Although not contractually required to do so, many employers offer their management-level employees aseverance package in the event of a reduction-in-force or some other non-disciplinary event which requires an employer to terminate a relationship with a managerial employee. The terms and compensation contained in severance packages usually depend upon salary, years of service, and work performance and/or value of the employee to the employer. However, if an employee can show that the terms of a severance package offered to them are less favorable than those offered to other, similarly situated employees, the employee may be able to state a claim for discrimination.

In the case of Gerner v. City of Chesterfield, Virginia (2012), the United States Court of Appeals for the Fourth Circuit reversed a lower court ruling from the Eastern District of Virginia and found that although a severance agreement is offered upon employment termination and is not a contractual right, it is nevertheless an employment benefit upon which a discrimination claim may lie. Finding that the district court judge (Hudson, J.) erred in his analysis of the legal standard, the appellate court held Title VII protects current and former employees from discrimination, as well as those who have not been hired and have been discriminated against in the hiring process. Further, the Court found that Ms. Gerner's allegations that she was offered a less favorable severance package than her male counter-parts under the City’s reduction-in-force plan, were sufficient to allege an adverse employment action for a gender discrimination claim. In making its ruling, the Court relied upon U.S. Supreme Court precedent and decisions from other Circuit Courts.

This decision by the Fourth Circuit, which is the highest federal appellate court for Virginia, Maryland, West Virginia, and the Carolinas, is a reminder to employers that they must be vigilant in making sure that employment benefits (even severance packages which are often viewed as “voluntary” or “discretionary”) are provided on an equitable basis. Alternatively, employers must make sure that they have a strong, non-discriminatory, reason for any difference in the provision of such benefits among similarly situated employees.

© Copyright, PCT Law Group 2012, all rights reserved.

Written by Malik Cutlar

If an employee misappropriates their current or former employer’s proprietary information, and discloses such information to its new employer and/or any other unauthorized person(s), that is enough to establish a violation under the Virginia Uniform Trade Secrets Act (“VUTSA”) so says the Virginia Supreme Court. There is no requirement under the Act that the employee or new employer actually use the misappropriated information to compete with the former employer.

In the case of Geographic Services, Inc. v. Collelo, et al. (2012), the Virginia Supreme Court held that once an employer establishes the existence of a trade secret, all that they are then required to show is that the trade secret was misappropriated as that term is defined under the Trade Secrets Act. The entity from which the trade secret was misappropriated does not have to show that defendants used the trade secret in order to establish a claim under the VUTSA and recover damages. Disclosure of the trade secret is sufficient where it can be shown that the new employer and/or person to whom the trade secret was disclosed knew, or had reason to know, that the trade secret was acquired by improper means. In such cases, where the plaintiff cannot readily prove measurable damages, then the VUTSA provides that the court can impose a reasonable royalty upon the wrongdoers for the unauthorized disclosure of the trade secret.

This decision by Virginia’s highest court provides a cautionary note for Virginia employers: if you know, or should have known, that an employee has obtained proprietary information from its prior employer without its knowledge, you could be on the hook for damages if the employee discloses the information to your company – even if your company never uses the information. The disclosure, in and of itself, will be enough to expose companies to monetary damages. Conversely, companies in which an employee has taken proprietary information can seek legal redress and possibly obtain damages even if the employee and its new company did not use the information.

Written by Malik Cutlar

An Eastern District of Virginia Court has permanently enjoined Verizon from infringing upon patents of a California-based Company, ActiveVideo Networks, Inc. (“ActiveVideo”), including two patents which will have a direct impact upon Verizon’s ability to offer its popular Video on Demand (“VOD”) services. In the case, ActiveVideo Networks, Inc. v. Verizon Communications, Inc., et al., ActiveVideo sued Verizon for allegedly infringing upon several of its patents. After a three-week jury trial, the jury found in favor of ActiveVideo and awarded it $115,000,000 in damages for Verizon’s infringement. ActiveVideo then sought a permanent injunction from the Court enjoining Verizon from continuing to infringe upon the patents.

