Successor liability attaches to satellite-TV provider for unpaid overtime claims of installation technicians
March 19, 2013| Ronald Miller
Cable and satellite-TV providers frequently use independent contractors tp provide installation and repair services to large portions of their service areas. The business relationships between these entities are understandably close. This is an industry that has seen more than its fair share of litigation attacking its business model..
A DirecTV satellite installer went belly-up. To avoid any interruption in service to its customers, the satellite provider stepped in and took control of the defunct company. Satellite installers filed a collective action suit seeking unpaid overtime owed by the contractor. Their claim presents the question of whether successor liability exists under the Fair Labor Standards Act (FLSA). This question is important because it affects whether DirectTV’s coffers may eventually be tapped to satisfy any judgment in this action. However, the Sixth Circuit, where the federal district court hearing the matter, has not answered this question.
In Thompson v Bruister and Associates, Inc, a federal district court in Tennessee found that successor liability was appropriate under the FLSA, and further found that DirectTV was a successor employer to a satellite installer Bruister and Associates (BAI) for purposes of this litigation. Here, the court noted that the undisputed evidence established that DirectTV continued to use the same facilities as BAI; continued to employ the majority of its rank-and-file employees in the same jobs and under substantially the same working conditions; continued to use the same equipment and infrastructure; and continued to provide the same service to the same customer base.
Financial difficulties. DirecTV entered in home service provider agreements pursuant to which BAI, an independent installation contractor, installed and serviced satellite systems for DirecTV customers. After BAI encountered financial difficulties, DirecTV advanced payments to the contractor and began investigating taking control of the business to avoid disruptions of service to its customers. Ultimately, DirecTV worked with BAI and its bank to work out a loan compromise, and took over the BAI’s assets in a foreclosure sale.
After the foreclosure sale, DirecTV subsidiaries conducted business out of the former BAI locations, and the former BAI employees were subsequently hired by DirecTV. Most of BAI’s satellite installers where hired by DirecTV and continued to perform substantially the same jobs. Further, DirecTV honored vacation time and other benefits employees had accrued during their employment, and retained their hire dates for tenure and benefit purposes.
By separate contract, DirecTV assumed leases for BAI’s vehicle fleet, and continued to use the same installation equipment. It also assumed various service contracts, including inventory and personnel services, and security monitoring, among others. BAI also assigned to DirecTV its rights under various insurance policies. Following the foreclosure, there was no interruption of the installation and repair services to DirecTV customers.
Successor liability. Although the Sixth Circuit has not decided the precise issue before the district court, it has adopted the federal common law of successor liability in employment law cases. Consequently, the appeal court’s silence on this issue hardly speaks volumes about its position with respect to successor liability under the FLSA, as suggested by DirecTV. Rather, Sixth Circuit’s ruling in EEOC v MacMillan Bloedel Containers, Inc, laid the framework for a multi-factor approach that was subsequently adopted by several other circuits and codified in the FMLA’s regulations. The court rejected DirecTV’s assertion that if Congress thought successor liability was appropriate under the FLSA, it would have adopted implementing regulations along that line. However, the court noted that the Sixth Circuit has repeatedly observed that Congress intended similar remedies for both the FLSA and the FMLA.
Most the cases that have found successor liability under the FLSA have relied upon the Ninth Circuit’s decision in Steinbach v Hubbard, which appears to be the only circuit court to have directly addressed the issue. Interestingly, the Ninth Circuit cited MacMillan for the proposition that the extension of liability to successors may be necessary to fulfill a statute’s intention to protect employees.
Given that the Sixth Circuit has recognized successor liability in the employment context, that courts that have directly addressed the issue unanimously appear to hold that successor liability can be appropriate in FLSA cases, the fact that the remedial purposes of the FLSA require the courts to define ‘employer’ more broadly than the term would be interpreted in traditional common law applications, and given the absence of any convincing arguments or authority to the contrary, the court found that the doctrine of successor liability should be applied in FLSA cases.
