Nebraska Supreme Court Clarifies Duty Analysis in Negligence Cases

           The Nebraska Supreme Court recently clarified the test for determining whether a party owes a duty of reasonable care to another, a threshold requirement for cases dealing with anything from car accidents to malpractice. To establish negligence in Nebraska, a plaintiff must show that the defendant owed a duty of reasonable care, that the defendant failed to act reasonably, and that the defendant’s failure to act reasonably caused the plaintiff damages. Whether someone owes a duty of reasonable care to another is a question of law for a judge, and a case could be dismissed if the plaintiff cannot establish a duty.  In 2010, the Nebraska Supreme Court adopted a new test to determine whether a duty of reasonable care exists, opining that a person owes a duty to another if the person engaged in conduct that created a risk of physical harm to another.

            In Bell v. Grow With Me Childcare & Preschool, parents of a child tragically killed by his nanny alleged that the nanny’s former employers were at least partially responsible for his death. They alleged that the daycares knew the nanny was a danger to children at the daycare, but that the daycares failed to report the nanny’s behavior to the Nebraska Department of Health and Human Services. The daycares alleged that their duty of reasonable care did not extend to the plaintiffs, as they had never used the daycares services or contacted the daycares prior to filing suit. The lower court refused to dismiss the suit based on failure to meet the duty requirement, finding that “the alleged conduct of not reporting suspected child abuse created a risk of physical harm”.

            After the case was appealed, the Nebraska Supreme Court determined that this analysis was made in error. The court noted that engaging in “conduct that created a risk of physical harm to another” must be an affirmative act rather than passive inaction. This is true because, barring narrow circumstances, if a defendant has not acted in a way to create a risk of harm to another, the defendant is not required to act in a specified manner. The court further explained that, to determine whether a person engaged in conduct that created a risk of harm to another, it is helpful to ask whether that same risk of harm would have been present to another if the defendant had been absent.

            In this case, the court determined that the lower court erred in its duty analysis for numerous reasons. First, the plaintiffs’ allegation that the daycares failed to act was not an affirmative action, but was merely passive inaction that does not create a risk of harm. Second, any actions by the daycare prior to the time that the plaintiffs hired the nanny did not increase the risk of harm already posed by the nanny herself.

            The Nebraska Supreme Court’s opinion in this case is the first where the court fully explored what actions trigger a requirement to help others under the framework adopted in 2010. By opining that an actor must affirmatively act in order to create a duty, the Nebraska Supreme Court placed a necessary constraint on negligence cases that is consistent with prior case law. By being able to better identify who owes a duty to whom, Nebraskans can have a better understanding about potential risks stemming from everyday actions.

Inverse Condemnation Claims/Political Subdivision Tort Claims Act

I.         THE COURT OF APPEALS PUTS A FINER POINT ON THE FORESEEABILITY ELEMENT FOR INVERSE CONDEMNATION CLAIMS.

The case is Essink v. City of Gretna, 25 Neb. App. 53, 901 N.W.2d 466 (2017).  In that case, the plaintiffs sued the City of Gretna for inverse condemnation action and negligence as a result of two sanitary sewer backups.  These were the only two backups Plaintiffs experienced.  The inverse condemnation claim was tried to a jury.  The Court allowed the jury to consider general theories of negligence that it was foreseeable that backups were likely to occur somewhere within the City of Gretna's sewer system.

            The initial question in an inverse condemnation case is not whether the actions of the governmental entity are the proximate cause of the plaintiffs' damages.  Instead, the initial question is whether the governmental entity's actions constitute the taking or damaging of property for public use.  That is, it must first be determined whether the taking or damaging was occasioned by the governmental entity's exercise of its power of eminent domain.  Essink v. City of Gretna, 25 Neb. App. 53, 901 N.W.2d 466-474; citing Henderson v. City of Columbus, 285 Neb. 482, 827 N.W.2d 486 (2013).  In order to meet the initial threshold that the property has been taken or damaged for public use, it must be shown that there was an invasion of property rights that was intended or was the foreseeable result of authorized governmental action.  Id.

            On appeal, the Court of Appeals reversed the jury verdict and ordered the case remanded with directions to enter a directed verdict in the City's favor.  The Court found that general theories of negligence cannot be used to support a claim for inverse condemnation.  Instead, plaintiffs must prove that the backups were: 1) both frequent or recurring; and, 2) that the City knew or could have foreseen that damage would occur to plaintiffs' specific property.  Because plaintiffs failed to present evidence of frequent or recurring backups and failed to prove that the City knew that damage would occur to their specific property as a result of the backup, the Court of Appeals concluded that a directed verdict should have been entered.

II.        THE COURT OF APPEALS AFFIRMS THAT THE NOTICE REQUIREMENT UNDER THE POLITICAL SUBDIVISION TORT CLAIMS ACT IS NOT A MERE TECHNICALITY. 

            Under the Political Subdivision Tort Claims Act, no suit shall be commenced against any employee of a political subdivision for money on account of damage to or loss of property caused by any negligent or wrongful act or omission of the employee while acting in the scope of his or her office or employment unless a claim has been submitted in writing to the governing body of the political subdivision within one year after such claim occurred.  Neb. Rev. Stat. § 13‑920(1).  All claims must be in writing and set forth the time and place of the occurrence giving rise to the claim and such other facts pertinent to the claim as are known to the claimant.  Neb. Rev. Stat. § 13-905.  A written claim to the political subdivision must demand the satisfaction of an obligation.  Jessen v. Malhotra, Essink at 478 citing Jessen v. Malhotra 266 Neb. 393, 665 N.W.2d 586 (2003). 

            In Essink, the plaintiffs submitted their cleaning bills to the City Clerk's office and argued these bills were sufficient to meet the notice requirements under the Act.  But the bills did not demand the satisfaction of an obligation.  Also, there were no documents submitted with the cleaning bills.  The bills only showed the date the work was performed, the location of the work, the reason for the work and the specific amount for such work.  The bills were addressed to the plaintiffs indicating they were responsible for payment of the bills.  And, the bills only indicated that they were the result of water damage in the plaintiffs' home - there was no allegation that the City caused the water damage, no reference to the sewer backups and no indication as to why the City would be responsible for the bills.  The only reference to the City was a statement in the bills that indicated Plaintiffs would submit them to the City for payment.  The Court of Appeals concluded that the content of the bills did not satisfy the notice requirements under the Act.  It therefor reversed the trial court's finding that the cleaning bills constituted a claim and overturned the judgment in plaintiffs' favor on their negligence claim.

Tortious interference among set of valuable tools for employers to protect their information from misuse by former employees

Recently, the Eighth Circuit Court of Appeals reviewed an appeal out of the District of Nebraska. The multiple claims against former employees, including a claim for tortious interference with business relationships, a claim not often considered by employees and employers, but which can make a wide array of damages available to a plaintiff. The claim often arises alongside claims that former employees have taken trade secrets or used confidential information to solicit clients or other employees. Read on to learn more!

Factual Background

            Bryce Wells (“Wells”) was the president and shareholder of West Plains Company. Wells sold West Plains Company to West Plains, L.L.C. (West Plains), in February 2012. West Plains operated a freight brokerage operation called CT Freight. When Wells sold West Plains Company, the employee defendants and Jodi May (“May”) all continued to work for West Plains in the same positions they held prior to the sale. The employee defendants signed the West Plains Employee Handbook, “which prohibited employees from engaging in conflicts of interest and disclosing confidential information to a competitor.”

            In October of 2012, Wells began forming Retzlaff Grain Company, a freight brokerage company. Retzlaff Grain Company did business as RFG Logistics. Wells recruited four of the employee defendants who “signed confidentiality and consulting agreements with Wells.” Wells provided them each with $5,000 as a consulting fee.

            These four employee defendants worked with Wells in creating RFG Logistics and recruited the remaining employee defendants to join RFG Logistics by the end of January, 2012. The employee defendants then submitted their resignations from CT Freight.

Procedural History

            In February 2012, West Plains brought suit, alleging “(1) misappropriation of trade secrets against all defendants; (2) tortious interference with business relationships against all defendants; (3) tortious interference with employment relationships against Wells and RFG Logistics; (4) breach of the duty of loyalty against the employee defendants; (5) civil conspiracy against all defendants; and (6) a violation of the Computer Fraud and Abuse Act . . . against [one of the employee defendants].”

            The district court granted a temporary restraining order against the defendants “prohibiting them from contacting and providing freight brokerage services for the customer and carriers of CT Freight” until the court ordered and to return all documents taken from West Plains. The temporary restraining order was extended to April 5, 2013. The district court ruled in favor of the defendants regarding the claims for tortious interference with employment relationships and the claim under the Computer Fraud and Abuse Act.