In analyzing the injunction standard under the Patent Act, Judge Raymond A. Jackson of the Eastern District of Virginia relied heavily upon the four-part test set forth by the United States Supreme Court in the case of ebay, Inc. v. MercExchange, L.L.C. The District Court found in favor of ActiveVideo regarding all four prongs finding that: 1) ActiveVideo had been, and would continue to be, irreparably harmed by Verizon’s unauthorized use of its technology; 2) ActiveVideo did not have an adequate monetary remedy at law because the continuing harm associated with loss of market share and brand recognition of the VOD service were difficult to quantify; 3) the balance of hardships favored ActiveVideo because, as a small company, it relied heavily upon the patents infringed upon by Verizon, while Verizon offered numerous services and would be less affected by having to cease use and/or find alternatives to offering the VOD service; and 4) public interests and public policy were served by protecting patent rights. Regarding this last prong, the Court specifically noted that, “[t]hough Verizon does add other components to be able to offer the completed product, Verizon’s FiOS system, and more specifically the VOD aspect of the FiOS system, could not function without the use of ActiveVideo’s technology.” Mem. Op. at 17.

Nevertheless, have no fear Verizon VOD users. The Court granted Verizon a six-month “sunset” window of time to come up with a non-infringing alternative to its current VOD system, and Verizon claims it has already been diligently working to come up with an alternative system. Therefore, before the time is up, it is likely Verizon will have embarked upon an alternative method to provide the popular VOD service to its customers – thus, enabling it to keep sending out those monthly Verizon bills to its subscribers at a brisk and healthy pace.

Written by Malik Cutlar

The Fourth Circuit Court of Appeals allowed a former city employee’s sexual harassment and retaliation claims to proceed to trial by reversing a lower court ruling which granted summary judgment in favor of the employer. Plaintiff Katrina Okoli, formerly an executive assistant for John P. Stewart, the director of Baltimore’s Commission on Aging and Retirement, filed a lawsuit alleging sexual harassment hostile work environment, quid pro quo sexual harassment, and retaliation. In the case of Okoli v. City of Baltimore, et al., Plaintiff Okoli alleged that over a four month span, Defendant Stewart repeatedly sexually propositioned her; told her of his alleged sexual exploits; asked her about her underwear; fondled her leg underneath a table on several occasions; and forcibly tried to kiss her when they were alone in a conference room. Okoli alleged that she rejected such advances by Stewart and also twice complained about the harassment to officials within the City government, as well as wrote a letter to Baltimore’s then-mayor Martin O’Malley concerning the harassment. Okoli was fired by Stewart just hours after her letter was received by the mayor’s office.

For its part, the City contended (and apparently the lower court agreed) that Stewart’s conduct was sporadic and infrequent and did not rise to the level of a hostile work environment. Further, the City argued that Okoli’s work had deficiencies, and that she was going to be fired even before she wrote the letter complaining of Stewart’s behavior. Additionally, the City argued, Okoli’s letter was non-specific and did not state that she was being “sexually” harassed by Stewart, only “harassed.” Therefore, they argued, Okoli did not engage in protected activity under Title VII to warrant a retaliation claim against the City.

The Appellate Court disagreed and held that the statements attributed to Stewart were both severe and pervasive. In addition, the Court held that a plaintiff need not mention the “magic words” of “sex” or “sexual” to effectively advance a sexual harassment complaint. Citing decisions from other circuit courts, the Court held that the complainant only need put the employer on notice that unlawful behavior is afoot. Okoli’s use of the words “unethical,” “degrading and dehumanizing” in her letter complaining about Stewart’s behavior were enough to raise a sexual harassment complaint. Finally, the Court determined that the district court erred in concluding that simply because Stewart had a document on his computer that pre-dated Okoli’s letter, such document was a termination letter. Stewart modified the computer document three times before delivering it to Okoli as a termination letter just hours after her sexual harassment complaint reached the mayor’s office. Under those facts, the Court concluded that there was sufficient evidence to infer that Stewart did not intend to fire Okoli prior to receiving word that she complained about his behavior to the mayor and his staff.

The Fourth Circuit Court of Appeals hears appeals involving Virginia employment cases.

Written by Malik Cutlar

We have all been there. Walking through the aisle of a store and some store personnel who was stocking a shelf has left a ladder or some supplies right in the middle of the aisle, obstructing the path. Well, the Plaintiff in this case did what most of us would do. She attempted to walk around the ladder, but when she did -- bam! – she hit her head on a metal shelf that was on the other side of ladder, and she (sadly) suffered significant, and likely permanent, brain injury.

