate court affirmed that Bimbo only needed to show a "substantial threat" of disclosure to obtain the preliminary injunction. The case serves as a useful reminder that hiring from a direct competitor poses significant risks that need to be managed carefully. For more information on the Bimbo case, see What You Can Learn From the Muffin Man: Fresh Lessons Regarding Trade Secret Injunctions.
New Legislation Changes Restrictive Covenant Landscape in Georgia
But the action in 2010 wasn't just limited to the courts. Some state legislatures revised their laws governing restrictive covenants. Georgia, for example, recently restructured its restrictive covenant law. Now Georgia judges will have the ability to "blue pencil" (or modify) restrictive covenants where the covenants are partially unenforceable or overly broad. This is a significant change to Georgia's prior approach to modifying non-competes, which held that if any portion of the restrictive covenant was found to be unenforceable, all of the covenants in the agreement were unenforceable. The Georgia law also clarifies a number of other ambiguities and will allow companies and their lawyers to craft restrictive covenants more likely to withstand judicial scrutiny.
Employment Policies Matter—and Can Make All the Difference in Court
An employer's policies can make all the difference in an employment lawsuit. Frequently they help the company. But depending on how they are drafted, workplace policies can subject even the most sophisticated corporations to significant exposure.
Inflexible Leave Policies Targeted by EEOC
The U.S. Equal Employment Opportunity Commission (EEOC) has made clear its intent to prosecute cases involving "systemic discrimination." For example, the EEOC has taken an increasingly aggressive approach to targeting large corporations with so-called "inflexible leave policies," where employees may be terminated for failure to return to work following a maximum period allowed for a leave of absence. Following on the heels of a $6.2 million settlement with Sears Roebuck & Co., the EEOC recently entered into a $3.2 million settlement with SuperValu, Inc. The EEOC had alleged that certain SuperValu Jewel-Osco stores in Illinois, Wisconsin, and Indiana operated an arbitrary and inflexible leave policy and had illegally discharged more than 100 employees since 2003. The EEOC maintained that such policies ignored the "individualized analysis" and accommodation requirements of the Americans with Disabilities Act (ADA). In addition to the significant payment, the SuperValu settlement also contained a number of non-monetary obligations, including a revision of Jewel-Osco's leave policies, additional manager training, recordkeeping requirements, the submission of reports to the EEOC on Jewel-Osco's efforts to accommodate disabled employees attempting to return to work, and engaging a job-descriptions consultant and an accommodations consultant. In light of the EEOC's attack on inflexible leave policies, medtech companies are advised to review and consider revising their existing policies.
Facebook Postings May Constitute Protected Activity under Labor Laws
In October 2010, the National Labor Relations Board filed a complaint alleging that a company's social-media policy contained unlawful provisions, including one prohibiting employees from making disparaging remarks when discussing the company or supervisors and another prohibiting employees from depicting the company over the Internet without company permission. A hearing has been scheduled before an administrative law judge. The case is novel because it addresses labor law in a new medium: social media. Employers, including non-unionized employers, are well advised to consider whether their social-media policies could be interpreted to "reasonably tend to chill" its employees in the exercise of their rights under the National Labor Relations Act.
FLSA Exempt Status of MedTech Sales Representatives
The exempt status of medtech sales representatives was before several federal courts in 2010. For years, many medtech companies have classified their sales representatives as exempt from the requirements of the Fair Labor Standards Act (FLSA). But recent court rulings and several undecided cases have questioned those classifications. Notably, in July 2010 the Second Circuit held that Novartis sales representatives were not exempt from the FLSA. Although other circuit and district courts have decided that the sales representatives are exempt, the split among circuits and the number of new and undecided cases should keep this issue on the forefront in 2011, and medtech companies should take heed of the decisions that affect their sales representatives. For more detailed information on this issue, see Court Rulings Impact FLSA Exempt Status of Pharmaceutical and Medical Technology Sales Representatives.
Record Number of Retaliation and Discrimination Charges Filed with EEOC
As many medtech companies have been forced to eliminate positions and reduce their ranks, former employees have begun to question those decisions by filing charges of discrimination and retaliation with the EEOC and state human-rights agencies. According to figures recently released by the EEOC, during fiscal year 2010 (ending in September 2010), private sector workplace-discrimination charges hit an unprecedented high of 99,922 charges filed—the greatest number in the EEOC's 45-year history. For the first time ever, retaliation under all federal statutes (36,258) surpassed race (35,890) as the most frequently filed charge, while allegations based on religion (3,790), disability (25,165) and age (23,264) also increased. In its first year of enforcement, the EEOC received 201 charges under the Genetic Information Nondiscrimination Act (GINA). Now more than ever, medtech companies should take steps to prevent discrimination and harassment in the workplace by implementing, adopting, and revising anti-discrimination, anti-harassment, and anti-retaliation policies, and training their managers (and other employees) on these policies. When an employee complains about discrimination or harassment, employers should treat the complaint seriously, investigate the complaint, and take prompt remedial action.