            At trial, the jury found in favor of West Plains on the tortious interference with business relationships claim as to all defendants except for three. The jury also found a breach of the duty of loyalty by all employee defendants. Finally, the jury found that all defendants, except May, entered into a civil conspiracy. According to these findings, the jury awarded West Plains $1,513,000 in damages and required forfeiture of compensation of all employee defendants. The defendants appealed.

Tortious interference with business relationships

            In order to prove tortious interference with a business relationship in Nebraska, the following must be shown: 1) “the existence of a valid business relationship or expectancy”, 2) that the person interfering had knowledge of the business relationship or expectancy, 3) “an unjustified intentional act” by the interferer, 4) a showing that the interference caused the harm, and 5) damage to the party whose business relationship or expectancy was interfered with. The defendants alleged that that their conduct did not amount to unjustified interference and that West Plains did not prove their conduct caused that damages sustained by West Plains after the temporary injunction expired.

Acts of Unjust Interference

            Often the key question in a tortious interference claim is whether the acts that interfered were justified and proper. In this case, the Eighth Circuit Court of Appeals determined that “a jury could find Wells unjustly interfered with West Plains’ business relationship by knowingly paying, recruiting, and seizing CT Freight’s workforce, infrastructure, and customer relationships.”

            The court reasoned that Wells knew that by recruiting freight brokers away from CT Freight that he could essentially own CT Freight without having to pay for it. Although Wells instructed the employee defendants not to take any customers from CT Freight, he recruited the leaders of CT Freight and began a plan “that effectively would remove CT Freight’s business to RFG Logistics.” The group resignation resulted in an inability by CT Freight to “broker large quantities of freight.”

            The court also found that “the employee defendants took it upon themselves to take CT Freight’s customer lists, documents, and confidential information.” There were messages between some of the employee defendants discussing how to send the customer information to their personal emails. During the process of their departure, the defendants took steps to not “disrupt their business with their existing customers, whom they admittedly planned to bring with them the moment they left CT Freight.” The court held that “[w]hile there was nothing unjust about the employee defendants’ choice to leave at-will employment with West Plains, there was evidence the employee defendants knew and understood their group resignation would decimate CT Freight.”

Damages after April 5, 2013

            The defendants argued that there was not enough evidence to prove that the defendants’ resignations caused the losses suffered by CT Freight. The Eight Circuit determined that “[the defendant’s] concerted action . . . resulted in tortious interference that caused damage to West Plains.”

            West Plains went from a profit of over $800,000 in 2012 to a net loss of $150,000. West Plains tried to preserve the business by recruiting employees but could not find employees for the business. The court reasoned that even though West Plains did hire new employees, these employees did not have sufficient experience or a customer base in the industry. The Eighth Circuit concluded that “the evidence was sufficient to show the defendants’ actions caused a loss of profits to West Plains, and that loss continued after the expiration of the temporary injunction.”

Breach of Duty of Loyalty

            The Eight Circuit determined that the employee defendants breached their duty of loyalty, as well. The employee defendants, while employed by West Plains, “intended to hinder CT Freight’s business” by giving CT Freight information to Wells and resigning together in order to make sure customers followed. The employee defendants signed an agreement prohibiting them from partaking in conflicts of interests and distributing company information. Seven of the employee defendants signed the confidentiality and consulting agreements with Wells, violating their employment agreement with West Plains. Also, four of the employee defendants received the compensation from the consultation with Wells.

            The employee defendants also argued that the forfeiture of their pay was excessive. The Eighth Circuit determined that there was “adequate support for each award” based on the extent of involvement with RFG Logistics.

Civil Conspiracy

            A civil conspiracy can arise when two or more people accomplish, by concerted action, an unlawful object. A finding that the defendants committed unjustified interference with West Plains’ business or breached their duty of loyalty “would support the conspiracy claim.” The Eighth Circuit determined that “[t]here was abundant evidence showing the defendants entered into an agreement tortuously to interfere with West Plains’ business or to breach their duty of loyalty.”

Mitigation

            The defendants argued that West Plains did not show that it mitigated its damages upon the resignation of the employee defendants. The Eighth Circuit determined that West Plains immediately transferred employees from another division to CT Freight and contacted its customers that left with the employee defendants in an attempt to retain their business. CT Freight even expanded its business into other sectors of the industry. This all satisfied its duty to mitigate damages.

West Plains, L.L.C. v. Retzlaff Grain Co., 870 F.2d 774 (8th Cir. Aug. 30, 2017).

Takeaway for employers

            If you suspect former employees are appropriating your confidential information to consult with your clients or employees or may be planning to appropriate your information to form a competing venture, it is best to get your attorney involved right away. You may have rights to assert through a cease and desist letter, and could ultimately be vindicated in a court of law.

Nebraska Supreme Court defines “restore” and “suitable employment” for vocational rehabilitation plans

Nebraska law permits the Nebraska Workers’ Compensation Court to approve vocational rehabilitation plans for certain injured workers to facilitate their return to gainful employment. Read on to learn about the Nebraska Supreme Court’s recent consideration of what the law means to “restore” an employee to work and in “suitable employment.”

Factual Background

            Charles Anderson injured his arm while working as a millwright with EMCOR Group, Inc. When Anderson was injured, he was making $26.50 an hour and $1060 per week. When Anderson reached maximum medical improvement, the workers’ compensation court determined that he was entitled to a vocational rehabilitation evaluation. Anderson and EMCOR agreed on a vocational rehabilitation counselor, Lisa Porter.

            Porter prepared a “Vocational Rehabilitation Plan Justification for Formal Training Proposal.” Under Nebraska statute, there are five priorities that must be used in developing and evaluating a vocational rehabilitation plan. A higher priority may not be used “unless all priorities below it are unlikely to result in suitable employment.” For Anderson, the three lowest priorities were inadequate as they involve a plan to work for the same employer. EMCOR did not have any suitable employment available for Anderson. Porter decided that the next highest priority would be unavailable to Anderson as well, which involved employment with a new employer. Porter’s research showed that available jobs for Anderson paid $9 to $11 an hour; not suitable in light of his earnings at EMCOR of $26.50 per hour. Porter also contacted other employers but they did not have suitable employment for Anderson.

            As a result, Porter decided the only option for Anderson was under the highest priority plans. This priority involved “formal training that will lead to employment in another career field.” Anderson had grown county-fair award winning vegetables in the past. Anderson also had an interest in this area. Therefore, Porter felt the career field best suited for Anderson would be in horticulture or agriculture.

            Upon making this finding, Porter prepared the plan for Anderson. Under her plan, Anderson “would obtain a 2-year associate’s degree of applied science in agriculture business and management with a focus in horticulture at Southeast Community College in Beatrice, Nebraska.” Anderson’s hourly wage would be $13.20 after completing his education.

            After the plan was created by Porter, it was evaluated by a vocational rehabilitation specialist appointed by the compensation court. The vocational rehabilitation specialist denied Porter’s plan. Based on information the court’s specialist learned from the community college’s placement services director, formal training was unnecessary for the job goals of the plan. The specialist also stated that the job search done by Porter showed six jobs that did not require training and that paid between $9 and $14 per hour. The specialist ultimately decided that Porter’s formal training plan was “not reasonable or necessary” as one of the plan goals (employment as a vegetable farmer) was something that Anderson was already performing so he had no need for further training.

            After the specialist denied the plan, EMCOR petitioned to modify the award of vocational rehabilitation benefits and services. EMCOR alleged that Anderson’s “condition and circumstances no longer support an award of such services.” EMCOR claimed these services were no longer necessary because Anderson was already partaking in the practice of gardening and Anderson admitted “his inability to earn a similar or increased wage performing the work for which he seeks vocational rehabilitating retraining, and consent to earning such a lower wage.” Anderson responded by filing a motion requesting the implementation of Porter’s plan.

Anderson’s Testimony

            The court heard evidence on Anderson’s motion. Anderson testified that he had earned his GED and received a diploma in computer-aided drafting in 1998. Due to changes in technology, this education was no longer useful. Anderson testified that there were few jobs available in his area, and he was unwilling to work more than 25 miles away from his hometown. Anderson did not seek employment in the previous year but did earn $150 a week for five months from selling vegetables that he grew in his garden. Collectively, Anderson and his wife made $8,000 per year. Anderson testified that his “ultimate career employment goal was to be self-employed.” Anderson wanted to expand his greenhouse. Formal education would qualify him for jobs in selling chemicals, farm management, or as a golf course manager. In learning these potential jobs, he could then build a greenhouse and become self-employed.

