Walcheske & Luzi, LLC Employment Law Firm http://www.walcheskeluzi.com Walcheske & Luzi represents clients on employment-law related issues from discrimination, harassment, retaliation, disability, and FMLA Sat, 07 Jan 2017 19:14:13 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.11 Follow the French? E-mails and Overtime http://www.walcheskeluzi.com/blog/follow-the-french-labor-law/ http://www.walcheskeluzi.com/blog/follow-the-french-labor-law/#comments Mon, 02 Jan 2017 22:03:28 +0000 http://www.walcheskeluzi.com/?p=3931 A new French labor law went into effect with the new year, requiring employers and employees to negotiate over periods of after-hours time when employees do not have to respond to work e-mails. The law is now a requirement for employers with 50 or more employees. If the two sides are unable to agree on hours, then the employer must publish a charter that explains when employees are not required to respond. Reports explain that the motivation behind the law is to curb employee burnout.

While there is no similar requirement on the horizon in the United States (and this is not an argument for any law), should American employers consider such policies without the force of law? While anyone can debate whether the same or similar policies are a good match for any company’s respective culture to address burnout, there is a legal incentive driving state-side employers to adopt similar workplace policies: overtime.

An employer policy that excuses employees from responding to work e-mails during certain defined hours can help limit overtime costs for non-exempt employees. It’s worth reminding readers that individuals paid on a salary basis are not automatically exempt from state or federal overtime requirements once those individuals exceed 40 hours in a workweek. Salary employees must do certain things to meet the “job duties” factor of determining exemption. If salary, non-exempt (or hourly) employees are reviewing and responding to e-mails after hours, that is time for which the employer very likely should compensate the employee. And while the Fair Labor Standards Act includes a de minimis defense that arguably excuses compensation for very small periods of time, the Supreme Court has recently thrown water on that defense leaving employers to take a significant risk by relying on it.

While the new French law is unlikely to see any traction in the United States anytime soon, creative employers should always be on the lookout for ways to ensure compliance. While managers may routinely e-mail lower-ranking employees when an important thought comes to mind, that course of action may not always demand an after-hours response that increasing the recipient’s compensable time. If your business includes many individuals who are non-exempt from overtime and who have devices they take home to access work after hours, a policy similar to the French law may be a worthwhile consideration to make sure your company is not unexpectedly incurring overtime costs from employees.

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Top 5 Labor and Employment Law Developments of 2016 http://www.walcheskeluzi.com/blog/top-5-labor-and-employment-law-developments-of-2016/ http://www.walcheskeluzi.com/blog/top-5-labor-and-employment-law-developments-of-2016/#comments Wed, 21 Dec 2016 02:50:05 +0000 http://www.walcheskeluzi.com/?p=3927 At the end of the calendar year, it is worth pausing a moment to reflect on how far we’ve come over the last 365 days in the world of labor and employment law. As Ferris Bueller so famously quipped, “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.” This couldn’t be more true for your compliance efforts in 2016. With that in mind, the following are my top 5 labor and employment law developments in 2016.

  1. The Board Relents on Social Media

Many employers are now aware that the NLRB has exercised a strong interest in social media policies in the workplace and adverse employment decisions based on social media activity. The most significant decision addressing these issues this year came from the Board’s Chipotle Services, LLC decision on August 18, 2016. While employers have long been frustrated with the Board’s take on social media policies, the Chipotle Services, LLC decision provides an example of the Board, affirming the Administrative Law Judge, approving some common policies, including those addressing harassing or discriminatory statements. The Board also reversed the ALJ’s decision and found that Chipotle had not unlawfully asked an employee to remove a series of Tweets that constituted “protected” activity but not “concerted” activity.

  1. Defend Trade Secrets Act

Federal law finally found its way to trade secret protection in 2016 with the passage of the Defend Trade Secrets Act. Although most everyone was already subject to uniform trade secret restrictions through state-based laws, the DTSA provides additional protections. As we discussed early this year here, the DTSA sets some unique provisions that are worth studying (exemplary damages anyone?) if trade secrets are an issue in your workplace.

