How do you discipline an Employee who has made a Protected Complaint and Minimize Your Risk of a Retaliation Lawsuit?

With the continued increase in employee based lawsuits (the Equal Employment Opportunity Commission filed 50% more sexual harassment lawsuits in 2018 over 2017) employers must be prepared to mitigate these risks. Any mitigation begins and ends with proactive policies that are consistently followed and provide for robust investigation and reporting mechanisms.

One of the most common challenges is how to discipline an employee that recently made a “protected complaint” (e.g. complaints of discrimination, requests FMLA leave, requests disability accommodations). Once an employee makes a protected complaint any discipline thereafter is subject to an argument that the discipline was retaliatory. Protected complaints are unique because the complaint is often not in dispute and sets a placeholder in a timeline that may presume retaliation. Unfortunately, courts have allowed claims to move forward largely because of the temporal proximity of the complaint and the discipline at issue.

Have Legitimate Business Reasons to Support Any Discipline

When terminating any employee, but particularly those that have made a protected complaint, it is imperative that the employer clearly document the reason it is making the decision to issue its discipline. Furthermore, when issuing the discipline the reason should be clearly communicated and given to the employee in writing.

It is important to distinguish between an employee who isn’t doing a good job and an employee who is engaging in misconduct. Discipline about job performance is invariably subject to an attack as being retaliatory because it is often subjective. The key is to focus on issuing discipline for misconduct or acts within the control of the employee. Examples include:

  • Theft
  • Disclosing trade secrets or confidential information (e.g. to their personal email, or cloud based services, such as Dropbox)
  • Failing to meet written objectives (sales goals, deadlines, etc.)
  • Manipulating time records or client records
  • Unauthorized use of business vehicles or other property
  • Falsifying an employee’s application or other employment history
  • Insubordination

Communicate the Discipline

Once the reasons for issuing the discipline have been documented it is important to set up a face-to-face conversation with the employee to communicate the discipline. Employees often believe discipline is retaliation because the employer never took the time to explain the reason it was issuing the discipline. Have a plan for that meeting and stick to that plan: (1) communicate the discipline; and (2) communicate the reason. It’s not an opportunity for the employee to plead their case or make an argument. At the end of the meeting the employee should be asked to sign a document confirming that they were told about the discipline (not that they agreed) and the business reason for issuing the discipline. This document should be concise and written in “plain language” and the employee should receive a copy. Any documents related to the discipline would be added to the employee’s personnel file.

Working with Your Employment Lawyer

If there is any doubt about issuing discipline to an employee (for whatever reason, but particularly when he/she is a member of a protected class) it is important to work with your team to develop a process, practice and program that everyone will follow. Retaliation claims can often be mitigated by taking proactive steps before issuing discipline. A key member of that team is an employment lawyer who can review and advise on best practices and moving forward with this decision.

If you have any questions regarding employment issues, please contact Walker R. Lawrence, or any of our lawyers in our employment law practice at Levin Ginsburg at 312-368-0100. You may reach Walker directly via email at wlawrence@lgattorneys.com

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“If You Give a Mouse a Cookie …” : Informational Rights of Minority Shareholders of Close Corporations and LLC Members in Illinois

Nearly all shareholder and membership disputes begin with a minority shareholder or member suspecting mismanagement by the majority shareholders or controlling members. It is that suspicion – if legitimate – that gives rise to the statutory informational rights of minority members and shareholders.

In the corporation context, the Illinois Business Corporations Act entitles shareholders access to certain business information and records if such information or records are requested for a “proper purpose.”  Similarly, the Illinois Limited Liability Company Act requires a member of an LLC to have a “proper purpose” for making a demand for the LLC’s records.

Not surprisingly, what constitutes a “proper purpose” and the specific “books and records” which a shareholder or member is entitled to inspect are the subject of extensive debate and interpretation. Almost universally, courts have held that while idle curiosity or a “fishing expedition” does not give rise to the statutory right to access information, actual proof of mismanagement or wrongdoing by the majority shareholders or members is not necessary to establish a proper purpose. Generally, so long as the purpose for the member or shareholder’s information demand is to protect the interests of the corporation or LLC (or the individual’s shares or membership interest), a “proper purpose” exists. If the shareholder or member can show a proper purpose, he or she will have the right to review any and all corporate records necessary to the shareholder’s or member’s investigation, including financial statements, QuickBooks files, bank statements, credit card statements and tax returns.  Indeed, while the right to information is not unqualified, Illinois courts, as recently as of January 2019, have characterized those rights as “presumptive.”