Compensation Court’s Opinion

            The compensation court dismissed EMCOR’s petition to modify the award of vocational rehabilitation benefits and services and declared that Anderson was “entitled to participate in the proposed plan” because his current job of farming was not “suitable employment.” The court then determined that it was “unable to conclude that [Porter’s] plan will not lead to a suitable job.” EMCOR then appealed.

Nebraska Supreme Court Ruling

            In considering the appeal, the Nebraska Supreme Court noted one of the primary purposes of the Nebraska Workers’ Compensation Act is “restoration of an injured employee to gainful employment” and that if an employee is “unable to perform suitable work for which he or she has previous training or experience, the employee is entitled to vocational rehabilitation services as may be reasonably necessary to restore him or her to suitable employment.” The central focus of EMCOR’s appeal was on whether the vocational rehabilitation plan set forth by Porter would restore Anderson to “suitable employment.”

            The court explicitly adopted definitions of “restore” and “suitable employment.” “Restore” was defined to mean “to put back.” The court defined “suitable employment” to mean “employment which is compatible with the employee’s pre-injury occupation, age, education, and aptitude.”

            The compensation court determined that income of less than $8,000 per year was not “suitable employment” for Anderson. In order for him to gain employment in the relevant field of horticulture, additional education would be required. The compensation court had also taken into consideration the fact that job opportunities were limited in the area where Anderson lived. The Supreme Court held there was sufficient evidence to support the lower court’s findings in this regard.

            Porter’s plan involved Anderson working full-time as a supervisor or manager and the median annual wage in the area of farming, fishing, and forestry was $49,100. The Court held that Porter’s plan would place Anderson into employment making similar wages prior to the injury and “in a field that would be compatible with his age, education, and aptitude.”

            Since the plan “was reasonably necessary to restore Anderson to suitable employment, the [compensation] court did not err in ordering that Anderson was entitled to participate in it.”

For employers

            When you have an employee claiming a workplace injury or are facing issues with regarding an employee’s claim to benefits following an injury, engaging an experienced workers’ compensation attorney is vital.

Bitcoins and the Law

Last year Bitcoin and other cryptocurrencies went “mainstream” with regular financial reporting of prices and tales of fortunes made or lost.  This has prompted many ordinary investors to try their hand at cryptocurrency investing.  This has fed an ever widening set of cryptocurrency products being offered to consumers and businesses alike.  These products range from Wall Street backed crypto currency exchanges like coinbase.com to initial coin offerings (“ICOs”) now being used by start-ups to attempt to bypass the regulations that normally apply to the capital-raising process.
 
The sheer exuberance surrounding cryptocurrencies and the often inaccurate depiction of cryptocurrencies as not subject to ordinary laws is fertile ground for fraudsters and high-risk unsound investment schemes.   For example, numerous market players still promote their ICOs as not subject to state or federal securities regulation despite convincing and sound conclusions to the contrary.  In fact, use of an ICO may very well expose the entity (and its individual managers) using it as a capital-raising device to potential civil and criminal charges, sanctions, and personal liability to individual investors.  
 
Due diligence requires that before you or your business involves yourself in any crypto currency undertaking that you consult with competent and experienced business counsel so you can fully understand the true risk of the undertaking.  Investors who have already lost money in a crypto currency scheme should also exercise due diligence by consulting with counsel because, under existing law, those who involved them in the scheme may be personally obligated to repay for the lost investment. 
 

Durational terms in an offer created an employment agreement—not at-will employment

In an employee’s appeal, the Nebraska Court of Appeals recently considered an offer of employment, whether its acceptance by the employee created a valid employment contract, and whether the employer had cause to revoke the offer upon learning new information. The trial court had ruled for the employer as a matter of law, but the Court of Appeals recently sent the case back down to the trial court so a jury can decide these issues. Read on to learn more!

Background

    Paula Crozier (“Crozier”) was employed as executive director of a nonprofit organization. She resigned from that position in March of 2014. She then applied for the position of marketing and communications director at Brownell-Talbot School (“Brownell”). During an interview for the positon, Crozier was asked why she left her previous employment. She answered, “due to differences in business practices and ethical standards.” 
    Crozier was offered the position, and Brownell sent an offer letter for her to sign and return. The letter stated that Crozier would be hired for a twelve-month position but then stated her period of employment would be May 5, 2014 to July 30, 2015, a period of about fourteen months. The letter also stated that Crozier would receive an annual salary of $55,000 and made reference to various benefits that Crozier would receive after two years of employment.
    The letter was sent by Brownell on April 28, 2014 and was signed and returned by Crozier on April 29, 2014. On May 1, 2014 Brownell made an announcement that it had hired Crozier.
    On May 2, 2014 a newspaper article was published that described several issues involving Crozier’s former employer. The issues included billing and management problems and a failure to respond to an allegation of sexual abuse by an employee. Neither Crozier’s name nor any dates coinciding with Crozier’s dates of employment were mentioned in the article.
    Crozier brought the article to her direct supervisor who brought it to the attention of the head of the school. That day, the head of the school held a meeting with Crozier. At the meeting, Crozier explained she was not responsible for any of the problems and that she had resigned before the incident regarding the sexual abuse. Crozier also explained that she left her former employer upon discovering the issues that were mentioned in the article. Crozier reported the issues to the attorney general and the Department of Health and Human Services.
    Later that day, Brownell retracted the offer to Crozier over fears of public relations and damage to its reputation.
    Crozier filed a complaint against Brownell alleging a breach of contract and lack of good cause to revoke the offer of employment.

District Court Proceedings
    The district court found that the “durational terms in the letter were ambiguous and there was no clear intent sufficient to overcome the presumption of at-will employment.” The district court also found that Brownell had good cause in revoking the offer to Crozier. Subsequently, Crozier appealed.

Court of Appeals’ Ruling
    a.  Contract of Employment. The court noted that a contract is considered ambiguous “when a word, phrase, or provision in the contract has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings.” Here, the court determined that the contract was in fact ambiguous. The contract identified Crozier’s job as a “twelve-month position” and conferred an “annual salary” but then stated the term of Crozier’s employment will last from May 5, 2014 to June 30, 2015, a total of 14 months. The court stated that there is no way to read the letter that “can reconcile these conflicting durations, which stand in direct contradiction of one another.” Since a term in the contract was susceptible to two different interpretations, evidence beyond just the terms of the contract could be considered to construe the parties’ actual agreement. 
The court then considered the testimony of Brownell’s director of business and finance. He stated that the reference to the 12 month period was in order to distinguish Crozier’s employment from that of a 10-month or 9-month employee. He further specified the salary stated in the offer was for determining Crozier’s monthly rate of pay. 
The court concluded that, in light of this testimony, a jury could find Crozier was to be employed for a definite term from May 5, 2014 to June 30, 2015 for a specific rate of pay. As a result, the question of breach of contract should have proceeded to the jury, and the court of appeals reversed the trial court’s decision.
    b.  Good Cause for Revoking Offer
    The court clarified that an employer can terminate an at-will employee at any time for any reason but if an employee is contracted for a defined term, that employee “cannot lawfully be terminated prior to the expiration of that term without good cause.” The court defined “good cause” in terms of what a reasonable employer would determine to be a good reason for terminating an employee. 
    The court determined that reasonable minds could differ as to whether Brownell revoked its offer to Crozier for good cause. Brownell stated that it terminated Crozier out of public relations concerns and that it could harm its reputation. Crozier presented evidence that her name was not mentioned anywhere in the news article and those allegations stated in the article were the reason she resigned from her previous employment in the first place. As a result, this issue should also have been left to a jury to decide. 
    The matter will be returned to the district court for trial of these issues to a jury.
Crozier v. Brownell-Talbot School, 25 Neb. App. 1 (2017).

Takeaway for employers
    Placing temporal terms on an offer of employment can transform what might otherwise have been an offer of at-will employment. Think carefully about crafting offer letters and involve your legal counsel for any special circumstances when offering new employment or renewing employment.
Bonnie Boryca can be reached at boryca@eslaw.com or (402) 397-2200.

Can’t Tell the Difference? Eighth Circuit distinguishes protected concerted efforts from employee disloyalty and malice

    Whether you employ unionized employees or not, Nebraska employers must be aware of the concept of protected concerted activity under the National Labor Relations Act. Employees who engage in concerted (i.e., joint) efforts with co-workers to address their working conditions or terms of employment, may be engaging in conduct protected by federal law. Terminating or disciplining because of that conduct can give rise to an unfair labor practice charge before the National Labor Relations Board. Recently, the Eighth Circuit Court of Appeals (whose decisions govern Nebraska employers) recognized the difference between protected concerted activity and employee conduct that is disloyal, reckless, or maliciously untrue—and not protected. Read on to better understand the important distinction!