  1. Wisconsin Sees Another Significant Restrictive Covenant Case

I often tell anyone willing to listen audiences that almost like clockwork there is a new decision in the world of restrictive covenants (i.e. non-compete and non-solicitation agreements) that should cause everyone to audit these contracts in their workplace. This year was no different as the Wisconsin Court of Appeals gave us its opinion in Manitowoc Company, Inc. v. Lanning. The Lanning decision cautions employers to examine their non-solicitation agreements to ensure that the restrictions are properly limited to competitive solicitation. If your restrictive covenant agreement hasn’t been reviewed recently, you of course may want to include talking to a lawyer as part of your New Year’s resolution.

  1. LGBT Status Recognized as a Protected Class Under Federal Law

Although Wisconsin recognizes sexual orientation as a protected class under the Wisconsin Fair Employment Act, federal courts raised the profile of similar protections under Title VII of the Civil Rights Act of 1964 with two cases in 2016. Although a final decision has yet to be released, the Seventh Circuit strongly signaled at the November 30, 2016 oral argument that it is ready to recognize LGBT status as a protected class status under Title VII in the case of Hivley v. Ivy Tech Community College. A federal district court judge in Pennsylvania came to this conclusion in the November 4, 2016 decision in EEOC v. Scott Medical Health Center, P.C. What does this mean for Wisconsin employers? Increased damages for a successful plaintiff are likely going to be here soon as Title VII allows individuals to recover compensatory and punitive damages, which are not available under the Wisconsin Fair Employment Act.

  1. Federal Texas Judge Halts New DOL Overtime Regulations

Undoubtedly, the biggest news story in 2016 for employment law practitioners has been the most recent one. For much of the year, employers were preparing for the salary threshold to substantially increase on December 1, 2016, making many formerly exempt employees non-exempt. Currently, the 5th Circuit has granted an expedited appeal. Moreover, the AFL-CIO has moved to join the case to help assure that the lawsuit will not going away with the change in POTUS on January 20, 2017. Although still unresolved, this has been the biggest development in 2016.

Happy holidays and best wishes in 2017 to all of our blog readers!

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Employers can avoid holiday party liabilities http://www.walcheskeluzi.com/blog/employers-can-avoid-holiday-party-liabilities/ http://www.walcheskeluzi.com/blog/employers-can-avoid-holiday-party-liabilities/#comments Thu, 08 Dec 2016 22:43:58 +0000 http://www.walcheskeluzi.com/?p=3922 Author’s Note: The below holiday party themed content originally appeared on the BizTimes Milwaukee, Biz Blog. A link to the original publication is available here.

Twas the employer’s holiday party, getting all away from the house
Employees were stirring, excited to be out
The company took many precautions with care
To avoid claims of liability after the celebratory affair

Tables were lined with food and employees were well fed
So none of the eggnog would go too far to their head
Exempt managers were assigned to put on the cap
Of anyone who took too many trips to the tap

Social media coordinators and other employees who took plenty a picture
Were reminded to be careful before posting to Facebook or Twitter
But the employer and its counsel made sure to vet any policy
To avoid the wrath of the NLRB

In the days before the big holiday event
Employees were reminded of policies against sexual harassment
But these precautions were not limited to protections of gender
They included every protected class status to stop any offender

Those who attended were asked to bring another
So anything done would be approved by their grandmother
Other accommodations were made to prevent anyone’s offense
Whether thinking of age or religion, make sure to use commonsense

ADA, ADEA, PDA, and Title VII
Think of them all to prevent harassment and discrimination
Any proving complex, give your counsel a call
Because even at the holiday party, employees may be protected by all

Don’t even dismiss the FMLA
Or assume employees on leave must stay away
If someone shows up though they have a serious health condition
Attendance may still fit well within any restriction

To help avoid any claims for premium rate overtime
Be careful with those to whom tasks are assigned
Hand out any work to those who are FLSA exempt
And allow the rest to enjoy the night like they were meant

Give any bonuses or awards during the workday with care
So no business is held at the party while everyone is there
Of course, make sure attendance is an option
And hold the party away from the place of business operation

Try as you might, sometimes you may not stop all harm
Any injury while working may not be cause for great alarm
For if employees are injured for any reason
You may be covered under worker’s compensation