Maryland legislation that would have protected individuals from discrimination based on gender identity failed to get out of committee yesterday, according to news reports. The Senate Judicial Proceedings Committee’s vote of 5-6 prevented the Fairness for All Marylanders Act (S.B. 449) from moving to the state senate floor.
The legislation, which covered all employers, employment agencies, and unions, would have amended state antidiscrimination laws to include protections based on gender identity, defined as the “appearance, expression, or behavior of an individual regardless of the individual’s assigned sex at birth.”
Employers would have been immune from liability under the amended provision or under the common law for reasonable acts taken by the employer to verify the sexual orientation or gender identity of any employee or applicant in response to a charge filed against the employer on the basis of sexual orientation or gender identity.
The measure would have made Maryland the 17th state to protect individuals from discrimination based on gender identity in employment, housing, and public accommodations if the legislation had passed.
Describing its own ruling as a “mixed bag,” a federal court found that a company committed three separate torts under Pennsylvania law when it took over a discharged executive’s LinkedIn account for two weeks and posted her successor’s image and information on the page (Eagle v Morgan, No. 11-4303, March 12, 2013). Though the executive proved her claims of unauthorized use of name, invasion of privacy, and misappropriation of publicity, her lack of evidence beyond speculation doomed her claim for damages and she took nothing.
LinkedIn account. The executive created a LinkedIn account to promote the company she cofounded, a banking education service, and used it to “foster her reputation” and “build social and professional relationships.” Another employee helped her maintain the account and knew her password. According to the company, the CEO had recommended its employees establish LinkedIn accounts and list the company as their employer. It also claimed it had a policy of taking over employees’ LinkedIn accounts upon termination so it could “mine” the data and incoming traffic. The company was acquired in a buyout and the executive was later terminated. The new owner took over her LinkedIn account, changed her password so that she could not access it, then altered the account profile to replace her name and photo with her successor’s (though the executive’s personal honors, awards and connections remained). As a result, anyone searching for the executive on Google or LinkedIn would be routed to a page featuring her replacement. The executive filed suit, asserting numerous federal and state law claims.
Previously, in an October 4, 2012 ruling, the court granted summary judgment on her Computer Fraud and Abuse Act claim, finding that “[l]oss of business opportunities, particularly such speculative ones as set forth here, were simply not cognizable under the CFAA.” Nor could damage to her reputation and relationships suffice to state a viable claim. The Lanham Act claim fared no better. Because the employer replaced her name and photo on the LinkedIn account, she could not establish a likelihood of confusion, mistake, or deception of a potential customer or member of industry. All that remained were the executive’s tort claims and the company’s counterclaims.
Unauthorized use of name. The executive claimed the company violated 42 Pa.C.S. Sec. 8316, which states that “[a]ny natural person whose name or likeness has commercial value and is used for any commercial or advertising purpose” without written consent may recover damages. A “name” or “likeness” includes attributes that identify the person to an ordinary viewer. “Commercial value” means valuable interest in a person’s name or likeness “developed through the investment of time, effort and money.” “Commercial or advertising purpose” includes “public use or holding out of a person’s name or likeness” in connection with promoting or offering the sale of goods or services.
The court found the executive proved all of the elements of this claim. She presented testimony that the name “Dr. Linda Eagle” has commercial value due to her investment of time and effort developing her reputation in the industry, she is a published authority, has been quoted in other publications, and has presented at conferences. The former CEO testified to her experience and generation of substantial sales. She also established that the company used her name without her consent for commercial or advertising purposes. A person searching either Google or LinkedIn for Dr. Eagle during the time the company controlled her account, by typing in “Linda Eagle,” would be sent to a web page showing her successor’s name and profile. Further, the company derived commercial benefit from using her name to promote its services. As such, the company violated Sec. 8316.
Invasion of privacy. She also proved the company misappropriated her name for its own use or benefit, thereby invading her privacy. Rejecting the company’s argument that it did not use her likeness or credentials on the account page, the court explained that it disregarded the use of her name to initially direct users to the page. The executive had a privacy interest not just in her picture and resume, but in her name, and though the page reflected her successor’s information, the URL still contained her name.