Background

    MikLin Enterprises (“MikLin”) owns and operates ten Jimmy John’s sandwich shops in the Minneapolis-St. Paul area. Michael Mulligan is the owner and co-owner and Robert Mulligan is the vice-president. MikLin workers started an organizing campaign, attempting to gain union representation by the Industrial Workers of the World (“IWW”).   
    As part of the campaign, employees demanded paid sick leave. The MikLin handbook stated that MikLin did not allow people to simply call in sick  ̶  they were required to find their own replacements for any time off. The IWW began posting on community bulletin boards in MikLin stores. These posters contained two identical Jimmy John’s sandwiches next to each other and stated above one sandwich:  “Your sandwich made by a healthy Jimmy John’s worker,” and above the other identical sandwich: “Your sandwich made by a sick Jimmy John’s worker.” Below the sandwich was the question, “Can’t tell the difference?” followed by:  “That’s too bad because Jimmy John’s workers don’t get paid sick days. Shoot we can’t even call in sick.” 
MikLin managers quickly removed the posters from the stores.   IWW dispersed a press release, posters, and a letter to over 100 media contacts.  It discussed “unhealthy company behavior” and concluded by threatening that if Robert and Michael Mulligan would not meet with the IWW supporters to discuss their demands, “dramatic action” would be taken and they would display their posters around the city. Within the letter, there was an assertion that MikLin stores committed health code violations daily. The letter went on to state that because of the sick leave policy, MikLin was jeopardizing the health of their customers.
    Four IWW organizers met with Mulligan, and he stated that MikLin was in the process of amending its policies. The new policy involved a point system for absences. If an employee received four disciplinary points in a twelve-month period, he or she would be terminated.  This new policy stated that employees were not allowed to work until any flu-like symptoms had subsided for a 24-hour period.
    After the implementation of the new policy, the IWW supporters followed through with their threat but this time created posters with Mulligan’s phone number on them, encouraging people to call him. Mulligan and store managers removed these posters and Mulligan fired six employees who organized the campaign and delivered written warnings to three others who aided in the attack.  This gave rise to charges of unfair labor practices.

NLRB Finds an Unfair Labor Practice

    The Administrative Law Judge with the National Labor Relations Board, ruled that MikLin violated Sections 8(a)(1) and 8(a)(3), of the National Labor Relations Act, which protects concerted  activities of employees  ̶   “Section 7 of the NLRA protects employee communications to the public that are part of and related to an ongoing labor dispute.” Employee communications are not protected if they are “disloyal, reckless, or maliciously untrue.” To lose protected status, the employee communications must have been made with a “malicious motive” or have been “made with knowledge of the statements’ falsity or with reckless disregard for their truth or falsity.”
    The ALJ determined that the posters, press release, and letter were all related to the ongoing labor dispute as they dealt with the sick leave issue. Although the posters were not literally true (employees could call in sick; they just had to find coverage for their missed shift), employees were disciplined if they failed to find a replacement.  Therefore, it was a “protected hyperbole,” or somewhat exaggerated truth.
    The ALJ also found that, even though MikLin had only been investigated twice by the Minnesota Department of Health for food borne disease, it was possible that MikLin’s sick leave policy could increase the risk of food borne disease.  Again, that statement was considered to be true or hyperbole.
    The ALJ ruling then went to the NLRB.  A divided NLRB affirmed the ALJ’s conclusions. It determined that the posters were clearly related to the ongoing labor dispute over the sick leave and the statements were not “so disloyal, reckless, or maliciously untrue so as to lose the Act’s protections.”

The Eighth Circuit Declines to Enforce Much of the NLRB’s Ruling

    (1)    “Sick Day” Poster Issues

    The court noted that an employer commits unfair labor practices if it terminates an employee for engaging in activities that are protected under the NLRA, including  communications to third parties or the public that are utilized to improve their position as employees. But, Section 10(c) of the NLRA allows employers to terminate employees for cause.
    Courts have determined that disloyalty to an employer amounts to “cause” under Section 10 (c).  In determining disloyalty, the central question is “whether employee public communications reasonably targeted the employer’s labor practices, or indefensibly disparaged the quality of the employer’s product or services.” The former is protected and the latter is not. The court also stated that an employee’s disloyal statements can lose protection under section 7 of the NLRA without a showing that the statements were made with actual malice.
    Here the court agreed with the NLRB that the sick day posters, press release, and letter were related to other section 7 protected concerted activity intended “to improve the terms and conditions of their employ by obtaining paid sick leave.” However, the court determined that the posters, press release, and letter were not protected because they were a “sharp, public, disparaging attack upon the quality of the company’s product and its business policies.” This was evidenced here by the fact that the posters, press release, and letter were done to convince customers that they may get sick if they eat a Jimmy John’s sandwich, attacking the product itself.  An allegation that a food industry employer is selling unhealthy food is the “equivalent of a nuclear bomb” in a labor-relations dispute. The nature of the attack was likely to outlive, and also unnecessary to aid, the labor dispute.
    The court also determined that claims about the sandwiches were “materially false and misleading.” The press release and the letter claimed that MikLin committed health code violations daily, putting customers at risk of getting sick. The court stated that these were not true statements, evidenced by MikLin’s record with the Minnesota Department of Health over ten years and requiring employees to call in sick if they have had any flu-like symptoms in the previous 24 hours.
    In sum, MikLin had cause to terminate and discipline the employees involved.
 
    (2)     Facebook Postings by MikLin Supervisors
 
    The Eighth Circuit considered other aspects of the NLRB ruling.  As the IWW began organizing, a MikLin employee created a “Jimmy John’s Anti-Union” Facebook page. On this page, MikLin employees posted disparaging comments about an IWW supporter. The ALJ determined that these posts violated section 8(a)(1) of the NLRA by encouraging harassment of the IWW supporter, which the NLRB affirmed.
    The appeals court determined that the public disparagement and degradation of the union supporter “restrained or coerced MikLin employees in the exercise of their section 7 rights” out of fear they would suffer similar treatment if they chose to support the IWW.  Thus, this aspect of the NLRB ruling was enforced.

    (3)    Removal of In-Store Union Literature

    After losing the first election, the IWW had filed unfair labor practice charges and objections to the election with the NLRB. MikLin and the IWW settled by stipulating to set aside the election and hold a re-run election.  After this, a MikLin employee posted a notice on a bulletin board to the employees (pursuant to the settlement) of the settlement and what it meant. A union supporter posted next to this notice an IWW “FAQ about the Union Election & Settlement.” The IWW post was taken down repeatedly.  The ALJ had determined that this was a violation of section 8(a)(1) of the NLRA, and the NLRB affirmed.
    The court enforced the NLRB’s order on this issue.  Section 8(a)(1) protects employees’ rights to “bargain collectively through representatives of their own choosing.” Removal of the IWW poster interfered with union supporters’ right to communicate about their organization in violation of section 7 of the NLRA. 
Miklin Enterprises, Inc. v. NRLB, Nos. 14-3099 & 14-3211 (8th Cir. July 3, 2017).

Bottom Line for Employers

    If you face efforts from employees that may deal with their working conditions or terms of their employment but believe they may be acting in a disloyal, reckless, or malicious way, contact your employment and labor attorney to fully discuss the issue.

Bonnie Boryca may be reached at (402) 397-2200 and boryca@eslaw.com.
 

Department of Labor Clarifies Test for Determining Whether an Intern is an Employee under the FLSA

On January 5, the United States Department of Labor clarified that, going forward, it will use the “primary beneficiary” test a number of federal appellate courts use to determine whether interns are considered employees under the Fair Labor Standards Act. This decision was announced after the United States Court of Appeals for the Ninth Circuit, in December, became the fourth appellate court to reject the Department of Labor’s prior six-part test for the same topic.

Under the Department of Labor’s prior six-part test, an intern was considered an employee unless all the following factors were met:

1.       The internship is similar to training which would be given in an educational environment;

2.       The internship experience is for the benefit of the intern;

3.       The intern does not displace regular employees;

4.       The employer provides that the training derives of no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;

5.       The intern is not necessarily entitled to a job at the end of the internship;

6.       The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

However, the Ninth Circuit, along with the Second, Sixth, and Eleventh Circuits, expressly rejected this test.  Instead, the courts preferred the “primary beneficiary test”. Under this more flexible test, discussed by the Second Circuit in Glatt v. Fox Searchlight Pictures Inc., courts and employers would weigh and balance seven non-exhaustive factors. These factors are:

1.       The extent to which the intern and the employer clearly comprehend that there is no anticipation of compensation.