An ounce of prevention may be worth a pound of cure
And all the laws and regulations can seem like a blur
Consult a lawyer to stave off any liability fright
So that all will applaud the big party night

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Texas Court Stops New Overtime Regulations http://www.walcheskeluzi.com/blog/texas-court-stops-new-overtime-regulations/ http://www.walcheskeluzi.com/blog/texas-court-stops-new-overtime-regulations/#comments Wed, 23 Nov 2016 18:05:07 +0000 http://www.walcheskeluzi.com/?p=3917 On November 22, 2016, Judge Amos L. Mazzant of the Eastern District of Texas issued a nationwide, preliminary injunction halting the Department of Labor overtime regulations scheduled to go into effect on December 1, 2016. Followers of our blog will recall reading about these regulations here and here. Most notably, Judge Mazzant’s decision means that, for now, the salary level threshold will not increase to $47,892 annually (or $921 per week) and the prior level of $23,660 annually (or $455 per week) will remain intact.

In general summary, Judge Mazzant ruled that, at this stage, it appears to him that DOL went farther than its authority under the Fair Labor Standards Act allowed in raising the salary threshold to $47,892 annually. In his memorandum opinion, Judge Mazzant explained, “With the Final Rule, the Department exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test.”

While employers across the country are hailing the decision, they are not out of the woods yet in dealing with this issue. Many of our readers have been planning for the new regulations to go into effect December 1, 2016. This has meant not only making decisions on whether to limit employee hours to increase employee compensation, but these plans probably have been communicated to employees by now. How you react in your workplace largely requires decisions based on business and employee morale concerns, as opposed to raising legal issues. Employers may decide to keep their planned changes in place or you may revert back to the status quo. However, after December 1, 2016, employees who currently qualify for exemption from overtime under the salary standard of $23,660 will continue to do so without any change to compensation.

Additionally, employers should continue to pay attention to this issue. Judge Mazzant’s order was a preliminary injunction. This means that based on the evidence and arguments presented thus far, he believes that the parties opposing the new DOL regulations are likely to ultimately prevail. However, his opinion could change in a final decision or DOL could seek an expedited appeal. Either way, it is unlikely, though not impossible, that the overtime regulations could still go into effect at a later date.

There is also the matter of the recent presidential election. In case you haven’t heard, Donald Trump was elected the 45th President of the United States. While most pundits anticipate his will be a business-friendly administration, his campaign was light on any details of how he viewed these new regulations. The most that we learned during the campaign appeared to be that he did not oppose the regulations outright but would seek to exempt small businesses or introduce the increases gradually. Whether he seeks to reintroduce them in another form or continue the litigation to defend them remains to be seen.

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EEOC Reveals Its Hand with Release of Updated Strategic Plan http://www.walcheskeluzi.com/blog/eeoc-reveals-its-hand/ http://www.walcheskeluzi.com/blog/eeoc-reveals-its-hand/#comments Thu, 10 Nov 2016 19:13:33 +0000 http://www.walcheskeluzi.com/?p=3914 Back in 2012, the Equal Employment Opportunity Commission provided guidance to the public on what especially draws its attention through the release of the 2012-2016 Strategic Plan. Last month, the EEOC again published its intentions for the next four years with the release of its Strategic Enforcement Plan for Fiscal Years 2017-2021.

The 2017-2021 SEP Executive Summary is a worthwhile read for anyone addressing employment law in the workplace. Of primary interest here are the priorities the EEOC identified that it will seek to address over the next four years. These priorities should serve as a big alarm to employers when evaluating their own workforce practices. If the EEOC receives a complaint involving these priorities, it is likely going to draw the agency’s full attention. While any company would be well-served to pay close attention to all of the priority issues, two stick out as especially pertinent in the coming years.

First, the EEOC’s priority on Eliminating Barriers in Recruitment and Hiring directly addresses a couple of growing trends in hiring practices for employers. One trend is that employers are increasingly relying on “big data” to select candidates. These techniques rely on examining objective data seen in successful employees to control an employer’s hiring practice as opposed to, for example, personal impressions observed in the interview process. A great person to follow for more information on big data recruiting is Kate Bischoff. The EEOC is likely going to focus their efforts in this regard to evaluate whether these hiring processes are excluding certain protected-classes of individuals.