What protections exist for the company or majority stakeholders? Understandably, a corporation or LLC will want to push back on a request for sensitive financial or proprietary information if the company suspects an improper motive – particularly from a shareholder or member who has seemingly become adverse to the company. In addition to judicial recognition of a defense for improper or illegitimate purpose (such as to injure the corporation) in an action seeking to compel the production of the company’s records, the LLC Act provides that a company does not need to honor a books and records demand if the company knows that the member already possesses the information requested. Also, the LLC Act permits a company to impose “reasonable restrictions and conditions” on access to information, such as a confidentiality designation or other nondisclosure obligations.

To head off time consuming and expensive litigation and the possibility that a court may believe the company has something to hide, it may appear that the best course of action is to simply produce the requested records. So often, however, it becomes a case of “if you give a mouse a cookie…,” as the production of some records begets requests for more records. Unfortunately, even the production of every single piece of paper demanded by a minority shareholder or LLC member is not a guarantee against a lawsuit; if there is mistrust and suspicion on the part of the requestor, the dispute is likely to end in litigation no matter what you do.

For more information regarding informational rights and business partner disputes, please contact Katherine A. Grosh at: (312) 368-0100 or kgrosh@lgattorneys.com.

If You Give a Mouse a Cookie, first collaborative work written by Laura Numeroff and illustrated by Felicia Bond.

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Employer Loses at Appellate Court because its EEOC Position Statement and Summary Judgment were Inconsistent

In November a Federal Appellate Court reversed a lower court’s decision granting summary judgment in favor of the employer in a sexual harassment retaliation claim. The Appellate Court’s decision to reverse was based primarily on the inconsistent story presented by the employer and its key witnesses. Because of the shifting timeline of key events, the Appellate Court concluded that a reasonable jury could infer that the given “legitimate business reason” for the plaintiff’s termination was in fact contrived.

 

Background
Kelley Donley sued her former employer, Stryker Sales Corporation, for retaliation for filing an internal complaint against a manager for sexually harassing another employee. After receiving the complaint, the employer conducted an investigation and terminated that manager.

The employer then opened a separate investigation into Ms. Donley shortly after the manager was terminated claiming that she took inappropriate pictures of a CEO of one of the employer’s vendors. After completing this investigation, the employer terminated her employment. Mrs. Donley argued she could make a claim for retaliation because (1) the timing of her termination was close to the time she made the complaint; and (2) that if the employer intended to discipline her for taking the pictures, it should have done so when it knew about them – not after she made an internal complaint. The lower court disagreed with Ms. Donley and held that there was not a sufficient causal link between the intent to terminate and her internal complaint. As a result, it entered summary judgment in favor of the employer.

 

The Seventh Circuit Reversed
After reviewing the record, the Seventh Circuit reversed the lower court’s decision. The primary factual dispute was when the decision makers became aware of the pictures that Ms. Donley took and led to her termination. She alleged that her employer knew of the pictures the same night that she took the pictures and that her supervisor asked her to remove the pictures from her phone. There was no further discussion regarding the pictures.

When Ms. Donley filed her charge at the EEOC, the employer agreed that Ms. Donley’s supervisor had seen the photographs the night she took them. However, once the lawsuit was filed with the trial court, her supervisor denied having seen the photographs until the investigation into Ms. Donley commenced. The Seventh Circuit concluded that the employer’s inconsistent statements created a reasonable dispute of fact, such that a jury could conclude that terminating Ms. Donley for taking these pictures was intended to cover up its real reason – because she made an internal complaint of sexual harassment.

The Court concluded that if management knew about these pictures and intended to discipline her, the appropriate time to do so would have been when it first learned of the pictures – not six weeks later and after she filed her internal complaint.