2.       The extent to which the internship provides training similar that would be given in an educational environment.

3.       The extent to which the internship is linked to the intern’s formal educational program by coursework of academic credit.

4.       The extent to which the internship accommodates the intern’s academic schedule.

5.       The extent to which the internship’s duration is limited to the time period when the intern is provided beneficial learning by the internship.

6.       The extent to which the intern’s work supplements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.

7.       The extent to which the intern and the employer understand that the internship is directed without entitlement to a paid job at the end of the internship.

Employers should take time to examine any internship positions to determine if an intern could possibly be considered an employee under the Fair Labor Standards Act.

EEOC Sues Employer for Gender Discrimination Related to Parental Leave Policy

Recently, the Equal Employment Opportunity Commission (“EEOC”) filed suit against cosmetic company Estee Lauder Companies, Inc. alleging the company discriminated against men by providing less parental leave benefits than women. Under federal law, men and women are allowed equal pay for equal work.

The EEOC alleges that the company’s leave policy allows for six weeks of leave for new mothers and “primary caregivers” and two weeks for “secondary caregivers”.  According to the suit, a male employee applied for primary caregiver status, but was denied. The employee was allegedly told that the “primary caregiver” designation only applied to surrogacy situations and would not apply to men avowing they would be the primary caregiver to their child. The EEOC argued that such a policy violates Title VII of the Civil Rights Act of 1964, which prohibits discrimination based on gender, and the Equal Pay Act of 1963, which prohibits discrimination based on gender when men and women work at the same company under comparable circumstances.

At this time, there does not appear to be an issue with the “primary caregiver” and “secondary caregiver” designation that many employers use when the policy is gender neutral. However, critics state that defining “primary caregiver” and “secondary caregiver” without utilizing gender stereotypes is easier said than done and could lead to gender discrimination when applied incorrectly.

With more companies allowing parental leave for both mothers and fathers, employers should review their policies to ensure that parental leave policies are not discriminatory. For example, an employer could provide the same benefits to mothers and fathers for the birth or adoption of a child, while allowing additional benefits tied directly to medical disability for pregnancy, childbirth, or similar circumstances. Such a policy may help avoid the issue of defining who is considered the “primary caregiver”, and it be more straight-forward for employees to apply in the workplace.

ERISA: A Plan Sponsor’s liability for an underfunded plan.

The 8th Circuit recently held that a defined benefit pension plan participant’s claim against a Plan Sponsor cannot move forward if an underfunded plan becomes overfunded during the course of litigation.  In Thole v. US Bank, National Association, et el, No. 16-1928 (October 12, 2017),  the 8th Circuit held that a defined benefit pension plan participant who alleges a breach of fiduciary duty and prohibited transaction claims under ERISA is unable to assert their claims if the plan subsequently becomes overfunded, even if the overfunding occurs after litigation has been filed.  

In Thole, the Plaintiffs were retirees of U.S. Bank and participants in the U.S. Bank Pension Plan (“the Plan”).  U.S. Bancorp was the Plan’s sponsor, while U.S. Bank was the Plan’s trustee.  Pursuant to the Plan document, the Compensation Committee and Investment Committee had authority to manage the Plan’s assets. The Compensation Committee was composed of U.S. Bancorp directors and officers.  The Compensation Committee designated a subsidiary of U.S. Bank as the Investment Manager with full discretionary investment authority over the Plan’s assets.

Plaintiffs brought an action against U.S. Bank, N.A., U.S. Bancorp, and multiple U.S. Bancorp directors challenging the defendants’ management of the Plan.  The Plaintiffs alleged that the defendants violated the Employee Retirement Income Security Act of 1974 (ERISA) by breaching their fiduciary obligations and causing the Plan to engage in prohibited transactions.  The Plaintiffs asserted that the ERISA violations caused significant losses to the Plan’s assets in 2008 and resulted in the Plan being underfunded.  Plaintiffs challenged the management of the Plan from September 30, 2007 to December 31, 2010. 

Plaintiffs alleged that the Investment Manager had invested the entire portfolio in equities managed by the Investment Manager.   Plaintiffs further alleged that because defendants put all the Plan’s assets in a single higher-risk asset class, the Plan suffered a loss of $1.1 billion.  The status of the Plan as underfunded at the commencement of litigation was not in dispute.  

Following the commencement of litigation U.S. Bank made voluntary contributions to the Plan in the amount of $311 million dollars.  These additional voluntary contributions resulted in the Plan becoming overfunded, with more money in the plan than was needed to meet its obligations. Defendants moved to dismiss the case asserting that Plaintiffs could no longer prove they had suffered any financial loss. The District Court dismissed the action, concluding that because the Plan was now overfunded, the Plaintiffs lacked a concrete interest in any monetary relief that the court might award to the Plan if the plaintiffs prevailed on the merits. On Appeal the 8th Circuit Court of Appeals affirmed the District Court’s decision.

In addition to the monetary relief sought by Plaintiffs, the Court also determined that the Plaintiffs’ injunctive relief claim against the Investment Manager could not move forward.  While ERISA provides that a plan participant or beneficiary may bring a civil action to enjoin any act that violates any provision of the Act or terms of the plan the Court held that plaintiffs must make a showing of actual or imminent injury to the Plan itself, and because the Plaintiffs could not show injury as the plan was overfunded injunctive relief was not appropriate. 

The Court’s holding allows a Plan sponsor to make additional contributions to a Plan even after litigation has commenced, increasing the burden on a Plaintiff to prove injury in such an action. 

Can Data Breach Victims Sue in Federal Court Without Actually Suffering Identity Theft?

Recently, health insurer CareFirst Inc. filed a petition with the Supreme Court of the United States to resolve a disagreement among federal appellate courts on the issue of whether victims of data breaches may sue in federal court when they do not allege a present injury. This suit, on appeal from the United States Court of Appeals for the District of Columbia Circuit, will largely center on the idea of standing, a threshold requirement for any plaintiff hoping to sue in federal court. More specifically, CareFirst Inc. alleges the D.C. Circuit erred in reasoning that a plaintiff has standing to sue in federal court simply by virtue of the fact and nature of the data that was accessed by hackers. The data included names, birth dates, email addresses, and subscriber identification numbers.

Pursuant to the federal law, standing requires that a plaintiff suffer some sort of injury to sue. Future injuries may be actionable. However, courts will require that there be a substantial risk of injury. For data breach victims that have not seen evidence of identity theft or fraud, the main question is whether theft of private information as a result of a data breach creates a substantial risk of an identity theft to be actionable.

This August, the United States Court of Appeals for the Eighth Circuit, which hears cases from federal courts in Iowa and Nebraska, ruled in Alleruzzo v. SuperValu, Inc. that a district court properly dismissed many plaintiffs from a data breach action. In that case, hackers gained access to customers’ card information from a grocery store network. This included names, card numbers, expiration dates, card verification values codes, and personal identification numbers. Several customers filed suit under a variety of theories, but only alleged that one customer suffered a single fraudulent charge. Due to lack of injury, the case was dismissed by the district court.

On appeal, the plaintiffs argued that theft of their card information created a substantial risk that they will suffer identity theft in the future. The court initially noted that because card information does not contain social security numbers and birth dates, the information cannot plausibly be used to open new accounts, a form of identity theft most harmful to consumers. It also analyzed a 2007 Government Accountability Office report, which concluded that based on available information, most breaches have not resulted in detected incidents of identity theft. Since the plaintiffs presented no facts from which the court could conclude that plaintiffs suffered a substantial risk of future identity theft, they had no standing to sue in federal court.

The Eighth Circuit and the D.C. Circuit are not the only courts to consider the issue. Like the Eighth Circuit, the United States Court of Appeals for the Fourth Circuit, in Beck v. McDonald, concluded that the risk of identity theft was too hypothetical to allow plaintiffs to sue. Meanwhile, the United States Courts of Appeals for the Sixth and Seventh Circuit have stated, in Reijas v. Neiman Marcus and Galaria v. Nationwide Mutual, that data breach victims suffered an imminent risk of identity theft when the breach occurred.

While the Supreme Court has not yet agreed to hear CareFirst’s arguments, this is certainly an issue to keep watching. Should courts continue to state that data breach victims have standing to sue businesses by virtue of the fact that hackers gained access to the data, such litigation can be expected to rise as data breaches continue. 

Davis v. State: State is not required to plead and prove an exception to the State Tort Claims Act, and an exception to the State’s immunity may be raised for the first time on appeal or sua sponte.

