New Jersey Lawyer & Attorney : Stark & Stark Law Firm : New Jersey Law Blog

During recessionary times, most people are acutely aware of the general business relationship they have with their employer.  Few, however, fully appreciate the legal duties they may owe their employer as a result of documents they signed when they joined the company.  This lack of understanding can lead to problems when employees, frustrated by cut-backs in compensation, decreased wages and general job instability take actions that run “afoul” of the contractual and common law agreements they have with their employers.  Three (3) major pitfalls are outlined below:


Example One:  Confidentiality Agreements
All but a few employers require that new employees sign some form of confidentiality agreement.  This agreement usually comes in the stack of medical forms and other documents that are presented to the employee at or around their first day of work.  Most of these confidentiality agreements require that the employee maintain the confidentiality of information they learn while employed at the company.  This would include company policy information, customer information, financial information, sales information, technological information, etc. which it does not want shared with its competitors.  Employees should use caution against downloading confidential information and removing it from the company’s premises.


Example Two:  Non-Solicitation Agreements
Many companies that hire sales staff require that their sales employees sign a non-solicitation agreement.  The purpose of this agreement is to stop employees from soliciting from customers (whose identities they learned of while employed by the company).  Employers consider sales information to be owned by the company.  Most non-solicitation agreements contain a provision called an “injunctive relief provision” which allows the company to go to Court for an Order that will stop an employee from soliciting any customers whose identities the employee learned of while employed at the company.  These agreements usually contain an attorneys’ fees provision that allows the company to seek an order giving it all the attorneys’ fees the employer accrued to enforce the non-solicitation agreement.  As a result, an employee who violates a non-solicitation agreement can find him or herself unable to contact customers and also responsible for expensive attorneys’ fees.  There is a popular misconception that such agreements are not enforceable.  This is a myth.  Such agreements are generally enforceable in New Jersey to the extent that they are reasonable in scope and are designed to protect a company’s legitimate business interest.


Example Three:  Non-Competition Agreements
This type of agreement is not as ubiquitous as non-solicitation agreements, but it is often used with employees such as scientist and other researchers who have access to sophisticated scientific or technological information.  The affect of such an agreement is to stop an employee from working for a competitor of the former employer for a specific period of time.  While these types of agreements are not generally as easily enforceable as non-solicitation agreements, many courts will enforce these types of agreements if it is shown that as a result of working for the competitor, the employee will “inevitably disclose” sensitive information.  Obviously, this kind of agreement, if enforced, can have a significant impact on the employee.  The employee may be barred from working in the industry that he or she is trained for some period of time.  This can have a devastating economic effect on the employee.

While many of the employees may have forgotten that they signed a confidentiality agreement, most will remember signing a non-solicitation or non-competition agreement.  If the employee is not certain about this, they should take reasonable steps to determine whether or not they signed such agreements.  Many prospective employers will require that employee candidates sign a document stating whether or not they have entered into a non-solicitation or non-confidentiality agreement.  If an employee has concerns about an agreement they signed, or about confidential information that they may have learned, and are unsure how these things effect a potential employment with a new employer or a new business, the time to ask questions is before the employee resigns, not after.  Their best bet is to consult with an employment attorney prior to making mistakes that could prove to be very costly.
 

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To add to their other current woes, it is anticipated that New Jersey employers will soon be faced with higher employee costs due to proposed federal legislation known as “Card Check.” This legislation will make union organization far simpler in the Garden State (and everywhere else).  In general, “card check” removes the “secret ballot” from the union organization process.  Union organization will be largely accomplished by getting potential union members to simply sign a card indicating their desire to unionize. 

Opponents of the bill think this will lead to intimidation and threats to employees who do not wish to unionize – and will inevitably increase labor costs.  Backers of the legislation state that this step is necessary to revitalize union organization in the United States and will lead to higher wages for employees.  Most federal Democratic Party legislators favor the legislation, while most Republican Party members of Congress oppose it.  Given the new balance of power in Washington, passage of “card check” legislation is almost a certainty.  Look for passage of this legislation within the first 100 days of the new administration.     
 