 

Takeaway
The Court’s decision to reverse highlights the importance of position statements made by the employer to the EEOC in response to charges filed by employees (particularly now that position statements are routinely shared with the employee). It also demonstrates that when the decision to terminate an employee is made it is important that it be documented and discussed thoroughly with employment counsel. In so doing, the employer will develop the factual and legitimate basis for any termination and avoid any inferences that are beneficial to an employee.

If you have any questions regarding employment issues, please contact Walker R. Lawrence, or any of our lawyers in our employment law practice at Levin Ginsburg at 312-368-0100. You may also reach Walker directly via email at wlawrence@lgattorneys.com

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Biometric Information Privacy Act Update

In an attempt to increase productivity and efficiency, businesses are increasingly using biometric data to identify employees, customers and other individuals.  One common example of the use of biometric data is by employers to identify their employees and track work hours for purposes of compensation.   Biometric information includes fingerprints, retina scans, facial scans, hand scans, or other identifiers that are biologically unique to a particular person.   While convenient, and seemingly more secure, such biometric identification methods raise serious privacy concerns.  The Illinois Biometric Information Privacy Act, 740 ILCS 14, et seq. (“BIPA”), imposes many requirements concerning the collection, use, storage and destruction of biometric information with which businesses, including employers, must comply, or risk potential liability.

Under BIPA, before an Illinois business collects, stores, or uses biometric identifiers, it must develop a written policy and make the policy available to the public.  The policy must include a retention schedule describing how long such data will be stored, and provide guidelines for destruction of the same when the reason for the original collection of such data no longer exists, such as when an employee leaves or terminates employment.  Additionally, businesses must describe and adhere to a destruction schedule for biometric information that it is no longer using.  If no schedule is provided, then BIPA requires that a business destroy such information within three years of the individual’s last interaction with the business.

In addition to the required written policy, Illinois businesses must obtain consent and a written release from an individual prior to collecting biometric information.  Illinois is currently the strictest of any state law regarding the collection, retention, storage, and use of biometric information.  Before biometric information from an individual may be collected, all Illinois private entities and larger entities that do business in Illinois must (1) inform the individual in writing that a biometric identifier is being collected or stored, (2) inform the individual in writing of the specific purpose and length of time for which the biometric identifier is being collected, stored, and used, and (3) receive a written release executed by the individual assenting to the collection, storage, and use of a biometric identifier.  Absent a court order or law enforcement directive, such businesses may not share biometric information without express consent from the individual.

Illinois businesses that utilize biometric identifiers but do not comply with BIPA may face harsh penalties and civil litigation. BIPA provides that individuals may bring an action against a business that negligently or intentionally violates a provision of BIPA.  If the claim is negligence, the business may be liable for damages up to $1,000 per violation and if the claim is an intentional violation of BIPA, the business may be liable for damages up to $5,000 per violation.  Damages in either category may be higher if actual damages exceed these amounts.  An aggrieved party may also receive attorneys’ fees and costs, an injunction, and other relief.

Recently, privacy-related claims are on the rise as a result of BIPA.  Since mid-2017, over 100 cases have been filed in Illinois alleging violations of BIPA.  Typically, such cases are class action lawsuits by employees claiming violations of BIPA as it relates to employee time clock technology that uses an employee’s fingerprint as a means of identification.   Such cases often allege that the employer did not abide by the notice and consent requirements.  However, recently the Northern District of Illinois dismissed a case against Google because while the notice and consent parameters of BIPA technically were not followed, Plaintiffs were not able to establish any concrete evidence of harm, absent feeling that their privacy rights were violated.   Rivera, et al. v. Google, Inc., No. 16-02714 (N.D. Ill. Dec. 29, 2018).  In the Google case, Plaintiffs alleged that Google unlawfully collected, stored and exploited their face-geometry scans via Google Photos, its cloud-based service that utilizes such technology to group photos together and provide the user a means of storing photos by person.  The Court dismissed the case on Summary Judgement, stating that there was no evidence of harm because there was no evidence that Google provided the photos or face-geometry scans to anyone besides the Google Photos user.  The court discussed whether Plaintiffs suffered an identifiable injury because Google created their face templates without their knowledge or permission.  Users did not know that Google would scan the faces of those persons in photos they uploaded to Google Photos.  As such, Plaintiff’s argued that their privacy rights were violated by being deprived of the choice to not have the photos scanned, categorized and automatically uploaded to Google Photos.