On October 6, 2017, in the case of Davis v. State, the Nebraska Supreme Court concluded that its prior cases holding that the State of Nebraska (the “State”) must plead and prove an exception to the State’s immunity from suit under the State Tort Claims Act (the “STCA”) were clearly erroneous. Davis v. State, 297 Neb. 955, 979 (2017).  As a result, the Court overruled its prior cases “to the extent they can be read to hold that a state attorney waives an immunity defense under [the Act] by failing to raise it in a pleading or to a trial court.”  Davis, 297 Neb. at 979.1

Instead, the Court held “that an exception to the State’s waiver of immunity under the STCA is an issue that the State may raise for the first time on appeal and that a court may consider sua sponte [(i.e., on its own motion)]”.  Id.  The Court’s rationale for its holding was that “when a plaintiff’s complaint shows on its face that a claim is barred by one of the exceptions [to the STCA], the State’s inherent immunity from suit is a jurisdictional issue that an appellate court cannot ignore.”  Id.  While not specifically stated, the Court’s holding in Davis will also apply to claims under Nebraska’s Political Subdivisions Tort Claims Act (the “PSTCA”).  See id.

The effect of the Court’s holding in Davis is that a plaintiff bringing a tort claim against the State or against a political subdivision will have to meet somewhat of a heightened pleading standard.  In addition to having to comply with the procedural requirements of the STCA or the PSTCA, plaintiff’s will also have to ensure that their complaint does not show, on its face, that the claim is barred by one of the exceptions to the State’s or political subdivision’s waiver of immunity.  If it is, the trial court, or even an appellate court, has the inherent power to determine whether the plaintiff’s allegations show that the tort claim is facially barred by an exception to the STCA or the PSTCA.  See id. at 980.

The Davis holding also relaxes the pleading standard for the State and political subdivisions.  As indicated above, because the Court considers the exceptions to the State’s and political subdivision’s waiver of immunity under the STCA and PSTCA as jurisdictional issues (i.e., whether the court has the power to hear the case), the failure to raise an exception in a responsive pleading or at trial does not operate as a waiver of the defense, and may be raised by either the State, political subdivision, or the court for the first time on appeal.

1 The cases that were overruled were Maresh v. State, 241 Neb. 496, 489 N.W.2d 298 (1992); Hall v. County of Lancaster, 287 Neb. 969, 846 N.W.2d 107 (2014); Doe v. Board of Regents, 280 Neb. 492, 788 N.W.2d 264 (2010); Reimers-Hild v. State, 274 Neb. 438, 741 N.W.2d 155 (2007); Lawry v. County of Sarpy, 254 Neb. 193, 575 N.W.2d 605 (1998); Sherrod v. State, 251 Neb. 355, 557 N.W.2d 634 (1997); and D.M. v. State, 23 Neb. App. 17, 867 N.W.2d 622 (2015).

Federal Grant Funds Available for Communities to Improve Airfare and Air Service.

          The Department of Transportation (“DoT”) today announced a solicitation of proposals from communities seeking federal grant money to assist with the improvement of the community’s airfare and air service. The DoT is offering a total of $10 million in grants under its Small Community Air Service Development Program (“SCASDP”) to be disbursed to up to 40 communities, consortia of communities, or a combination of either (“Communities”).

           The SCASDP grants are to be used to implement improvements of the Community’s airfare and air service. This year, the DoT has a total of $10 million available in fiscal year 2017 (October 1, 2017 to September 30, 2018) to distribute in the form of grants to up to 40 Communities in order to implement improvements proposed by the applicant. There is no limitation on the amount of the grant awarded, but past awards have ranged from $20,000 to $1.6 million. Of the 36 SCASDP applicants in 2016, only nine grants were awarded to Communities in seven states.

          Those Communities eligible to receive the grant include those with airports that are not larger than a small hub airport, have inadequate air carrier service or high airfares, and have an airport for their Community that exhibits a need for grant assistance. Groups of communities are eligible if they are working jointly to accomplish the same goal and fit into the aforementioned categories.

          Importantly, the grants cannot be used for capital improvements. So runway expansions or resurfacing, construction of new hangars, etc. are not eligible improvements under the SCASDP. While there are several available uses for the grants, one of the more interesting is that grants are available for an underserved airport to carryout measures that are deemed to be useful in improving air service regarding the cost of air service to consumers and the availability of that service. This includes improving marketing and promotion of air services.

          As in 2016, the DoT will give priority to those Communities where: airfares are higher than the average airfares for all communities; a portion of the cost of the activity contemplated by the community is provided from local, non-airport revenue sources; a public-private partnership has been or will be established to facilitate air carrier service to the public; improved service will bring the material benefits of scheduled air transportation to a broad section of the traveling public, including businesses, educational institutions, and other enterprises whose access to the national air transportation system is limited; the funds will be used in a timely manner; and multiple communities cooperate to submit a regional or multistate application to consolidate air service into one regional airport.

          Communities that are currently receiving air service under Essential Air Service (“EAS”) or Alternate Essential Air Service (“AEAS”) are not eligible for SCASDP grants. Grant applications must be submitted no later than December 15, 2017 by 4 p.m. eastern time.

          For more information on SCASDP, EAS, AEAS and other state and federal grant programs relating to aviation, or for assistance with the grant application and determining your Community’s eligibility, please contact Tiernan Siems with Erickson | Sederstrom.

Divorce’s Impact on Estate Plans in Nebraska

    On September 3, 2017, Nebraska LB 517 went into effect. The passing of this bill has resulted in the enactment of Nebraska Revised Statute §30-2333, titled “Revocation by divorce or annulment; no revocation by other changes of circumstances.” What exactly does this mean? Well, absent a court order, express terms of a governing instrument, or contract relating to the division of the marital estate, it means a few different things.
   First, a divorce or annulment revokes any revocable transfer or appointment of property made by a divorced individual to his or her former spouse, or to a relative of his or her former spouse. For instance, let's say Spouse 1 is both the owner and insured of a life insurance policy that lists Spouse 2 as the primary beneficiary. In the event Spouse 1 and Spouse 2 legally divorce, Spouse 2 is no longer treated as the primary beneficiary of said policy, assuming the contrary is not specified under the policy, by court order, or by other contractual agreement between the parties.  In this case, the provisions of the life insurance policy are given effect as if Spouse 2 disclaimed all interest in the life insurance policy. The same principle applies to accounts with payable on death designations, last wills, interests in certain trusts, pensions, retirement plans, transfer on death deeds, annuity policies, profit-sharing plans, etc.  
    Also revoked by a divorce or annulment is any revocable provision giving the former spouse, or relative of the former spouse, a general or non-general power of appointment. An individual's estate planning documents often contain such powers of appointment. Also found in estate planning documents are nominations of certain fiduciaries. Any revocable nomination of the former spouse, or relative of the former spouse, as a fiduciary or representative is revoked upon divorce or annulment. Examples of potential nominations include an executor, trustee, guardian or power of attorney.
    Next, a divorce or annulment severs any interest in property held together by former spouses as joint tenants with a right of survivorship at the time of the divorce or annulment. The former spouses then become equal tenants in common.  What does “joint tenants with a right of survivorship” mean? Let’s say you have Spouse 1 and Spouse 2 and they own property together as joint tenants with a right of survivorship. Now if Spouse 1 dies, Spouse 2 automatically obtains the percentage of the property previously held by Spouse 2. Now what about “equal tenants in common”? Now you have Spouse 1 and Spouse 2 and this time they get a divorce. Upon the divorce, Spouse 1 and Spouse 2 both have equal shares in the property, and upon the later death of one spouse, the surviving spouse no longer has a right to the deceased spouse's interest in the property. Again, it is important to note that these are default rules absent express terms of a governing instrument, court order, or other property settlement agreement.  Also, unless there has been a writing declaring the severance and the writing was noted, registered, filed, or recorded in appropriate records, this severance does not affect a purchaser’s interest in the property so long as the purchaser purchased it for value and in good faith relied on the fact that the title was in survivorship in the survivor of the former spouses. 
    Also, it is important to note that a decree of legal separation is not considered a divorce or annulment for purposes of this statute. Moreover, provisions revoked solely by this statue are revived by the divorced individual's remarriage to the former spouse or by nullification of the divorce or annulment.
    How are third parties affected by this statute? A third party is not liable for making payment or transferring property to a beneficiary designated in a governing instrument that is affected by the divorce, annulment, or remarriage, or for taking any other action in good faith reliance on the validity of the governing instrument, before such third party receives notice. If a third party receives written notice of the divorce, annulment, or remarriage, the third party then becomes liable for payments or action taken regarding the property after said notice.  Finally, a former spouse, relative of a former spouse, or other person who received, without giving value in return, a payment, an item of property, or any other benefit to which that person is not entitled under this section is obligated to return the payment, item of property, or benefit, or is personally liable for the amount of the payment or the value of the item of property or benefit, to the person who is entitled to it. 
 

