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New Jersey Senate Seeks To Limit Restrictive Covenant Agreements

In general, a restrictive covenant agreement is an agreement between an employer and employee where the employee agrees not to engage in certain specified activities which may be competitive with the employer following the conclusion of the employment relationship.  The most common type of restrictive covenant agreement is a non-compete agreement.  On November 9, 2017, the New Jersey Senate introduced Senate Bill 3518, which would significantly limit the enforceability of restrictive covenant agreements in the State of New Jersey.

Here are some highlights of the bill.  Under the bill, restrictive covenant agreements would not be enforceable against certain types of workers, such as an employee classified as nonexempt under the Fair Labor Standards Act, seasonal or temporary employees, an employee who is terminated without good cause or laid off by the action of an employer, independent contractors, or an employee whose period of service with the employer is less than one year.  In addition, restrictive covenant agreements would have to meet ten strict requirements to be enforceable, including but not limited to, the following: if the agreement is entered into in connection with the commencement of employment, the employer must disclose the terms of the agreement in writing to the prospective employee, the agreement must be signed by the employer and the employee, and the agreement must expressly state that the employee has the right to consult with counsel prior to signing; the agreement may not be broader than necessary to protect the legitimate business interests of the employer; the agreement may restrict the employee from engaging in activities competitive with the employer for no more than 12 months following the date of termination of employment; the agreement must not contain a choice of law provision that would have the effect of avoiding the requirements of the bill if the employee is a resident of or employed in the State of New Jersey at the time of termination or has been for at least 30 days immediately preceding the employee’s termination of employment; and the agreement must not restrict an employee from providing service to a customer or client of the employer, if the employee does not initiate or solicit the customer or client.

Furthermore, the bill provides that an employer seeking to enforce a restrictive covenant agreement must notify the employee in writing of its intent to enforce the agreement; otherwise, the agreement is void.  Moreover, the bill requires that “during any period after the employment has ended and a covenant is effective, the employer must pay the employee an amount equal to 100 percent of the pay which the employee would have been entitled for work that would have been performed during the period, and continue to make whatever benefit contributions would be required in order to maintain fringe benefits to which the employee would have been entitled for work that would have been performed.”

In short, if enacted, this bill would be a game-changer for employees and employers.  For employers, it would obviously be much harder to enforce restrictive covenant agreements.  As for employees, they would have increased mobility following the termination of their employment given the bill’s stringent requirements.

If you have any questions regarding this bill or restrictive covenant agreements, please contact the Law Office of Frank A. Custode, LLC.

What Constitutes A “Good Faith” Reduction In Force Under The New Jersey Law Against Discrimination?

To establish a prima facie case under the New Jersey Law Against Discrimination, a plaintiff must demonstrate that (1) her or she is a member of a protected group; (2) he or she was performing the job at a level that met the employer’s legitimate expectations; (3) an adverse employment action was taken against the employee; and (4) the challenged decision took place under circumstances that give rise to unlawful discrimination.  See Williams v. Pemberton Twp. Pub. Schools, 323 N.J. Super. 490, 502 (App. Div. 1999).  If the employee establishes a prima facie case, the burden of production shifts to the employer to establish a legitimate non-discriminatory reason for the adverse employment action.  See Bergen Commercial Bank v. Sissler, 157 N.J. 188, 210 (1999).  If a non-discriminatory basis is shown, the plaintiff must establish, by a preponderance of the evidence, that the alleged justification is a pretext for discrimination.  See Zive v. Stanley Roberts, Inc., 182 N.J. 436, 449 (2005).  However, it is important to understand how New Jersey courts analyze the employer’s “legitimate non-discriminatory” explanation for the termination in the context of a reduction in force.

