Court Report

Nov 1, 2004





Negative References Can Be ‘Adverse Action’

Hillig v. Rumsfeld, 10th Cir., No. 02-1102, August 27, 2004.

In building a case of retaliation under Title VII of the Civil Rights Act of 1964, an employee must show that he or she suffered an “adverse employment action.” Recently, the 10th U.S. Circuit Court of Appeals ruled that employer action that harms an individual’s employment prospects could amount to an adverse action.

In 1995 and 1996, Terrie Hillig, a clerical employee of the U.S. Defense Finance Accounting Service (DFAS), filed complaints alleging that her supervisors discriminated against her because she is black. In 1998, Hillig applied for a position with the U.S. Department of Justice (DOJ). She was not awarded the position, which was filled by a white employee. Hillig filed suit against the DFAS, claiming she was not promoted because of negative comments, including personal comments, made by her DFAS supervisors to the DOJ interviewers. At trial, a jury found that Hillig’s supervisors’ negative references were made in retaliation for her discrimination complaints, and awarded $25,000 to Hillig for the illegal retaliation. However, the jury noted that Hillig did not prove she would have been offered the specific DOJ position if not for the retaliation. Accordingly, the court found for the employer on the ground that to be an “adverse employment action” under Title VII, actions must result in tangible harm to an employee, and Hillig had not shown any tangible effect of the negative comments.

On appeal, the 10th Circuit reversed, holding that an employee need only show a likely effect on future job opportunities to support a claim of retaliation. The court pointed out the difference between a “tangible” employment action, which entails a significant change in employment status, and an “adverse” employment action, which it construed more broadly to include acts that carry “significant risk of humiliation, damage to reputation, and a concomitant harm to future employment prospects.”

While not every action that may affect a future employment opportunity is an adverse employment action, in Hillig’s situation there was evidence that her supervisors’ comments were very unfavorable and that the information could negatively affect future employment opportunities with the DOJ. Hillig did not have to prove that the loss of the specific DOJ job was the result of the retaliation—she simply had to show that the retaliation could have a negative effect on future job opportunities, the court concluded.

By Maria Greco Danaher, an attorney with the firm of Dickie, McCamey & Chilcote in Pittsburgh.

Wrongful Acts Taint Competition for Employees

Reeves v. Hanlon, Supreme Court of California, No. S114811, August 12, 2004.

Employees who leave one firm to establish a competing firm may legally compete with their former employer for both clients and employees, but they may be liable for the tort of intentional interference with at-will employment relations if they add an “independently wrongful act” to the mix, the Supreme Court of California has held.

Daniel Hanlon and Colin Greene were attorneys employed by Robert Reeves in his law firm, which emphasized immigration law and litigation. For five months before leaving Reeves’ firm, Hanlon and Greene accessed and printed out confidential client information and fomented dissatisfaction among the firm’s personnel. Departing the firm abruptly to establish a competing firm, they left no status reports or deadlines on the matters on which they had been working. They intentionally erased computer files and personally contacted clients and employees of the firm.

The Reeves firm lost nine employees, six of them joining Hanlon and Greene at their new firm. Reeves also lost 144 clients to Hanlon and Greene.

In Reeves’ lawsuit against Hanlon and Greene, the trial court found the defendants liable for tortuous interference with Reeves’ client relations and prospective client opportunities, and for interference with Reeves’ at-will employment relationships with his employees. Hanlon and Greene appealed only the latter finding.

Hanlon and Greene argued that there should be no liability simply for making job offers to at-will employees of another employer. Upholding the verdict against Hanlon and Greene, the Supreme Court of California noted that a former employee has every right to compete with a former employer “provided such competition is fairly and legally conducted.” The court noted that ethical competition promoted “the public policies supporting the right of at-will employees to pursue opportunities for economic betterment and the right of employers to compete for talented workers.” No actionable wrong is committed by merely soliciting or even hiring the at-will employee of another employer.

This case came down to whether Hanlon and Greene’s solicitation of Reeves’ employees had involved “an independently wrongful act—i.e., an act proscribed by some constitutional, statutory, regulatory, common law or other determinable legal standard.” The court characterized the conduct of Hanlon and Greene as both unlawful and unethical. Their misappropriation of confidential information, destruction of computer files and failure to leave status reports had “crippled” Reeves’ business operations and caused his personnel to terminate their at-will employment contracts. Rejecting the holding of an earlier case, the court held that an employer could maintain a cause of action against a competitor for intentional interference with its at-will employment relations.

By Wade E. Ballard, an attorney with the firm of Edwards, Ballard, Bishop, Sturm and Keim P.A. in Spartanburg, S.C., an affiliate of Worklaw Network.

What You Sign—Not When—Is What Counts

Nike Inc. v. McCarthy, 9th Cir., No. 03-35818, August 9, 2004.

The signing of a noncompetition agreement, not the sequence of events involved in its signing, is what matters in enforcing the agreement, the U.S. Court of Appeals for the 9th Circuit has ruled.

Nike employed Eugene McCarthy and offered him a promotion in 1997. At that time, Nike asked McCarthy to sign an agreement prohibiting him from competing with Nike anywhere in the world for one year following the end of his employment. McCarthy agreed, but later resigned and immediately accepted an executive position with Reebok. Nike cried foul and filed a lawsuit seeking to enjoin McCarthy from working for Reebok for one year.

Both the trial and appellate courts agreed with Nike based on the applicable state law. Oregon’s statute governing noncompetition agreements requires that an agreement be entered into either upon “the initial employment of the employee with the employer” or “upon subsequent bona fide advancement of the employee with the employer.”

McCarthy acknowledged that he had received a genuine promotion but argued that he did not sign the noncompete until three weeks after he began the job, so it was not signed “upon advancement.” The court rejected his argument and focused not on the exact sequence of when the agreement was signed and when changes in title took place, but rather on the totality of the circumstances. Although McCarthy began performing some of the new duties before signing the agreement, it was signed when he and Nike reached final agreement on the terms and conditions of the new position.

Oregon’s statute requires that the noncompete be reasonably necessary to protect the employer’s fair interests. While an employer does not have a legitimate interest in an employee’s general skills and industry knowledge gained during the course of employment, Nike did have a legitimate interest in information pertaining to its business. During the course of his employment, McCarthy acquired knowledge of Nike’s product launch dates, product allocation strategies, new product development, product orders and strategic sales plans up to three years in the future. McCarthy’s knowledge of such confidential information was sufficient to justify the enforcement of the noncompete.

McCarthy’s new position as vice president of Reebok involved substantial risk that McCarthy and Reebok could divert a significant part of Nike’s business. Thus, Nike showed potential harm from the use of that information.

By Rachel B. Cowen, an attorney with the firm of Connelly Sheehan Moran in Chicago, an affiliate of Worklaw Network.

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