Can’t Tell the Difference? Eighth Circuit distinguishes protected concerted efforts from employee disloyalty and malice

   Whether you employ unionized employees or not, Nebraska employers must be aware of the concept of protected concerted activity under the National Labor Relations Act. Employees who engage in concerted (i.e., joint) efforts with co-workers to address their working conditions or terms of employment, may be engaging in conduct protected by federal law. Terminating or disciplining because of that conduct can give rise to an unfair labor practice charge before the National Labor Relations Board. Recently, the Eighth Circuit Court of Appeals (whose decisions govern Nebraska employers) recognized the difference between protected concerted activity and employee conduct that is disloyal, reckless, or maliciously untrue—and not protected. Read on to better understand the important distinction!
Background
    MikLin Enterprises (“MikLin”) owns and operates ten Jimmy John’s sandwich shops in the Minneapolis-St. Paul area. Michael Mulligan is the owner and co-owner and Robert Mulligan is the vice-president. MikLin workers started an organizing campaign, attempting to gain union representation by the Industrial Workers of the World (“IWW”).   
    As part of the campaign, employees demanded paid sick leave. The MikLin handbook stated that MikLin did not allow people to simply call in sick  ̶  they were required to find their own replacements for any time off. The IWW began posting on community bulletin boards in MikLin stores. These posters contained two identical Jimmy John’s sandwiches next to each other and stated above one sandwich:  “Your sandwich made by a healthy Jimmy John’s worker,” and above the other identical sandwich: “Your sandwich made by a sick Jimmy John’s worker.” Below the sandwich was the question, “Can’t tell the difference?” followed by:  “That’s too bad because Jimmy John’s workers don’t get paid sick days. Shoot we can’t even call in sick.” 
MikLin managers quickly removed the posters from the stores.   IWW dispersed a press release, posters, and a letter to over 100 media contacts.  It discussed “unhealthy company behavior” and concluded by threatening that if Robert and Michael Mulligan would not meet with the IWW supporters to discuss their demands, “dramatic action” would be taken and they would display their posters around the city. Within the letter, there was an assertion that MikLin stores committed health code violations daily. The letter went on to state that because of the sick leave policy, MikLin was jeopardizing the health of their customers.
    Four IWW organizers met with Mulligan, and he stated that MikLin was in the process of amending its policies. The new policy involved a point system for absences. If an employee received four disciplinary points in a twelve-month period, he or she would be terminated.  This new policy stated that employees were not allowed to work until any flu-like symptoms had subsided for a 24-hour period.
    After the implementation of the new policy, the IWW supporters followed through with their threat but this time created posters with Mulligan’s phone number on them, encouraging people to call him. Mulligan and store managers removed these posters and Mulligan fired six employees who organized the campaign and delivered written warnings to three others who aided in the attack.  This gave rise to charges of unfair labor practices.
NLRB Finds an Unfair Labor Practice
    The Administrative Law Judge with the National Labor Relations Board, ruled that MikLin violated Sections 8(a)(1) and 8(a)(3), of the National Labor Relations Act, which protects concerted  activities of employees  ̶   “Section 7 of the NLRA protects employee communications to the public that are part of and related to an ongoing labor dispute.” Employee communications are not protected if they are “disloyal, reckless, or maliciously untrue.” To lose protected status, the employee communications must have been made with a “malicious motive” or have been “made with knowledge of the statements’ falsity or with reckless disregard for their truth or falsity.”
    The ALJ determined that the posters, press release, and letter were all related to the ongoing labor dispute as they dealt with the sick leave issue. Although the posters were not literally true (employees could call in sick; they just had to find coverage for their missed shift), employees were disciplined if they failed to find a replacement.  Therefore, it was a “protected hyperbole,” or somewhat exaggerated truth.
    The ALJ also found that, even though MikLin had only been investigated twice by the Minnesota Department of Health for food borne disease, it was possible that MikLin’s sick leave policy could increase the risk of food borne disease.  Again, that statement was considered to be true or hyperbole.
    The ALJ ruling then went to the NLRB.  A divided NLRB affirmed the ALJ’s conclusions. It determined that the posters were clearly related to the ongoing labor dispute over the sick leave and the statements were not “so disloyal, reckless, or maliciously untrue so as to lose the Act’s protections.”
The Eighth Circuit Declines to Enforce Much of the NLRB’s Ruling
(1)    “Sick Day” Poster Issues
The court noted that an employer commits unfair labor practices if it terminates an employee for engaging in activities that are protected under the NLRA, including  communications to third parties or the public that are utilized to improve their position as employees. But, Section 10(c) of the NLRA allows employers to terminate employees for cause.
    Courts have determined that disloyalty to an employer amounts to “cause” under Section 10 (c).  In determining disloyalty, the central question is “whether employee public communications reasonably targeted the employer’s labor practices, or indefensibly disparaged the quality of the employer’s product or services.” The former is protected and the latter is not. The court also stated that an employee’s disloyal statements can lose protection under section 7 of the NLRA without a showing that the statements were made with actual malice.
    Here the court agreed with the NLRB that the sick day posters, press release, and letter were related to other section 7 protected concerted activity intended “to improve the terms and conditions of their employ by obtaining paid sick leave.” However, the court determined that the posters, press release, and letter were not protected because they were a “sharp, public, disparaging attack upon the quality of the company’s product and its business policies.” This was evidenced here by the fact that the posters, press release, and letter were done to convince customers that they may get sick if they eat a Jimmy John’s sandwich, attacking the product itself.  An allegation that a food industry employer is selling unhealthy food is the “equivalent of a nuclear bomb” in a labor-relations dispute.  The nature of the attack was likely to outlive, and also unnecessary to aid, the labor dispute.
    The court also determined that claims about the sandwiches were “materially false and misleading.” The press release and the letter claimed that MikLin committed health code violations daily, putting customers at risk of getting sick. The court stated that these were not true statements, evidenced by MikLin’s record with the Minnesota Department of Health over ten years and requiring employees to call in sick if they have had any flu-like symptoms in the previous 24 hours.
    In sum, MikLin had cause to terminate and discipline the employees involved.  
(2)     Facebook Postings by MikLin Supervisors  
The Eighth Circuit considered other aspects of the NLRB ruling.  As the IWW began organizing, a MikLin employee created a “Jimmy John’s Anti-Union” Facebook page. On this page, MikLin employees posted disparaging comments about an IWW supporter. The ALJ determined that these posts violated section 8(a)(1) of the NLRA by encouraging harassment of the IWW supporter, which the NLRB affirmed.
    The appeals court determined that the public disparagement and degradation of the union supporter “restrained or coerced MikLin employees in the exercise of their section 7 rights” out of fear they would suffer similar treatment if they chose to support the IWW.  Thus, this aspect of the NLRB ruling was enforced.
(3)    Removal of In-Store Union Literature
After losing the first election, the IWW had filed unfair labor practice charges and objections to the election with the NLRB. MikLin and the IWW settled by stipulating to set aside the election and hold a re-run election.  After this, a MikLin employee posted a notice on a bulletin board to the employees (pursuant to the settlement) of the settlement and what it meant. A union supporter posted next to this notice an IWW “FAQ about the Union Election & Settlement.” The IWW post was taken down repeatedly.  The ALJ had determined that this was a violation of section 8(a)(1) of the NLRA, and the NLRB affirmed.
    The court enforced the NLRB’s order on this issue.  Section 8(a)(1) protects employees’ rights to “bargain collectively through representatives of their own choosing.” Removal of the IWW poster interfered with union supporters’ right to communicate about their organization in violation of section 7 of the NLRA. 
Miklin Enterprises, Inc. v. NRLB, Nos. 14-3099 & 14-3211 (8th Cir. July 3, 2017).
Bottom Line for Employers
    If you face efforts from employees that may deal with their working conditions or terms of their employment but believe they may be acting in a disloyal, reckless, or malicious way, contact your employment and labor attorney to fully discuss the issue.

Bonnie Boryca may be reached at (402) 397-2200 and boryca@eslaw.com.
 

Bankruptcy Creditors Given Leeway to File Proofs of Claim Based Upon Stale Debts

In Midland Funding, LLC v. Johnson, 581 U.S. ___, 137 S.Ct. 1407, 197 L.Ed.2d 790 (2017), the United States Supreme Court held that creditors in Chapter 13 bankruptcy cases do not violate the Fair Debt Collection Practices Act if the creditor files a proof of claim based upon a stale debt in the bankruptcy case.  In other words, even if the statute of limitations set forth by state law has expired as to the creditor’s claim against the debtor, it is not a violation of federal law for the creditor to file a proof of claim in the bankruptcy case.  Once the proof of claim has been filed, the burden is on the debtor, through counsel, to identify the stale nature of the claim and object to the claim.  The Chapter 13 bankruptcy trustee may also object.  If no objection is made, the claim is likely to be allowed in the bankruptcy case.

