Articles Posted in Employment Law

Picture of a stethoscopeA few months ago, we wrote an article about a bill in the Indiana General Assembly, Senate Bill 7, that would essentially ban noncompete agreements[1] between medical doctors and their employers. The General Assembly enacted the bill and Governor Holcomb signed it, but only after considerable revision. The ban was narrowed, but remaining covenants not to compete will be enforceable less often.


After July 1, 2023:

Until recently, almost all trade secret law was furnished by state law, not federal law. Absent federal diversity jurisdiction, lawsuits for misappropriation of trade secrets had to be brought in state court. Even though the vast majority of states (including Indiana) have adopted the Uniform Trade Secrets Act (“UTSA”), there are nonetheless variations in trade secret law from one state to another. However, in May 2016 President Obama signed the Defend Trade Secrets Act (or “DTSA”), creating at 18 U.S.C. § 1836 a new federal civil cause of action for misappropriation of trade secrets.  Even so, the federal statute does not pre-empt state law, and state causes of action under the UTSA remain viable.

Definitions of Trade Secret and Misappropriation

Two crucial components of trade secret law are the definitions of trade secret and misappropriation.  The DTSA definitions, found at 18 U.S.C. § 1839, are not identical to the familiar UTSA definitions, but there are no major surprises. At least for the most part, information that is a trade secret under the UTSA is also a trade secret under the DTSA, and vice versa.  Similarly, there are likely very few acts that qualify as misappropriation under one statute but not the other.

We previously discussed whether nonprofit organizations and for-profit businesses can use unpaid interns without violating the Fair Labor Standards Act (or FLSA).  We also discussed allegations of violations of the FLSA related to unpaid interns in the fashion industry.

Earlier this year, the Department of Labor revised its policy, known as Fact Sheet #71, for determining whether businesses may use unpaid interns. The old 2010 policy used a six-factor test, with the presence of all six factors required in order for businesses to use unpaid interns without violating the FLSA. The new 2018 policy considers the following seven factors to determine whether the business or the intern is the primary beneficiary of the internship.

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.

The Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) has issued a notice of proposed rulemaking that would require certain government contractors to submit an Equal Pay Report to the government as a supplement to the Employer Information Report (EEO-1) that is already required.

If a final rule is adopted as proposed, the Equal Pay Report will require companies to report the number of workers within each EEO-1 job category, the total W-2 wages of all workers in each job category, and the number of hours worked by all workers in each job category, all broken down by race, ethnicity, and sex. Only aggregate information will be reported; no information regarding individual wages will be required. In addition, the reports will not include any information on worker qualifications or experience that might help explain any differences among the groups within a job category.

Small Businesses Excluded

Small businesses — those with fewer than 100 employees — are excluded from the new reporting requirements. In addition the new reporting requirements apply only to companies that hold a contract, subcontract, or purchase order with the Federal government that, including modifications, covers a period of more than 30 days and is worth at least $50,000.

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Consider these two relatively recent cases, one from Massachusetts and one from Indiana, both involving allegations of breach of contract through the use of social media:

  • A vice president of a recruiting firm leaves her job and goes to work for another recruiting firm. She has a covenant not to compete with her first employer that prohibits her from providing recruiting services within a specified list of “fields of placement” and within a specified geographic area. She updates her LinkedIn profile to reflect the new job. A message goes out to her list of over 500 contacts, including a number of her former employer’s customers. Her former employer sues, alleging (among other things) that her LinkedIn update violated the covenant not to compete.
  • The agreement between an IT contractor and one of its subcontractors prohibits the subcontractor from soliciting or inducing the contractor’s employees to leave their jobs. The subcontractor posts a job opening on LinkedIn where it could be viewed by anyone who had joined a particular public group. One of the contractor’s employees sees the job posting, contacts the president of the subcontractor, and expresses an interest in the job. At a later meeting, the employee tells the subcontractor his compensation requirements and what he is looking for in a job. The subcontractor makes an offer of employment, and it is accepted. The contractor sues the subcontractor for breach of the covenant not to solicit its employees.