Another significant trend related to the EEOC’s recruiting and hiring priority is the technology driven ways in which employers are recruiting for positions. In other words, is an employer’s recruiting and hiring practices excluding certain protected classes from employment without any specific intent to do so. An example of a case that could be raised with greater frequency comes from the EEOC’s 2014 public meeting on social media. There, the EEOC highlighted a claim raised by a 61-year-old applicant who alleged that a federal employer’s use of social media to recruit candidates put older workers at a disadvantage. Similar claims may be raised against private sector employers that do not use diverse methods to attract new talent.

Second, the EEOC’s priority on developing issues, including LGBT discrimination, is one to closely watch in the coming months and years. I highlight this issue because, recently, the Seventh Circuit (the federal court of appeals that covers Wisconsin) took up the case of LGBT discrimination under Title VII for en banc review. Taking on a case in this fashion suggests it may reconsider a three-judge panel decision finding that sexual orientation discrimination is not a claim under Title VII. As recently as last week, a Western District of Pennsylvania court found just the opposite, giving the EEOC its first taste of victory in this arena. In any event this is proving to be a hot topic that employers may be best cautioned to simply avoid by treating it as though Title VII includes the protection.

I would be ignoring the elephant in the room if I did not suggest that Donald Trump’s success in the presidential election may ultimately impact the EEOC’s priorities. In the coming months, President-elect Trump will likely set his own agenda and issue directives to the agency. We do not have a clear picture from the campaign what his priorities may be, but they are almost certain to contrast in some respect to those of President Obama’s administration.

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President Obama Continues to Press For Non-Compete Reform http://www.walcheskeluzi.com/blog/president-obama-continues-to-press-for-non-compete-reform/ http://www.walcheskeluzi.com/blog/president-obama-continues-to-press-for-non-compete-reform/#comments Tue, 01 Nov 2016 14:12:08 +0000 http://www.walcheskeluzi.com/?p=3911 One of the major issues pushed by President Obama has he completes his final year in office is proving to be non-compete reform. Earlier this year, the White House published a report that was generally critical of the growing use of non-compete agreements in the American workforce. This week, the White House continued its efforts to reduce the prevalence of non-compete agreements with a “call to action” for state changes. Along with the call to action, the White House also released a state-by-state summary guide of non-compete laws in the states.

The primary cause for concern identified by the President’s call to action is its claim that widespread use of non-compete agreements limits wage growth and creation of new businesses. While the President’s call to action identifies the “primary rationale of non-competes is to prevent workers from transferring trade secrets to rival companies,” this isn’t necessarily accurate. Most states, including Wisconsin, have trade secret laws that prohibit misappropriation of qualifying information. In this author’s experience, the main reason employers seek non-compete protections is to protect relationships employees may have with customers or clients and/or protect knowledge of internal business information that is important but may not rise to the level of trade secrets.

The President’s call to action asks states to enact legislation that accomplishes three main objectives. First, ban non-compete agreements altogether for certain workers, such as lower wage earners, certain classes of occupations, and individuals terminated without cause. Second, place new requirements on an employer’s ability to agree to non-compete terms with an employee. The President’s suggestions include requiring non-compete terms to be presented before a job offer and providing more benefits to the employee than just employment in itself. Third, promote a court’s ability to void agreements entirely where any part of the non-compete terms is considered to be overbroad and unenforceable.

Change in the direction of the President’s preference is unlikely to come to Wisconsin soon. The most recent efforts at restrictive covenant legislation have focused on making non-compete agreements easier, rather than more difficult, to enforce. This proposed legislation did not pass and some business leaders have even come out against non-compete agreements in the name of improving Wisconsin’s economy. Whether this proposal resurfaces remains to be seen in 2017.

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DOL Faces Lawsuits Over Overtime Regulations http://www.walcheskeluzi.com/blog/dol-faces-lawsuits-over-overtime-rules/ http://www.walcheskeluzi.com/blog/dol-faces-lawsuits-over-overtime-rules/#comments Thu, 29 Sep 2016 12:30:27 +0000 http://www.walcheskeluzi.com/?p=3902 This week’s blog post gives readers a preview of our next Walcheske & Luzi LLC Workplace (Dough)Nuts & Bolts Breakfast Series seminar topic on the upcoming Fair Labor Standards Act overtime exemption changes. Be sure sign up and join us October 20, 2016, for a full summary on the changes your workplace needs to be prepared for on December 1, 2016.