In this diversity jurisdiction personal injury case, Zankow v. Sears Holding Corp., et al., Plaintiff claimed that Sears was negligent because the placement of the ladder combined with the shelves in the narrow aisle created an unreasonably dangerous condition that caused her serious and permanent injuries. The shelves were 1 to 1.5 inches thick and were connected to the back of a shelving unit with no side walls. While trying to get around the ladder, Plaintiff apparently did not notice the shelves as she was focused on the ladder – the original obstruction.

For its part, Defendant claimed that it should not be held liable as the ladder and the shelves were in plain sight; and, in any event, because Plaintiff failed to use ordinary and reasonable care in walking around the ladder, she was contributorily negligent and barred from recovery.

On summary judgment, the Court dismissed Plaintiff’s claims. The Court ruled that from the pictures submitted by the Plaintiff of the scene (which were attached to the Opinion) and the description provided, the shelf and the ladder were “open and obvious” conditions from which Plaintiff had a duty to use reasonable care to avoid. The court rejected Plaintiff’s argument that the shelf she hit her head on was protruding, because the evidence showed that no one shelf stuck out further than the others. Further, the Court did not find that the combination of the ladder and the shelves rendered either of the hazards “latent” such that Plaintiff would not have been expected to notice and avoid the open and obvious hazards. Citing Virginia Supreme Court precedent, the Court ruled that once a hazard is deemed to be open and obvious, an injured plaintiff’s claim must fail as a matter of law since she will be deemed to have failed to exercise reasonable care, and will thus be found contributorily negligent.

Written by Malik Cutlar

Federal employee Robert T. Perry (“Perry”) had a long-running legal battle with his federal employer, the Pension Benefit Guaranty Corporation (“PBGC”). After three lawsuits, two of which were settled, Perry’s claims of hostile work environment and retaliation have now been dismissed on summary judgment.

The case, Perry v. Gotbaum, was the third lawsuit brought by Perry against the PBGC and centered around Perry’s allegations that the PBGC discriminated and retaliated against him based upon a Settlement Agreement entered into by the parties to settle the first two lawsuits. As required under the Settlement Agreement, the PBGC provided Perry with a grade and step increase in salary, paid for $10,000 worth of training, paid Perry a lump sum of $60,000, and placed him on Leave Without Pay (“LWOP”) Status for a time-period not to exceed six months. In addition to proving Perry with a salary increase and training, it appears that the impetus behind the Settlement Agreement was to provide Perry with an opportunity to find employment outside of the PBGC and give him a lump sum payment during his job search. Per federal government regulations, the personnel actions required under the Settlement Agreement had to be documented using a federal government Standard Form 50 (“SF-50”). 

In his third lawsuit, Perry complained, inter alia, that the comments section of the SF-50 forms used to process the personnel actions included information referencing his prior lawsuits and the Settlement Agreement. According to Perry, such comments would have a chilling effect on his ability to seek employment outside of the PBGC because it would be clear that he had engaged in protected activity. Further, Perry complained that the PBGC had used a more generic code when processing SF-50 forms for other employees, and therefore he should have been afforded the same treatment. 

While the Court agreed with Perry that he engaged in protected activity regarding his prior lawsuits and the resulting Settlement Agreement, the Court ruled in favor of the PBGC finding that the Agency actually went back and corrected the SF-50 forms to respond to Perry’s concerns about the remarks placed on the forms. Further, since the Settlement Agreement was not confidential and had been filed with the Court, it was a public record and Perry could not base his claims of a retaliatory and/or discriminatory disclosure upon information that was generally available to the public. In addition, the Court found that there was no basis to find the PBGC’s “honest mistake” was an attempt to hamper Perry’s future job opportunities since it was in the Agency’s interest to have Perry find employment outside of the PBGC as soon as possible. As such, the Court dismissed Perry’s federal employment discrimination and retaliation claims.

It should be noted that the legal standard applied by the Court in this public sector case applies to private sector Virginia businesses as well.

Written by Malik Cutlar

For several years now, many practitioners that advise and/or draft non-competes for their business clients have stopped including language in non-compete provisions which prohibit a former employee from being an “owner” or “shareholder” in a competing business. Virginia Courts have routinely held that including language which prohibits a former employee from essentially owning stock in a competing business was overbroad and not necessary to protect an employer’s legitimate business interest. Therefore, such non-competes have regularly been invalidated.