Indeed, among the factors that courts analyze when reviewing whether an employee’s termination is the result of a “good faith” reduction in force are as follows: (1) whether the business reasons for the reduction in force and the anticipated economic savings therefrom were adequately documented; (2) the number of employees or percentage of the company’s work force affected by the reduction in force; (3) the existence of adequately documented selection criteria and procedures for implementation of the reduction in force; (4) whether reduction in force decisions were made on the basis of objective job related criteria and procedures or by reference to the individuals occupying the affected positions; (5) whether reduction in force decisions were based on fair and objective performance evaluations of the affected employees; and (6) whether there was any consideration of alternatives to laying off employees to achieve the economic savings anticipated from the reduction in force, such as shortened work weeks or work days, temporary shutdowns, voluntary reverse seniority layoffs with partial-pay, work-sharing, reductions in authorized overtime, salary freezes or reductions, hiring freezes and/or early retirement incentive programs.   See Leahey v. Singer Sewing, Co., 302 N.J Super. 68, 79-80 (Law Div. 1996).

Based on the foregoing, affected employees should consult with legal counsel if they are subject to a reduction in force.  If you have any questions about reductions in force and/or claims under the New Jersey Law Against Discrimination, please contact the Law Office of Frank A. Custode, LLC.

New Jersey Courts Continue To Erode Arbitration Policies In Employment Law Disputes

In Dugan v. Best Buy Co., Inc. (decided on August 11, 2017), the Appellate Division held that an employee’s continued employment may not be sufficient to establish the employee’s assent to an employer’s arbitration policy.  As set forth below, this decision has important ramifications for both employers and employees in the State of New Jersey.

Kevin Dugan served as Best Buy’s General Manager.  Approximately six years after Mr. Dugan commenced employment, Best Buy introduced its employees to an arbitration policy via an eLearning program.  Mr. Dugan clicked “I acknowledge” on the last screen of the program, but did not read the policy.   Approximately three weeks later, Best Buy terminated Mr. Dugan’s employment.  He then filed a lawsuit against Best Buy alleging age discrimination in violation of the New Jersey Law Against Discrimination.   In response, Best Buy filed a motion to compel arbitration and dismiss Mr. Dugan’s lawsuit, which was granted by the trial court.  Mr. Dugan then appealed to the Appellate Division, which reversed the trial court’s ruling and remanded the action back to the trial court.

The Appellate Division reversed the trial court’s decision for a variety of reasons.  First and foremost, the Appellate Division found that the policy did not express that employees were “waiving” their right to sue.  In addition, the Appellate Division found that there was no evidence that the employee assented or agreed to the terms of the policy.  Specifically, the Appellate Division determined that “the fact that plaintiff knew of the policy, and his status as a general manager who was tasked with having other employees complete the eLearning module, does not establish his assent to the policy.”  Furthermore, the Appellate Division found that Mr. Dugan’s brief period of employment with Best Buy following the effective date of the policy (three weeks) “did not meet the high standard required to establish an unambiguous waiver of plaintiff’s right to sue.”  Accordingly, the Appellate Division held that “no agreement to arbitrate was reached.”

From an employee’s perspective, this is a positive opinion because it gives employees further ammunition to argue arbitration policies unfairly erode and waive their right to a jury trial in employment law disputes.  From an employer’s perspective, the opinion provides guidance and demonstrates the perils of rolling out unclear electronic arbitration policies to their employees.

If you have any questions about arbitration policies and/or the rights of employees under the New Jersey Law Against Discrimination, please contact the Law Office of Frank A. Custode, LLC.

The Third Circuit Expands The New Jersey Conscientious Employee Protection Act (“CEPA”) To Protect In-House Legal Counsel

In Trzaska v. L’Oreal USA, Inc., 2017 U.S. App. LEXIS 13381 (3d Cir. July 25, 2017), the Third Circuit held that an in-house attorney may maintain a cause of action under the New Jersey Conscientious Employee Protection Act (“CEPA”) due to the in-house attorney’s allegation that his employment was terminated because of his refusal to violate the Rules of Professional Conduct governing lawyers in the State of Pennsylvania.  This is an important decision because it further expands the scope of CEPA by recognizing that in-house legal counsel may proceed with claims alleging whistleblower retaliation.