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Many of you may remember the Federal Warn Act - an Act which requires 60 days notice of a company’s intent to shut down a location with 100 or more employees (with various exceptions, of course). What is not largely known is that New Jersey passed a “baby” Warn Act earlier this year. 

 

This Act reduces the number of required full time employees from 100 to 50.  The New Jersey WARN Act also eliminates the useful exception in the federal Act, which allows for termination of employees within a certain time period and other exceptions, which weakened the original federal Act. 

 

In short, the New Jersey Warn Act is a force to be reckoned with as we head deeper into the current recession.  Employers shutting down any office location should seek legal counsel prior to taking action.

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Bill A2491, which was originally filed in March 2008, was “introduced” on Thursday October 23, 2008 and then referred to the Assembly Commerce and Economic Development Committee on Friday October 24, 2008.  It will likely have a “second reading” before proceeding in the substantive legislative process. 

 

Members of the International Franchise Association gave a thorough argument against the bill, despite some tough questioning by the Committee members. I also gave some brief testimony on the technical aspects of the proposed bill. The fight against this bill is just beginning – and since passage of this bill could have a chilling effect on all types of franchising in New Jersey – this is a fight the franchising community needs to win.

 

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The “Mobile Franchise” Act has been scheduled for a legislative session on October 23, 2008 at 2:00 p.m. The session will take place in front of the Commerce and Economic Development Committee, Room 9 on the Third Floor of the State House Annex located in Trenton, New Jersey.

 

As I mentioned in a previous blog post:

House Bill 2491 and Senate Bill 1539 of the New Jersey Legislature seek to expand the type of franchises, which are subject to the New Jersey Franchise Practices Act. In general, the New Jersey Franchise Practices Act currently applies to franchises where: 1) the franchisor has granted the franchisee a license, mark, trade name, etc.; 2) there is a “community of interest” in the marketing of goods and services; 3) where the franchisee has established or maintains a “place of business” in New Jersey; 4) where the gross sales between franchisor and franchisee are more than $35,000 in the prior year; and 5) more than 20% of the franchisee’s sales are derived from the franchise. The proposed change in the statute would apply the provisions of the Franchise Practices Act to “mobile” franchises, in other words, franchises that do not have a brick and mortar location. Under the proposed Bill, a “place of business” would include a location where the franchisee “displays for sale or at which or from which the franchisee sells the franchisor goods.” This would include an office or warehouse from which franchisee personnel visit or call upon customers or, perhaps more importantly from which the franchisor’s goods are delivered to customers.

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In an interesting new development, the Appellate Division of New Jersey, in the matter of Cerdeira v. Martindale Hubbell, Appellate Division A-5855-06T1 (September 18, 2008) has expanded liability for discrimination in situations where: (a) an employee is subjected to discrimination/harassment by a co-worker (as opposed to a supervisor); and (b) the employer does not have an effective policy for employees to use in reporting harassment. Relying on a form of negligent liability which has previously only been recognized in federal court, the Appellate Division has now established that in New Jersey state courts, under the circumstances set forth above, there can be liability for a company. This new form of liability only underscores the need for employers in New Jersey to have a clear written policy on how employees are to report incidents of discrimination and harassment to their company.

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Last Summer, the New Jersey Legislature added  “affectional orientation” to the list of protected classes of people under the New Jersey Law Against Discrimination (NJLAD). Now New Jersey employers are faced with another tricky issue on a very practical level which may have not been considered by the Legislature.  How does an employer respond to a trans gender employee who wishes to use the bathroom of the opposite “biological” sex? For example, a biologically male employee who dresses as a woman wants to use the “ladies room.”  Should the employer allow this?  What about the other employees?  The courts in New Jersey have done almost nothing to answer these questions to date.  In a recent unpublished decision Opilla v. Parker, the Appellate Division sidestepped these issues in a case which would have otherwise provided employers with real guidance on this issue.  In Opilla, a trans gendered biologically male employee entered the women’s locker room of the corporate gym and allegedly stared at a semi-dressed female co-worker. The coworker was uncomfortable enough to complain about the incident to her employer and eventually filed a lawsuit. 