As many readers know from prior updates, the federal Department of Labor passed new regulations that affect whether an employee qualifies for exemption from overtime under the Fair Labor Standards Act. The most significant change is the salary level increase from $455 per week ($23,600 annually) to $913 per week ($47,476 annually), which is subject to automatic indexation every three years. The change was widely viewed as a steep, sudden increase to which employers were ill prepared to accommodate in their business costs.

Some employers may be tempted to see hope in the news last week that Texas, along with 21 other states, started a federal court lawsuit against the Department of Labor challenging the new overtime regulations. The States’ lawsuit essentially makes three arguments against the regulations: (1) the regulations violate the Fair Labor Standards Act in doubling the salary level threshold; (2) the automatic indexing change every three years violates notice and comment requirements for administrative regulations; and (3) the regulations unfairly burden States that will inevitably have to pay overtime to State employees. The U.S. Chamber of Commerce also recently brought litigation against the Department of Labor making similar arguments.

However, an employer’s best interests may be to comply with the law and wait for the results of this litigation. The plaintiffs in each lawsuit have tough arguments to make to overcome the overtime regulations for several reasons. Significantly, Congress, in passing the Fair Labor Standards Act, granted the Department of Labor the power to pass regulations defining the exemptions. Moreover, the Department of Labor complied with legal requirements to publish notice of the proposed regulation on July 6, 2015, and to take comments, which were received through September 4, 2015. Whether anyone likes it or not, the procedural requirements seem to met with respect to the salary level increase. Though the plaintiffs may have a stronger argument with respect to automatically indexing this level every three years, it seems difficult to foresee a court finding the regulations to be wholly unconstitutional or unlawful.

Any employer failing to comply with the regulations also risks much in the event the Texas and U.S. Chamber of Commerce lawsuits are not successful. Damages under the Fair Labor Standards Act include not just the unpaid overtime, but liquidated (double) damages, and attorneys’ fees and costs. Thus, what may be a relatively small amount of overtime can easily grow to a large award with these other available damages.

For more information, join us October 20, 2016!

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New Wisconsin Court of Appeals Case Should Have You Reviewing Your Noncompete Agreements Quicker than a Simone Biles Backflip http://www.walcheskeluzi.com/blog/nonsolicitation/ http://www.walcheskeluzi.com/blog/nonsolicitation/#comments Mon, 22 Aug 2016 14:51:06 +0000 http://www.walcheskeluzi.com/?p=3899 Almost like clockwork, every couple of years there is a new Wisconsin case that requires employers to take a new look at their restrictive covenant agreements to make sure they are enforceable. Last week proved this adage true to form as the Wisconsin Court of Appeals took on a new issue with respect to application of Wis. Stat. § 103.465, Wisconsin’s restrictive covenant law, to nonsolicitation agreements. Along the way, however, the court drove home another point that should have every employer reviewing their noncompete agreements once again.

In Manitowoc Company, Inc. v. Lanning, the court examined the nonsolicitation agreement Manitowoc Company had with its former employee, John Lanning. Those terms stated:

I agree that during my Employment by Manitowoc and for a period of two years from the date my Employment by Manitowoc ends … I will not (either directly or indirectly) solicit, induce, or encourage any employee(s) to terminate their employment with Manitowoc or to accept employment with any competitor, supplier or customer of Manitowoc.

When Lanning left Manitowoc Company for a competitor, Manitowoc Company alleged other employees followed him due to his solicitation in violation of the agreement. Of course, litigation ensued (and a blog post followed).

The unique issue the Court of Appeals took on was whether Wis. Stat. § 103.465, and the restrictive covenant caselaw generally, applies to agreements not to solicit former coworkers. Most litigation in this arena addresses related but distinct noncompete terms. No Wisconsin court had directly answered this nonsolicitation question. The court concluded that nonsolicitation terms are restraints of trade that are indeed subject to § 103.465.