Misappropriation of publicity. The right of publicity is violated by appropriating a person’s name or likeness without authorization and using it to commercial advantage. Contrasting this tort with invasion of privacy, the court explained that “the invasion of privacy by appropriation of name or likeness is a personal right” but the “right of publicity more closely resembles a property right created to protect commercial value.” The facts supporting the court’s conclusion that the company violated Sec. 8316 and invaded the executive’s privacy also supported its finding that the company committed misappropriation of publicity. By using her password to enter her LinkedIn account, changing the password to block her out, and altering the account to reflect her successor’s information, the company deprived her of the commercial benefit of her name.
Identity theft. On the other hand, the executive failed to establish identity theft because she could not show “unlawful possession” of her identifying information. Her name was publicly available and thus not unlawfully possessed by the company. The mere use of her name to direct a user to the company’s website and to keep her from accessing her account, while unscrupulous, was not so clearly an “unlawful” purpose that it was identity theft under 18 Pa. Cons. Stat. Sec. 4120(a). Further, the account page reflected her successor’s identifying information, not hers. The executive’s “Honors and Awards” information, which was left on the page, was not “identifying information.” To the court, a person directed to the page might be confused on how he or she arrived at the page, but would no doubt think the page belonged to the successor.
Conversion. The executive next alleged that by “hijacking” her LinkedIn account, the company committed the tort of conversion. The court rejected this claim, explaining that while other states have expanded the tort to include intangible property, Pennsylvania limited the expansion to “the kind of intangible rights that are customarily merged in, or identified with, a particular document (for example, a deed or stock certificate.)” A LinkedIn account is not tangible chattel, but rather is the right to access a specific page on a computer. Accordingly, the executive could not state a claim for conversion.
Tortious interference with contract. The executive was unable to offer into evidence her contract with LinkedIn, but the court could reasonably infer it from the account’s existence. Moreover, she established that by entering her account and changing her password, the company intended to harm her by preventing that relationship from continuing. Though the company asserted that under its policy, it “owned” its employees’ LinkedIn accounts and could “mine” them for information, no such official policy existed at the time and the LinkedIn user agreement clearly indicated that the individual user owned the account. However, the executive failed to prove actual legal damage or pecuniary loss flowing from the alleged interference and her claim necessarily failed.
Civil conspiracy and aiding and abetting. The executive’s conspiracy claim failed on multiple grounds, primarily due to lack of evidence as to any actions by the individual defendants; the tort requires “two or more persons” by its very nature. Furthermore, the company and its employees, directors, or shareholders “cannot legally conspire under well-established intra-corporate conspiracy doctrine,” the court explained. Nor could she establish the malice element of a conspiracy claim or any actual legal damage. Her civil aiding and abetting claims against the individual defendants failed because she did not provide evidence to support any findings as to their actions.
Damages. Through the testimony of the former CEO of the company (and the executive’s current business partner), the executive attempted to calculate the damages caused by the two-week complete loss of her LinkedIn account and nearly three-month partial loss of access to messages on LinkedIn. She had 4,000 existing LinkedIn contacts to whom she previously sold business. Using data from her lowest sales year, the estimated value of each contact for a two-week period was $62, which multiplied times 4,000 resulted in her estimated loss, at a minimum of $248,000. Considering an average sales year (as opposed to her minimum), the number rose to $500,000.
The court found this legally insufficient, in many respects, to establish damages to a reasonable certainty. First, she did not establish the fact of damages aside from her own self-serving testimony that she regularly maintained business through LinkedIn. She pointed to no contract, client, prospect, or deal that was lost due to her lack of full access to the account. To the court, there was a very real possibility that even with full access she would not have made any deals with her contacts during the time in question.