[Note: The Department of Labor guidance relevant to this article, Fact Sheet #71, has been superseded.  See the discussion of the revised policy here.]

Two years ago we discussed whether nonprofit organizations and businesses can lawfully use unpaid interns. One of the key questions is whether the intern is actually an employee subject to the Fair Labor Standards Act. If so, the intern must be paid at least minimum wage and overtime pay if the intern works more than 40 hours in a week. The answer?

I don’t know very much about the fashion industry, but apparently it makes wide use of interns. And according to a class action lawsuit recently filed against a New York modeling agency in U.S. District Court for the Southern District of New York, many of them are unpaid.

The case is Davenport vs. Elite Model Management Corp. The plaintiff, a former unpaid intern, alleges that the agency uses interns as a source of free labor, which is precisely what the Fair Labor Standards Act forbids. According to the complaint, “Without the free labor of its interns like Ms. Davenport, Elite would be forced to do what every other reputable employer in this country does: pay an honest day’s wage for an honest day’s work.”

The complaint steps through the six criteria for determining whether Ms. Davenport and the other interns at Elite qualify as trainees and argues that they do not. Whether that’s correct remains to be seen, but the stakes are significant: The complaint alleges that Elite owes damages of at least $50 million for unpaid wages, overtime, and benefits for a class of plaintiffs that includes at least 100 interns.
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[Note: The Department of Labor guidance, Fact Sheet #71, discussed in this article has been superseded as it applies to the use of unpaid interns by businesses.  See the discussion of the revised policy here. The guidance as it applies to the use of unpaid interns by nonprofit organizations appears to be unchanged.]

As our last post explained, for-profit businesses are very limited in their ability to use unpaid interns legally. Unless the internship program meets six different criteria to qualify the intern as a trainee, the intern is an employee subject to the Fair Labor Standards Act or FLSA.

For nonprofits, however, there is a third possibility. The intern may qualify as a volunteer, in which case the intern is not an employee under FLSA and not subject to the minimum wage and overtime compensation requirements. The footnote to Fact Sheet #71 issued last year by the Department of Labor’s Wage and Hour Division recognizes an exception to FSLA for individuals who volunteer their time to nonprofit organizations for religious, charitable, civic, or humanitarian purposes, provided they do so freely and without expecting any compensation. In those situations, unpaid internships are generally allowable.


[Note: The Department of Labor guidance discussed in this article, Fact Sheet #71, has been superseded.  See the discussion of the revised policy here.]

With summer vacation approaching, and with the job market being what it is, small business owners may be approached by college or high school students offering to work as undpaid interns. At first, that may seem like a great idea — the business gets free help for the summer, maybe to fill in for vacationing employees, and the student gains experience and a chance to build a resume. Sounds like a win-win situation, right?

Well, maybe not. In fact, the situation could place the business on the receiving end of a lawsuit or government enforcement action. The problem is that most interns at for-profit businesses qualify as employees under the Fair Labor Standards Act, or FSLA, and must be paid at least minimum wage and overtime compensation if they work more than 40 hours in a week). In other words, you can’t avoid paying minimum wage by paying nothing.

However, there is a very narrow exception for interns that qualify as “trainees.” Last April, the Department of Labor published Fact Sheet #71, listing the criteria for determining whether an intern is a trainee. If an internship has all six of the following characteristics, the intern is not classified as an employee under the FLSA.