The court determined that one single incident of alleged discrimination would not rise to the severe and pervasive level required under NJLAD, thereby neatly avoiding the rather obvious issues presented in the case.  Other jurisdictions have taken on this issue and provide some guidance. For example, a Federal Court in Minnesota dealt with the trans gender bathroom question and made the following, seemingly reasonable determination:  If an employee presents “as a male,” the employee should use the mens bathroom – likewise if the employee presents “as a female,” the employee should use the womens bathroom.  While this is obviously not a perfect solution, and does not really address the issues other employees may have with sharing lavatories or locker room with transgendered coworkers, it is probable that this “middle of the road” solution will eventually become the law in New Jersey.  Only time will tell if New Jersey employers will take on the additional economic impact of creating a third “gender neutral” bathroom in their place of business.  

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In a previous blog post I discussed House Bill 790 in Vermont which would have had a substantial negative impact upon franchising in Vermont.  It would essentially void non-compete provisions in franchise agreements. 

The Bill apparently languished in committee through the end of the May session, which effectively kills it for the time being.  The danger of such bills is that they tend to leach into “sister” states.  The demise of the Vermont Bill is a positive development for franchisors and helps strengthen the franchise community in general because it protects the general integrity of franchise systems.

 

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Earlier today (May 21, 2008) President Bush signed into law a bill that prohibits employers from using genetic information about prospective employees to make decisions on hiring. The Bill had received almost unanimous support in both the House and Senate. The Bill contains, among other things, the following two Congressional findings (as stated in the bill):

(4) Congress has been informed of examples of genetic discrimination in the workplace. These include the use of pre-employment genetic screening at Lawrence Berkeley Laboratory, which led to a court decision in favor of the employees in that case Norman-Bloodsaw v. Lawrence Berkeley Laboratory (135 F.3d 1260, 1269 (9th Cir. 1998)). Congress clearly has a compelling public interest in relieving the fear of discrimination and in prohibiting its actual practice in employment and health insurance.
(5) Federal law addressing genetic discrimination in health insurance and employment is incomplete in both the scope and depth of its protections. Moreover, while many States have enacted some type of genetic non-discrimination law, these laws vary widely with respect to their approach, application, and level of protection. Congress has collected substantial evidence that the American public and the medical community find the existing patchwork of State and Federal laws to be confusing and inadequate to protect them from discrimination. Therefore Federal legislation establishing a national and uniform basic standard is necessary to fully protect the public from discrimination and allay their concerns about the potential for discrimination, thereby allowing individuals to take advantage of genetic testing, technologies, research, and new therapies.

This Bill contains the following prohibition:


SEC. 202. EMPLOYER PRACTICES.


(a) Discrimination Based on Genetic Information- It shall be an unlawful employment practice for an employer--

(1) to fail or refuse to hire, or to discharge, any employee, or otherwise to discriminate against any employee with respect to the compensation, terms, conditions, or privileges of employment of the employee, because of genetic information with respect to the employee; or
(2) to limit, segregate, or classify the employees of the employer in any way that would deprive or tend to deprive any employee of employment opportunities or otherwise adversely affect the status of the employee as an employee, because of genetic information with respect to the employee.

(b) Acquisition of Genetic Information- It shall be an unlawful employment practice for an employer to request, require, or purchase genetic information with respect to an employee or a family member of the employee except--

(1) where an employer inadvertently requests or requires family medical history of the employee or family member of the employee;
(2) where--

(A) health or genetic services are offered by the employer, including such services offered as part of a wellness program;
(B) the employee provides prior, knowing, voluntary, and written authorization;
(C) only the employee (or family member if the family member is receiving genetic services) and the licensed health care professional or board certified genetic counselor involved in providing such services receive individually identifiable information concerning the results of such services; and
(D) any individually identifiable genetic information provided under subparagraph (C) in connection with the services provided under subparagraph (A) is only available for purposes of such services and shall not be disclosed to the employer except in aggregate terms that do not disclose the identity of specific employees;

(3) where an employer requests or requires family medical history from the employee to comply with the certification provisions of section 103 of the Family and Medical Leave Act of 1993 (29 U.S.C. 2613) or such requirements under State family and medical leave laws;
(4) where an employer purchases documents that are commercially and publicly available (including newspapers, magazines, periodicals, and books, but not including medical databases or court records) that include family medical history;
(5) where the information involved is to be used for genetic monitoring of the biological effects of toxic substances in the workplace, but only if--