Consistent with prior court opinions, a Virginia Beach Circuit Court recently invalidated a non-compete provision which prohibited a former employee from, inter alia, being an owner or shareholder in a competing business. The case, Patient First Richmond Medical Group, LLC v. Ameanthea Rica Blanco (Virginia Beach Circuit Court, Feb. 15, 2011), involved Defendant Blanco, a family nurse practitioner who was employed by Plaintiff Patient First. According to the allegations in the case, Blanco, while still working at Patient First, began formation of a competing healthcare practice which was to provide primary and urgent care treatment at reasonable or fixed fees during extended weekday and weekend hours without the need for an appointment.

Blanco also solicited two doctors from Patient First to come work with her at the new medical practice. After she resigned her position with Patient First, Blanco opened up the competing business within seven miles of her former place of employment. Patient First brought suit alleging that Blanco violated her employment agreement which contained non-competition and non-solicitation provisions.

The covenant not to compete prohibited Blanco from performing medical services of the type performed for Patient First (though the term “medical services” was not defined) for two years after her employment and within a seven-mile radius as an “agent, officer, director, member, partner, shareholder, independent contractor, owner, or employee” of the competing business. The Court found that the non-compete provision was overbroad because its provisions went beyond occupations and businesses that were in competition with Patient First. The Court reasoned that by barring Blanco from being a shareholder in a competing business, she would be barred from merely owning stock in a publically traded company, even if she were not providing medical services for the company and thus not competing with Patient First.

The Court also held that a number of the terms in the provision were not defined and left too much uncertainty as to which activities of the former employee would, or would not, be in violation of the covenant. Therefore, an employee would essentially have to guess at which conduct was prohibited. The Court held that in such cases, the non-compete was unenforceable as offending sound public policy, and sustained Blanco’s demurrer without leave for Patient First to amend.

Written by Malik Cutlar

In a case arising out of a stock purchase and employment agreement gone wrong, a district court judge has declined to enforce a settlement “Term Sheet”, stating that the document did not rise to the level an enforceable settlement agreement between the parties.

The case, Intersections, Inc., et al. v. Loomis & Loomis, , involved a stock sale of $14 million dollars from defendant Joseph Loomis (“Loomis”) and his company, Net Enforcers, Inc. (“NEI”) to plaintiff Intersections, Inc. (“Intersections”). Loomis remained an employee of NEI after he sold it, and entered into an employment agreement which contained a non-compete and other restrictive covenants. Within a year after the stock purchase and Loomis entering into the employment agreement, NEI suspended Loomis from his position and ultimately terminated his employment. Litigation followed in which plaintiffs alleged that Loomis and his sister, co-defendant Jenni Loomis, engaged in fraud by misrepresenting the financial condition of NEI. Plaintiffs also alleged that Loomis engaged in conversion of NEI assets and breach of his fiduciary duties to NEI.

In an attempt to settle the case, the parties engaged in extensive settlement discussions with a magistrate judge and reached an agreement, in principle, to settle the case. In exchange for receiving a monetary payment from the defendants, inter alia, the parties agreed that Loomis’ employment agreement containing the non-compete provisions would be void. A handwritten term sheet was prepared by the magistrate judge reflecting the agreement reached by the parties. However, when plaintiffs prepared draft settlement agreements for signature by the parties, they were rejected by the defendants. Thus, the parties never signed a final settlement agreement.

In rejecting both the plaintiff’s attempt to enforce the settlement agreement and the magistrate judge’s report and recommendation to enforce the agreement, the Court held that the parties had not entered into a legally enforceable agreement because there was no meeting of the minds as to the final terms of the settlement. In particular, the Court found that plaintiffs added terms to the agreement beyond what was agreed to at the settlement conference; contingencies in the proposed agreement were not satisfied; and there was apparently not a meeting of the minds as to whether all of the restrictive covenants in Loomis’ employment agreement would be void as part of the settlement of the case. As such, the Court concluded that under Virginia law, it could not save an agreement that had never ultimately been reached by the parties.