After distinguishing many of the prior cases involving biometric data as different because the data was then commercially exploited, the Court dismissed the case for lack of standing, stating that it was insufficient that the record only demonstrated future, potential use of Google’s facial recognition technology.  Absent any evidence that Google currently employs such practices, or would do so in the future, and taking in to account that the user elected to use the Google Photos app knowing that his photos would be uploaded, the Court determined that the evidence of harm was too tenuous to allow Plaintiff’s claims to move forward.

While the recent Google decision highlights the potential for a successful defense in privacy and cybersecurity cases, businesses must continue to mitigate the risks of using biometric data collected from fingerprints, retinal scans and facial recognition.

If you have any questions regarding employment issues, please contact Natalie A. Remien, or any of our lawyers in our employment law practice at Levin Ginsburg at 312-368-0100. You may also reach Natalie directly via email at nremien@lgattorneys.com

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What is a Material Adverse Effect?

Review the default provisions of virtually any acquisition agreement and you will find a reference to the following (as an example):

“Any event shall occur that, in Purchaser’s opinion, has a material adverse effect on the collateral, or Borrower’s financial or business conditions, operations or prospects,”

or that reads as follows:

“The entry of any judgment, decree, levy attachment, garnishment or other process and such judgment or other process that would have a material adverse effect on the ability of either party to perform under this Agreement.”

But just what is a Material Adverse Effect (MAE)?  Even though the phrase repeatedly appears in those agreements, there typically is no definition of the term and, when questioned, the parties, and their respective counsel, are unable to provide one.

That is why the decision in Akorn v. Fresenius is important even though it does not involve a financial institution.  For the first time, a Delaware court, where much financially-related litigation occurs, has put some meat on the bones of the phrase.

Fresenius Kabi AG, a German pharmaceutical company, signed an agreement to merge with Akorn, Inc., a US pharmaceutical company on April 24, 2017.  Closing was to occur in 2018.  The acquisition was conditioned on: (1) the truth of Akorn’s representations at closing, (ii) Akorn continuing to operate its business as it had in the past, and (iii) the non-occurrence of a MAE.

During the preceding five years Akorn had experienced healthy growth.  That continued during the first quarter of 2017.  But then the roof caved in – quite suddenly.  Akorn lost a major contract and regulatory issues were raised by the FDA.

For the entire year 2017, Akorn’s revenue declined by 25%, operating income dropped by 105% and EBITIDA fell by 86%.  Obviously, the three quarters of 2017 that followed the execution of the merger agreement were disastrous.

In addition, the FDA received letters from whistle-borrowers complaining about Akorn’s data security system.  The FDA investigated and found that after signing the merger agreement, Akorn had cancelled its regularly-scheduled audits of its data security systems, failed to cure deficiencies, and had made a misleading presentation to the FDA.

Faced with that, Fresenius elected to terminate the agreement.  When Akorn sued to force Fresenius to adhere to the contract, the Delaware Chancery Court ruled in favor of Fresenius.

Although the court bolstered its conclusion by finding Akorn had breached the representations it made in the merger agreement, and failed to continue to operate its business as it had in the past, the crux of the decision was premised upon its finding that a MAE had occurred.  The court said that a MAE must “substantially threaten the overall earnings potential of the target in a durationally-significant manner” and that the relevant period of the MAE should be “measured in years rather than months”.  Applying those criteria the court had no difficulty in ruling for Fresenius.  The financial data told the tale.

What is notable about this case is that it is the first time a prestigious court has articulated what a MAE is.

Potential purchasers faced with an unanticipated significant long-term earnings slump by a prospective target after executing a commitment letter now have a way to measure whether they can reject the transaction based upon a MAE.  But the Delaware court did state that it was not establishing a bright line quantitative test.  Other surroundings circumstances are not to be entirely disregarded.

If you have any questions regarding Material Adverse Effects, please contact Michael L. Weissman at Levin Ginsburg at 312-368-0100. You may also reach Michael directly via email at mweissman@lgattorneys.com.

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