  1. The intern receives training similar to the training he or she would receive in an educational environment. Preferably, the program should be centered on a classroom or academic setting, not on the business’s operations. Ideally, the program should be associated with an educational institution that gives the intern academic credit for the program.
  2. The internship is for the benefit of the intern. If the intern’s activities are primarily for the benefit of the employer (see item 5), the fact that the intern also acquires useful job skills is not sufficient to classify him or her as a trainee. Ideally, the intern will learn skills that are useful to other employers, not just to the business sponsoring the program.
  3. The intern does not displace employees. Instead, existing employees closely supervise the intern’s work. If the business uses an internship to supplement its staff or to fill in for employees who are absent or on vacation, the intern is an employee, not a trainee.
  4. The business does not derive an immediate advantage from the intern’s work; in fact, the internship may even impede the business’s operations. Although it can probably be argued that the business always derives some amount of benefit from the internship program, the internship must be primarily and predominantly for the benefit of the intern, not the benefit of the business.
  5. The business will not necessarily employ the intern when the internship is finished. If the business uses the internship as a trial period for prospective employees, the intern is probably an employee, not a trainee.
  6. The intern and the business understand that the intern will not be paid during the internship.

Given those criteria, it’s easy to understand why a Department of Labor official told The New York Times last year that most unpaid internships with for-profit businesses are not legal. (The story is different, however, for internships with governmental agencies and nonprofit organizations. That’s the topic of a future blog post.)

When the Department of Labor released Fact Sheet #71 last April, some news sources and bloggers described the six criteria listed above as “new regulations.” In fact, the criteria are are not new, and they are not regulations. They originated in 1947 with Walling v. Portland Terminal Co., a decision of the U.S. Supreme Court dealing with a training program for prospective railyard brakemen. Since then the criteria have been applied, explained, and refined by lower courts and the Department of Labor. Rather than a new regulation, Fact Sheet #71 can be seen as the Department’s warning shot across the bow of businesses that use “unpaid interns” as a source of free labor.

A note of caution about the use of these criteria. If the internship satisfies all six of the above criteria, the intern is deemed to be a trainee and not an employee, but only for determining whether the Fair Labor Standards Act applies. That’s only one of many contexts in which the categorization of a person as an “employee” carries legal significance, and different criteria apply in each of those different contexts. Even though a trainee is not an employee for FSLA purposes, he or she may be an employee for other purposes, including the relevant state labor laws.
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Most employers know (or should know) to be very careful about taking adverse action against an employee who has filed a claim of employment discrimination. The need for vigilance is even more important following last week’s decision of the United States Supreme Court , holding that Title VII of the Civil Rights Act includes “third-party reprisal” claims. Now, an employee may have a successful retaliation claim if he or she was fired because another employee filed a discrimination complaint.

In Thompson v. North American Stainless, LP, a man was fired after his fiancée filed a sexual discrimination charge against their mutual employer. He, in turn, brought a lawsuit against the company claiming the termination of his employment was in retaliation for his fiancée’s discrimination complaint. The Supreme Court agreed that the man could raise the claim, reversing the decisions of two lower courts that had held that he could not. The Supreme Court held that the man had a right to sue because of his “close relationship” with the woman who filed the original discrimination complaint.

The result may be surprising to some people, perhaps more so because the eight Supreme Court Justices who participated (recently appointed Justice Kagan did not) were unanimous. In reacting to the decision of the Court written by Justice Scalia, Jacquelyn A. Berrien, chair of the Equal Employment Opportunity Commission, expressed approval, stating that the decision “reaffirms the importance of preventing retaliation against those seeking to protect their civil rights.” Read the entire EEOC press release here. As Justice Ginsburg noted in her concurring opinion (in which Justice Breyer joined), the Court’s decision is consistent with the EEOC’s long-standing position.

One of the questions that a business should consider when thinking about firing an employee (or taking any other adverse action) is whether that employee has lodged any discrimination complaints and might later claim that the action was taken in retaliation for the complaint. But until now, many employers were probably concerned only with complaints filed by that particular employee. Now, the employer must also consider complaints that may have been filed by some other person with a close relationship. But what qualifies as a “close relationship?” Unfortunately, the Supreme Court did not completely answer the question, saying only that “firing a close family member will almost always” meet the standard. Because of the facts of the Thompson case, we also know that the relationship between two engaged employees is close enough, but would a dating relationship count? What about a pair of really close friends? Or second cousins, once removed? For now, we can only speculate.
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