Perhaps the more significant contribution Lanning makes to parties addressing restrictive covenant agreements is the discussion it provides on how closely such agreements must be scrutinized by courts. Manitowoc Company attempted to argue that courts should look at how such agreements actually are enforced to determine whether they are overbroad, rather than how they could possibly be enforced. The Court of Appeals provided a thorough summary of restrictive covenant law in Wisconsin to strongly reject this argument. The Court of Appeals explained:

An overbroad provision is not reasonable and enforceable simply because the employer enforces it in a reasonable manner. … When determining whether a restrictive covenant is overbroad, our cases demonstrate that we look not at the particular facts or circumstances of a case, but to the plain language of the agreement itself. … Thus, if the text of the [nonsolicitation] provision restrains trade impermissibly, it is unenforceable even if the acts complained of in this action could have been proscribed by a more narrowly written and permissible restrictive covenant.

In light of this standard, the Court of Appeals proceeded to present a series of ways in which Manitowoc Company’s nonsolicitation terms would prohibit Lanning from acting for which the business had no interest in stopping him. For example, the Court of Appeals explained the nonsolicitation terms would prevent Lanning from encouraging a friend at Manitowoc Company to retire.

This case provides a strong incentive for employers to re-examine their restrictive covenants today. Lanning obviously provides a good lesson with language that many employers may have in place right now. But more than that, all restrictive covenant terms should be closely examined to make sure the restrictions are narrowly tailored to the potential unfair competition that is at issue for each specific employee. It can be a very expensive endeavor to think about how your restrictive covenant language could apply once it comes time to enforce the agreement during litigation, rather than before making the trip to the courthouse.

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A Former Staff Member of the St. Louis Cardinals Just Gave Employers 46 Reasons to Update Their Employee Training http://www.walcheskeluzi.com/blog/cardinals/ http://www.walcheskeluzi.com/blog/cardinals/#comments Tue, 19 Jul 2016 16:47:34 +0000 http://www.walcheskeluzi.com/?p=3875 Many legal blogs writing about computer misconduct in the workplace typically warn employers what wayward employees might do after the original employment relationship ends and competition with that individual begins. Just last week, our own blog featured this topic here. But have you thought about the issues your company’s tech-savy employees’ might raise during the employment relationship?

A good lesson to answer this question comes from a case involving a former St. Louis Cardinals’ employee, Christopher Correa. Correa was the Cardinals director of scouting, and yesterday he was sentenced to 46 months in prison and ordered to pay nearly $280,000 in restitution after he pleaded guilty to multiple counts under the Computer Fraud and Abuse Act. Regular readers of this blog will recall that the CFAA prohibits individuals from engaging in the following activity:

Intentionally accesses a computer without authorization or exceeds authorized access and thereby obtains . . . information from any protected computer[.]

Correa’s misconduct leading to this sentence all occurred in the scope of his employment for the Cardinals. Perhaps more surprising is that Correa did not use any highly sophisticated coding skills to obtain his unauthorized access – he just happened to guess the right user name and password.

Correa’s wrongdoing started with the departure of a Cardinals employee, Jeff Luhnow, for the Houston Astros. When Luhnow left the Cardinals, he turned in his laptop and disclosed the user name and password for the device. Luhnow apparently enjoyed that user name and password so much he regularly used it for access to other systems.

This became relevant to the Astros player database, called Ground Control. A news story on Ground Control made its existence widely known. After Luhnow left the Cardinals for the Astros, Correa used Luhnow’s user name and password to access Luhnow’s e-mail where Luhnow received the Astro’s password for Ground Control. Correa then accessed Ground Control, via Luhnow’s credentials, at several key times during the season to obtain the Astros’ internal information on players in the draft and trade considerations. Earlier this year, Correa pleaded guilty to all counts filed against him for his behavior.