Even assuming she showed a “fair probability” that she sustained damages, she did not provide a reasonably fair basis for calculating them. Instead, she chose only to present the nonexpert testimony of the former company CEO, who proceeded without referring to any documentation, to “guesstimate” the executive’s annual sales over the previous five years. Furthermore, there was no evidence of a connection between the executive’s figures and the company’s actions with respect to her LinkedIn account. She could not name a single lost customer, deal or transaction. As such, it was “pure guesswork” for the court to determine damages. Accordingly, though the company was liable on three causes of action, the court awarded $0 in compensatory damages.
In addition, the court declined to award punitive damages because the executive failed to prove by a preponderance of evidence that the company acted with maliciousness and reckless indifference. In the court’s view, a reasonable inference could be that its actions were taken under the well-intentioned belief that it owned the account.
Counterclaims. In light of its findings of facts with respect to the executive’s tort claims, the company’s counterclaim for misappropriation with respect to the LinkedIn account was doomed to fail. The company never had a policy of requiring its employees to use LinkedIn, did not dictate the contents of accounts, and did not pay for the accounts. Furthermore, the user agreement with LinkedIn provided that the individual user owned the account. Because the company’s unfair competition claim rested entirely on its misappropriation allegations, that claim also failed.
Because new systemic compensation enforcement approach requires flexibility, OFCCP can provide “framework, not recipe” for evaluation, according to agency official
When the OFCCP makes a finding that a contractor’s pay practices are in compliance with Executive Order 11246, the agency wants that finding to be “really meaningful,” said OFCCP Senior Program Advisor Pamela Coukos during a March 11, 2013, OFCCP webinar on the agency’s new flexible, case-by-case approach to its analysis of systemic compensation discrimination. Findings of compensation compliance will be more meaningful going forward because the agency’s new approach, announced on February 26, 2013, will require the agency to do more thorough evaluations, Coukos stated. Because the new approach requires flexibility and case-by-case assessments, “we cannot give you a recipe, we can only give you a framework” for evaluating compensation, she observed.
The policy announcement of the new approach was made in conjunction with the OFCCP’s “Notice of Final Rescission” (NFR) — published in the February 28, 2013 Federal Register (78 FR 13508 – 13520) — of its 2006 notices on systemic compensation discrimination. Along with the NFR, the OFCCP has also issued Directive No 307, entitled, “Procedures for Reviewing Contractor Compensation Systems and Practices.” Links to the NFR, the new directive, and related documents, including a FAQ, are posted on the OFCCP website.
Rescinded notices. On June 16, 2006, the OFCCP published two finalized policy notices in the Federal Register regarding systemic compensation discrimination. The 2006 notices were not regulations or changes to any regulations; rather, they were statements regarding how the agency intended to enforce existing regulations. The first notice, entitled “Voluntary Guidelines for Self-Evaluation of Compensation Practices for Compliance With Nondiscrimination Requirements of Executive Order 11246 With Respect to Systemic Compensation Discrimination,” contained guidelines for federal contractors’ self-evaluation of compensation practices (“the voluntary guidelines”). The second 2006 notice, “Interpreting Nondiscrimination Requirements of Executive Order 11246 With Respect to Systemic Compensation Discrimination,” contained standards regarding systemic compensation discrimination that the OFCCP would use in enforcing Executive Order 11246 (“the standards”).
The agency maintains that the standards and voluntary guidelines forced OFCCP investigators to apply a narrowly defined, cookie-cutter approach to evaluating contractor pay practices. Investigators looked at each case the same way, regardless of the industry, types of jobs or pay practices, which conflicted with the basic principles of Title VII, the OFCCP stated. With the rescission of these notices, Coukos said, the OFCCP will enforce pay discrimination based on Title VII principles, the same way it does in hiring and other cases. Following Title VII principles will allow the OFCCP flexibility to address new legal developments, different kinds of industries, workers and pay practices, she stated. The standards and voluntary guidelines addressed a single type of pay practice, used limited evidence and used a highly specified analytic framework, Coukos noted. In contrast, courts say Title VII prohibits multiple forms of pay discrimination, allows for the use of various types of evidence and does not impose a rigid formula for proving discrimination. Put another way, the content of the rescinded notices did not reflect how Title VII works because Title VII is case specific, she said.