Written by Malik Cutlar

An associate professor at the University of Virginia College at Wise was informed that his employment as a faculty member was going to be terminated. Professor James Holbrook had served as an assistant professor for three years at the time he was told his employment was being terminated. Feeling that his imminent job termination was unjust, Professor Holbrook filed suit against the College alleging statutory and constitutional violations and seeking a preliminary injunction barring his termination during the pendency of the lawsuit.Holbrook v. the University of Virginia.

However, Chief Judge James P. Jones of the Western District of Virginia denied the injunction citing the relatively new injunction standard set forth by the Supreme Court in 2008. The Court cited Winter v. Natural Resources Defense Council, Inc., and stated that the Supreme Court had “narrowed the grounds” upon which a party may obtain a preliminary injunction. In Winter, the Supreme Court held that in order to obtain a preliminary injunction, a plaintiff had to establish,

1. that he is likely to succeed on the merits,
2. that he is likely to suffer irreparable harm in the absence of preliminary relief,
3. that the balance of equities tips in his favor, and
4. that an injunction is in the public interest.

Chief Judge Jones noted that in light of this new standard, the Fourth Circuit in The Real Truth About Obama, Inc. v. FEC, had essentially “repudiated” the traditional balancing of the hardships test found inBlackwelder Furniture Co. of Statesville v. Seilig Manufacturing Co., 550 F.2d 189 (4th Cir. 1977), and required courts in this Circuit to now apply all four prongs of the preliminary injunction standard as set forth in Winter. Finding that the new standard was more rigid and lacked the flexibility of the prior Blackwelderstandard, the Court held that it could only find in favor of the plaintiff if he clearly met all four prongs of theWinter test. As such, the Court held that Professor Holbrook did not make an adequate showing of irreparable harm since he could obtain monetary damages as a form of relief during the underlying case without the necessity of imposing an injunction at the outset of the litigation. Therefore, Professor Holbrook’s Motion for a Preliminary Injunction was denied.

Written by Malik Cutlar

A Fairfax County Circuit Court has found in favor of an employee and his new employer who were sued for misappropriation of trade secrets, among other claims, when the employee went to work for a direct competitor and took a customer list and vendor contact sheet with him. In the case of Tryco Inc. v. U.S. Medical Source, et al., Brian Thomas (“Thomas”) worked for the Plaintiff (“Tryco”), which was in a niche government contracting industry selling dental and medical supplies to the U.S. government under a Decentralized Blanket Purchase Agreement (“DBPA”). Thomas’s sister-in-law decided to get a DBPA and she started a company which sold dental and medical supplies to the government. Thomas left Tryco and went directly to work for his sister-in-law’s new company, U.S. Medical Source (“USMS”).

Upon leaving to work for the new company, Thomas did not tell Tryco that he was going to work for a direct competitor, and when he downloaded a number of personal items from his work computer onto a flash drive, he copied a contact list and vendor list along with his personal files. Tryco sued everyone involved, including Thomas, USMS, Thomas’s sister-in-law and Thomas’s brother who helped out at USMS from time to time.

After a four day bench trial, the Court found in favor of all the Defendants. Specifically, the Court found that neither of the lists taken by Thomas had independent economic value because:

1. The customer list was mostly outdated, and the information on the list (names and telephone numbers of government contracting officers) could be readily obtained through legitimate means – such as using the list of contacts provided to the Defendants by the government; and
2. The names and contact information for the companies on the vendor list could be readily obtained simply by looking up the companies on the internet. Therefore, the Court found that Plaintiff could not meet its burden under the Virginia Uniform Trade Secrets Act (“VUTSA”).

In addition, the Court found Thomas’s testimony to be credible that he inadvertently took the two files at issue, rather than misappropriating them for some improper means. This finding was bolstered by the fact that Thomas returned the entire flash drive as soon as he was notified of the issue by Tryco’s counsel, and just days after leaving Tryco’s employ; that he did not disclose any of the information to his new employer; and that, as a factual matter, Thomas knew all of the information on the two documents given that he had interfaced with the government contracting officers and the various vendors routinely as part of his work for Tryco.

At this point (if it had not occurred to you sooner), you may be asking why the employer just did not sue Thomas for breach of his non-competition agreement since he went directly from his employment with Tryco to work for a competitor. The answer is that Thomas was never required to sign a non-compete agreement; so he was free to compete and did so accordingly.

Written by Malik Cutlar