(A) the employer provides written notice of the genetic monitoring to the employee;
(B)(i) the employee provides prior, knowing, voluntary, and written authorization; or
(ii) the genetic monitoring is required by Federal or State law;
(C) the employee is informed of individual monitoring results;
(D) the monitoring is in compliance with--

(i) any Federal genetic monitoring regulations, including any such regulations that may be promulgated by the Secretary of Labor pursuant to the Occupational Safety and Health Act of 1970 (29 U.S.C. 651 et seq.), the Federal Mine Safety and Health Act of 1977 (30 U.S.C. 801 et seq.), or the Atomic Energy Act of 1954 (42 U.S.C. 2011 et seq.); or
(ii) State genetic monitoring regulations, in the case of a State that is implementing genetic monitoring regulations under the authority of the Occupational Safety and Health Act of 1970 (29 U.S.C. 651 et seq.); and

(E) the employer, excluding any licensed health care professional or board certified genetic counselor that is involved in the genetic monitoring program, receives the results of the monitoring only in aggregate terms that do not disclose the identity of specific employees; or

(6) where the employer conducts DNA analysis for law enforcement purposes as a forensic laboratory or for purposes of human remains identification, and requests or requires genetic information of such employer's employees, but only to the extent that such genetic information is used for analysis of DNA identification markers for quality control to detect sample contamination.

(c) Preservation of Protections- In the case of information to which any of paragraphs (1) through (6) of subsection (b) applies, such information may not be used in violation of paragraph (1) or (2) of subsection (a) or treated or disclosed in a manner that violates section 206.


Employers should note this prohibition, and immediately stop any hiring practices that would run afoul of the Act.

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House Bill 2491 and Senate Bill 1539 of the New Jersey Legislature seek to expand the type of franchises, which are subject to the New Jersey Franchise Practices Act. In general, the New Jersey Franchise Practices Act currently applies to franchises where: 1) the franchisor has granted the franchisee a license, mark, trade name, etc.; 2) there is a “community of interest” in the marketing of goods and services; 3) where the franchisee has established or maintains a “place of business” in New Jersey; 4) where the gross sales between franchisor and franchisee are more than $35,000 in the prior year; and 5) more than 20% of the franchisee’s sales are derived from the franchise. The proposed change in the statute would apply the provisions of the Franchise Practices Act to “mobile” franchises, in other words, franchises that do not have a brick and mortar location. Under the proposed Bill, a “place of business” would include a location where the franchisee “displays for sale or at which or from which the franchisee sells the franchisor goods.” This would include an office or warehouse from which franchisee personnel visit or call upon customers or, perhaps more importantly from which the franchisor’s goods are delivered to customers.


Potentially more significant than the proposed changes to the definition of “place of business” is the additional language that the Bill would tack on to the “general purpose” section of the Franchise Practices Act. The proposed Bill would add the following language:

“…and to protect franchisees from unreasonable termination by franchisors that may result from a disparity of bargaining power between national and regional franchisors and small franchisees. The legislature finds that these protections are necessary to protect not only retail businesses, but also wholesale distribution franchisees that “through their efforts” enhance the reputation and goodwill of franchisors in this State. Further, the legislature declares that the courts have in some cases more narrowly construed the Franchise Practices Act then was intended by the legislature”.

This additional language should concern franchisors doing business in New Jersey, since it is unnecessary to achieve the expansion to the “place of business” definition that is the focus of the Bill. This tougher language may indicate that there are further changes to the statute being considered. Certainly, the inclusion of the proposed language would be used as a justification by judges to give much broader application to the Act than has been the case in years past.


The two Bills are currently in the initial stage of the legislative process, and will probably not be acted upon until May or June of this year. The current sponsors of the two Bills are Assemblyman Joseph Cryan – District 20 (Union County) and Senator Bob Smith – District 17 (Middlesex and Somerset Counties). The legislation was introduced in the House on March 10, 2008, and in the Senate of March 17, 2008.

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