Investigative approach. Coukos explained that there are three key questions in every case: (1) is there a measurable difference in compensation on the basis of sex, race, or ethnicity? (2) is the identified difference in compensation between comparable employees under the contractor’s wage or salary system? (3) is there a legitimate explanation for the difference (i.e. is the difference based on “an appropriate comparison”)?
The OFCCP will tailor the approach and tools to be used based on the contractor’s compensation practices. Differences may be observed with regard to: base pay; job assignment or placement; opportunities to receive training, promotions, and other opportunities for advancement; earnings opportunities; and differences in access to salary increases or add-ons, such as bonuses.
Directive 307 procedures. As it has in past practice, the OFCCP will continue to begin every desk audit with a preliminary analysis of the summary compensation data it receives from the contractors in response to Item 11 of the OFCCP’s audit scheduling letter. This preliminary analysis will help the OFCCP determine: whether more information is needed; whether to proceed to an on-site; and how to allocate investigative resources. Depending on the results of the preliminary analysis, the OFCCP may request individual employee-level data from the contractor.
Preliminary analysis. During its preliminary analysis, the OFCCP will look at quantitative factors such as: the size of any overall average pay differences based on race and gender; the number of job groups or grades where average pay differences exceed a certain threshold; or the number of employees affected by race-or-gender-based average pay differences with job groups or grades. The agency will also examine qualitative factors such as compliance history, OFCCP or EEOC complaints, anecdotal evidence, potential violations involving other employment practices, and data integrity issues. There are no specific numerical thresholds attached to these factors, Coukos said.
Individual employee level data. In cases where the OFCCP requests individual employee-level data, it will request data on all employees covered by the contractor’s Affirmative Action Program. The OFCCP will examine all data and information provided. If needed, the agency will contact contractor to ask clarifying questions and request further information. Depending on its findings, the OFCCP will either proceed to onsite investigation or administratively close the case.
Compensation analysis stages. The OFCCP will analyze the compensation data it receives in stages. In stage 1, the agency will analyze the data for potential systemic discrimination in large groups, referred to as “pay analysis groups,” to assess preliminarily whether there is an overall pattern of discrimination. If it determines it is necessary, the agency will move on to stage 2, where it will analyze smaller groups or units for discrimination. If warranted, the OFCCP will then go to stage 3 where it may analyze for individual discrimination.
Any statistical analyses applied may involve multiple regression analysis of pay analysis groups as appropriate, and the OFCCP fully expects to use multiple regression analysis “frequently,” Coukos said. In any event, every analysis will be case specific and as the agency gets more information, it may revisit how its constructs the analysis.
During an on-site review, the agency will continue to apply its standard “Active Case Enforcement” principles. As such, it will: investigate pay policies and practices both stated and actual; identify any additional data or records that may be relevant; investigate factors used to determine pay; conduct interviews; and identify anecdotal evidence.
Contractors’ explanations. During the investigation process, contractors may provide information regarding the factors considered when making compensation decisions. The OFCCP will review and test factors on a case-by-case basis, and incorporate them into the analysis as appropriate.
Self-evaluation. What contractors need to know regarding self-evalutions is “quite simple,” according to Coukos, just “follow the regulations.” As long as the contactor’s self-compliance meets the regulations at 41 CFR Sec. 60-2.17(b)(3) & (d), the contractor will be in compliance with its obligations. Essentially, “you have to do it, have to do it more than once in a blue moon, and have to look for race and gender differences,” she explained. No specific method is required she noted, adding that “no one has to apply our directive to their own pay systems,” but the agency has made it available for contractor reference
Effective date. Directive 307 procedures apply to all OFCCP supply and service compliance evaluations scheduled on or after February 28, 2013 (i.e. where the date of the scheduling letter is on or after February 28). Otherwise, the OFCCP will apply the 2006 standards to determine whether to issue notice of violation.