Midland Funding has led to additional questions, including whether the same rule applies in Chapter 7 bankruptcy cases as well or is limited to Chapter 13.  Although Midland Funding was focused on Chapter 13, we believe the holding regarding stale debts would apply to Chapter 7 consumer bankruptcy cases.  Based on Midland Funding, creditors will in some cases be able to recover at least part of a debt that could not be pursued outside the bankruptcy court forum.  Creditors are now significantly more likely to file such claims in bankruptcy cases. 

Erickson | Sederstrom recommends that creditors planning to file a proof of claim that would be time-barred under state law first consult with counsel to ensure they do not violate the Fair Debt Collection Practices Act.

May an Insurer Depreciate the Cost of Labor in Determining the Actual Cash Value of a Covered Loss?

Recently, the United States District Court for the District of Nebraska certified this question to the Nebraska Supreme Court: “May an insurer, in determining the ‘actual cash value’ of a covered loss, depreciate the cost of labor when the terms ‘actual cash value’ and ‘depreciation’ are not defined in the policy and the policy does not explicitly state that labor costs will be depreciated?”. Today, the Nebraska Supreme Court found in the affirmative. 

Henn v. American Family Mut. Ins. Co. involves a current dispute over the interpretation of a homeowners’ insurance policy. At the crux of the dispute was whether labor costs can be depreciated in determining the actual cash value (replacement cost minus depreciation) of a covered damage under the policy. In its analysis, the Nebraska Supreme Court noted that Nebraska law has always generally allowed for depreciation in defining “actual cash value”. Despite the plaintiff’s argument that depreciating labor is illogical because labor does not depreciate, the court noted that such an argument is in contravention of the court’s prior reasoning that actual cash value must not equal the amount required to complete the repairs. Actual cash value is meant only to start repairs. 

The court also stated that Nebraska courts may still consider material and labor when determining actual cash value. This approach ensures that the insured does “not pay for a hybrid policy of actual cash value for roofing materials and replacement costs for labor” as the property is comprised of both materials and labor. Therefore, an insurer may depreciate labor in determining the actual cash value of a covered loss when not stated otherwise in the policy. 
 

“Reasonable Inference” All That Is Required To Find Sex Discrimination In Promotion Decision

If an employment discrimination case makes it way to a jury, and a jury finds discrimination and damages in favor of an employee, reversing that result on appeal is an uphill battle.  A recent Nebraska Supreme Court case involving Metropolitan Utilities District of Omaha (MUD) and allegations of sex discrimination in the denial of a promotion illustrate this point.  

Background
Plaintiff Kristina Hartley was a long time employee of MUD. She had a bachelor’s degree and began in customer service at MUD in 1984. She was promoted in 1986, 1988, 1991, and in 1994 to senior engineering technician. After sixteen years in that position, she applied to become supervisor of field engineering.  The position was open to current MUD employees via an internal job posting. The position involved planning, directing, and supervising the work of 17 field engineering and utility locator personnel of the plant engineering division.  

The position required two years of college in an area related to engineering and utility locating experience in the last five years, preferably in an ongoing capacity. This posting was the same as a previous posting for the same position in 2003 except that the utility locating experience in the last five years was a new requirement. Stephanie Henn, Senior Plant Engineer, added the new requirement and made the decision of who to promote to supervisor of field engineering. She had been Hartley’s direct supervisor for many years. Shortly before Hartley applied for the supervisor position, Henn was a promoted and a new direct supervisor was put in place over Hartley and others.  Hartley applied to be supervisor of field engineering. Ten other people applied, two of whom were female.

The promotion was awarded to a male colleague, David Stroebele. Hartley’s discrimination claim proceeded to trial and the details of how the promotion was awarded to Stroebele over Hartley and the other two female applicants were put before a jury. The jury found in favor of Hartley, awarding her $61,293 in special damages and $50,000 in general damages. After trial, the court awarded Hartley attorney’s fees of $56,800.
 
On appeal
MUD appealed to the Nebraska Supreme Court, which was tasked with answering whether sufficient evidence supported the jury’s verdict. The familiar McDonnell Douglas standard applied to Hartley’s case. She had to first establish a prima facie case of discrimination in the failure to promote her by demonstrating: (1) she was a member of a protected group, (2) she was qualified for and applied for a promotion to an available position, (3) she was rejected, and (4) a similarly situated employee, not part of the protected group, was promoted instead.  

When an employee establishes these elements, an employer may try to rebut the prima facie case by producing “clear and reasonably specific” admissible evidence that would support finding that unlawful discrimination did not cause the denial of the promotion, i.e., by articulating a legitimate, nondiscriminatory reason for the decision.

Upon providing such a reason, a jury must decide whether the employer acted because of the protected characteristic (here, Hartley’s sex) despite the employer’s proffered reason. In other words, is the employer’s reason a pretext for unlawful discrimination in making the decision not to promote? If so, “[t]he trier of fact can infer that ‘the employer is dissembling to cover up a discriminatory purpose.’”  

The first two steps were met in this case: Hartley established a prima facie case and MUD offered a legitimate, nondiscriminatory reason. Its proffered reason was that Stroebele was the better qualified candidate compared to Hartley. Hartley’s new direct supervisor and her prior supervisor, Henn, had expressed issues with her communication skills on a review just before she applied for the supervisor position. Also, they claimed she lacked the five years of locator experience needed for the position.  The question on appeal was whether there was sufficient evidence for the final step: were MUD’s reasons pretextual?  The evidence was sufficient, according the Nebraska Supreme Court. It recited the following evidence that the jury had before it:

• Hartley worked at MUD twice as long as Stroebele.

• She had supervised his work.

• She had more supervisory experience than him.

• She had the requisite skills at locating, though not within the past five years.

• She had no “chargeable hits” in locating, but Stroebele did in recent years (showing her locating skills were more accurate).

• She had more education than Stroebele.

• He had previously worked as a laborer and she had inspected his work while at MUD.

• The only complaints about Hartley were tied to her emotionality rather than competency to perform her job.

• Other female applicants were also more qualified than Stroebele.

• Hartley’s only performance appraisal in the past seven months took place just after she applied for the promotion, as did the other applicants’ appraisals.

• The appraisal was not conducted in month of the applicants’ hiring anniversary, contrary to MUD policy.

• Hartley’s appraisal showed a dramatic decline compared to her past appraisals.

• The appraisal was conducted by the new supervisor recently put in place over Hartley but referenced incidents before he was her supervisor, when Henn was her supervisor.

• Hartley’s supervisors showed hostility towards her after she complained about the timing and content of the appraisal.

• There was a question of whether the five years’ locating experience requirement was a legitimate and necessary requirement for the position.

• Supervisors provided inconsistent or shifting explanations about Hartley’s skills at locating in explaining why she was denied the promotion.

In response to this evidence, MUD argued the jury could not have reasonably found pretext because Hartley admitted that certain events happened. It said she did not refute that in 2008 she had a bad interaction with then-supervisor Henn, which Henn thought was unprofessional. It also said she did not refute the truth of complaints about Hartley that she did not like to do utility locating.  

The Court rejected MUD’s argument. It “confuse[d] the falsity of an occurrence cited in support of the employer’s action with the falsity of the employer’s statement that the proffered non-discriminatory reason actually motivated the employer.” Regardless of the truth or falsity of the complaints against Hartley, the evidence could have led a jury to conclude those complaints were not the actual reason for denying Hartley the promotion. Viewing the evidence as a whole and in a light most favorable to Hartley, the Court found that there was sufficient evidence to support a reasonable inference that the employer’s promotional decision was because of Hartley’s gender.  Therefore, the jury’s verdict was upheld, including each amount for damages and attorney’s fees.  Hartley v. Metropolitan Utilities District of Omaha, 294 Neb. 870 (Sep. 30, 2016).

Takeaway for employers
The evidence put before the jury may have led jurors to conclude that policies were not followed with regard to the plaintiff that illegitimate job requirements were placed in the posting to exclude certain applicants, and that supervisors had improper justifications when excluding female applicants.

This case should show employers the importance of conducting job performance appraisal consistently and in conformity with written policies or past practices. Furthermore, job postings are important and should contain only the actual requirements and considerations involved in reviewing applicants for a position.  Bonnie M. Boryca is contributing editor of the Nebraska Employment Law Letter and can be reached at (402) 397-2200.