Employers should take heed of several warnings that come from Correa’s story. First, annual employee training should address computer fraud. Today’s workplace is highly competitive and employees need to know the potential criminal of trying to use a former employee’s login credentials, like Correa. Something as simple as guessing a password to a system you do not have authority to access can have serious consequences. Further, although the Cardinals have not faced civil liability to date, it is not difficult to see how an employer could be legally implicated by the employee’s conduct. For example, a competitor will likely look for any courtroom avenue possible if such unauthorized access leads to the loss of significant sales money. If a lower-ranking employee is acting on the instructions of a higher-ranking supervisor, the employer could be directly implicated. Additionally, not all employees may appreciate how their favorite user name and password they enjoy for access to anything requiring one can be a major security risk. Passwords should be regularly changed and employees should know why it is important to rely on something unique whenever possible.

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The Netflix Password Case You’ve Heard About Is Really An Employment Law Case http://www.walcheskeluzi.com/blog/netflix/ http://www.walcheskeluzi.com/blog/netflix/#comments Fri, 15 Jul 2016 18:18:08 +0000 http://www.walcheskeluzi.com/?p=3872 In recent days, media outlets have enjoyed website hits spreading like wildfire on social media from a case out of the Ninth Circuit that purportedly makes it a federal crime to share your Netflix password (for example, here, here, and here). For anyone concerned, you may take comfort where the majority opinion outright states, “This appeal is not about password sharing.” The headlines rise from the dissenting opinion that does not control. However, any company with critical information stored on electronic devices should pay attention to the U.S. v. Nosal (“Nosal II”) opinion because it does present relevant lessons for the employment.

Nosal II concerns the Computer Fraud and Abuse Act (“CFAA”). This not-so-well-known law prohibits conduct that can be critical in today’s workplace. The CFAA makes it a crime for anyone who “knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value . . . .” When might this come up in an employment context? Just about any time an employee takes critical information from an employer’s computer systems to compete with his or her former employer.

Nosal II decision involves employees of an executive search firm who launched a competing business. After announcing his resignation from Korn/Ferry International, Nosal negotiated an agreement with the company to stay on for a year. Nosal used that year to prepare to compete with Korn/Ferry International. At first, Nosal used his own password credentials to access the company’s systems and take proprietary information. However, once he was cut off by his employer, he relied on the credentials of a former assistant to continue to access the employer’s computer systems, and specifically their database of candidates and potential candidates. However, when each employee began at Korn/Ferry International, that individual signed a confidentiality agreement that prohibited password sharing. Additionally, a search report of the candidate database always included a message that the information was intended for use by employees for work on the company’s business only.

The recent Nosal II opinion actually follows a decision from the same parties a few years ago in Nosal I, where the Ninth Circuit addressed different language in the CFAA: Nosal I concerned the latter restrictive language quoted above: when does an individual “exceed[] authorized access.” The Ninth Circuit addressed the issue of whether an employee who violates an employer’s policies prohibiting the use of work computers for nonbusiness purposes exceeded authorized access for purposes of the CFAA. The Ninth Circuit’s answer in that decision was that the employee does not violate the CFAA under such circumstances.

Nosal II, however, deals with the earlier CFAA language: when does an individual access a protected computer “without authorization.” The court followed an earlier decision and took a plain meaning approach to define “authorization” as “permission or power granted by authority,” which can be granted or revoked. Here, the Ninth Circuit determined that after Korn/Ferry International revoked Nosal’s permission to the system, he no longer had authorization to access the company database in any form. The court also concluded that the assistant did not have authority to provide her password to Nosal or his cohorts and they knew she could not give out her password. Thus, although Nosal was successful in Nosal I, the Ninth Circuit found he violated the law in Nosal II.

What does this mean for employers? If you have electronic information that is critical to the company’s business success, this is another less that you need to treat it that way today so that you can protect it through the courts tomorrow. First and foremost, make sure that vital information is secured and protected. But this also means identifying to employees that once the employment relationship ends, individuals no longer have authority to access what they previously were allowed to access. Further, employees should be informed in writing that they may not share their access with others. When the employment relationship ends, remind them of these terms.

Wisconsin note: The Seventh Circuit took a different, broader approach to CFAA protections than the Ninth Circuit in Nasal I and conduct that “exceeds authorization.” In International Airport Centers, LLC v. Citrin, (7th Cir. 2006), the court found that an employee who breached his duty of loyalty by taking steps to compete with the employer terminated his authority to access the company’s laptop. This sort of passive revocation of authority was identified by the Ninth Circuit as what it wanted to avoid under the CFAA.

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