Think your former employee has violated a nonsolicitation agreement by posting post-employment information on Facebook? Think again, and look carefully to the terms of your agreement, because that conduct may well be permissible. One federal court in Oklahoma recently adopted the recommendation and report of a magistrate and refused to grant the employer’s motion for a temporary restraining order, finding that a former employee’s Facebook post touting his professional satisfaction with his new employer’s product did not violate a nonsolicitation agreement (Pre-Paid Legal Services, Inc, v Cahill, February 12, 2013, Payne, J). General invites for former coworkers to join Twitter also fell outside the scope of the nonsolicitation agreement.
The employee started as a sales associate for the legal services company, which operates under a network marketing sales model. Sales associates are independent contractors who sell memberships and recruit new sales associates, known as the associates “downline.” In this instance, the employee quickly moved up the ranks, establishing a downline of more than 25,000. He was promoted twice, first to a regional manager and later to the regional vice president of Illinois.
Agreements signed. Sales associates are required to sign an associate agreement, which states, among other things, that downline information is confidential, proprietary information. Under the agreement, associates cannot solicit or recruit others into another organization. In addition to the associate agreement, the employee signed a regional manager agreement. That agreement identified certain information as trade secrets and confidential information, and included a nonsolicitation clause.
Employee leaves. At one point, the employee decided to move to another network marketing company. After he resigned, the employee took to social media, posting general information about his new employer on certain private pages he created for the employer. Though he ceased that activity, he has been actively posting information relating to his new employer on his personal Facebook page. Moreover, his Twitter account generated invitations to associates to join the social networking site.
Facebook posts. The employee’s ongoing posts to his personal Facebook page related to his new employer did not constitute solicitation under the terms of the nonsolicitation agreement. Noting that this was a “rather novel issue,” the magistrate turned to several other cases for support. Analogizing to a case regarding LinkedIn, the court found the employee’s conduct in this instance was “less explicitly inviting professional interest in [his new employer]” than in posting a job opportunity, which could have been but was not found violative of a nonsolicitation clause. In further support of its position, the magistrate turned to a case from a Massachusetts state court, denying an employer’s motion for a preliminary injunction in a case regarding solicitation through Facebook. In that case, the employee’s new employer posted an announcement about the employee’s new position and the employee had become Facebook friends with several of the plaintiff’s clients.
In deciding to deny the employer’s motion with respect to the Facebook posts, the magistrate reasoned that there was no evidence that the employee intended to or had solicited anyone other than the single colleague to leave. Therefore, the employer could not show that it was likely to succeed on the merits of its breach of contract claim regarding the Facebook posts or that it would suffer irreparable harm if the employee was not enjoined from posting to his Facebook page. Specifically, there was no evidence that the Facebook posts resulted in any flight from the employer to the employee’s new establishment, or that he was private-messaging associates or posting on their personal pages. If the employer wanted to avoid the possibility of similar conduct, its nonsolicitation agreement should provide a clearly defined definition of the activity they wish to prohibit.
Twitter invites. Though the employer’s motion did not hinge on it, the court addressed its argument that the employee engaged in solicitation in violation of the nonsolicitation agreement by sending out Twitter invitations to the employer’s sales associates. This argument fell short on several levels. First, there was no evidence that the individuals were targeted to “follow” the employee on Twitter, or that his Twitter feed contained any information about either his former or new employer. Moreover, contrary to the employer’s assertion that the employee may have sent out an email blast, there was evidence that the invitations were self-generated by the social media site on behalf of the employee. Finally, the invitations were sent to, among others, the CEO and general counsel of the company. The magistrate noted that if the employee targeted the invites himself, this was “implausible.”
Consider the conduct. Companies considering the ramifications of social media on their nonsolicitation agreements should carefully consider what conduct they expect may violate that agreement and clearly specify the activity they wish to prohibit. In the absence of a clearly defined agreement, general postings on an employee’s own Facebook page may not be actionable under a nonsolicitation agreement.