Steven J. Trzaska was an in-house patent attorney for L’Oreal, overseeing the company’s patent team and the process by which the company would patent its newly developed products and inventions.  As a legal practitioner, Mr. Trzaska is bound by the Rules of Professional Conduct established by the Supreme Court of Pennsylvania as well as the United States Patent and Trademark Office.  The company established a global quota of patent applications that each regional office must file each year.  At the same time, L’Oreal adopted an initiative to improve the overall quality of its patent applications filed with the United States Patent and Trademark Office, which resulted in fewer invention disclosures submitted to the company’s patent team for vetting.

Despite its initiative, the company continued to demand that the patent team meet the annual quota.  As a result, the patent team did not believe it could meet the quota for 2014 without filing patent applications for products that it did not, in good faith, believe were patentable.  Accordingly, Mr. Trzaska explained to his superiors that neither he nor his team would be willing to file any patent applications for products that they in good faith, did not believe were patentable.  He further advised that, if any attorney on the patent team filed such an application, it would be in violation of the Rules of Professional Conduct.  In response, the company offered Mr. Trzaska two severance packages if he wanted to leave the company or was otherwise told to “get back to [his] office and get back to work.”   The company subsequently terminated Mr. Trzaska’s employment after he rejected the severance packages.

Mr. Trzaska subsequently filed suit in the United States District Court for the District of New Jersey, alleging that his employment termination was retaliation in violation of CEPA.  The company moved to dismiss the suit on the grounds that the Rules of Professional Conduct were an inadequate basis to maintain a CEPA claim.  The District Court agreed, and dismissed the lawsuit.  On appeal, the Third Circuit reversed, determining that “an allegation that an employer instructed, coerced, or threatened its patent attorney employee to disregard the RPCs [Rules of Professional Conduct] binding him violates a clear mandate of public policy within the meaning of CEPA.”  In addition, the Third Circuit found that “rules of professional conduct in general can underlay a CEPA violation” and even though the applicable Rules of Professional Conduct do not regulate the company’s business practices, the company’s instruction to Mr. Trzaska nevertheless violates a clear mandate of public policy.

If you have any questions about this decision or CEPA, please contact the Law Office of Frank A. Custode, LLC.

Employees Should Still Be Aware of the Inevitable Disclosure Doctrine

From a practical standpoint, it is important that employees understand the potential ramifications of disclosing confidential and proprietary information as well as trade secrets belonging to their former employers.  Typically, employers protect such interests by way of restrictive covenant agreements.  Restrictive covenant agreements generally include post-employment non-compete, non-solicitation, and confidentiality obligations.  In the event that a former employee breaches said post-employment obligations, the former employer’s recourse is to bring legal action seeking injunctive relief (namely, a court order prohibiting the former employee from engaging in the conduct that violates the restrictive covenant agreement).  To obtain injunctive relief, the former employer must demonstrate (among other things) irreparable harm that may not be adequately remedied by money damages.

In 2012, the New Jersey Trade Secrets Act came into effect.  The New Jersey Trade Secrets Act essentially codified existing case law and provides remedies to employers for the protection of their trade secrets.  While the New Jersey Trade Secrets Act states that it supersedes “conflicting tort” law (among other laws), the Act also states that “the rights, remedies and prohibitions” under the Act are “in addition to and cumulative of any other right, remedy or prohibition provided under the common law or statutory law of this State . . .”

The inevitable disclosure doctrine is a theory of liability upon which employers typically rely in the context of seeking injunctive relief, prohibiting a former employee from misappropriating their trade secrets.  Under the inevitable disclosure doctrine, an employer “need not establish that its former employee has actually used or disclosed trade secrets.”  See Osteotech, Inc. v. Biologic, LLC, 2008 U.S. Dist. LEXIS 17718 (D.N.J. March 7, 2008).  Rather, an employer must demonstrate that “there is a sufficient likelihood of ‘inevitable disclosure’ of its trade secrets to a competitor.” See id.

In SCS Healthcare Mtkg. LLC v. Allergan, USA, Inc., 2012 N.J. Super. Unpub. LEXIS 2704 (Ch. Div. 2012), following the enactment of the New Jersey Trade Secrets Act, the court reaffirmed that the inevitable disclosure doctrine remains a “factor guiding the court’s determination as to whether injunctive relief is appropriate.”  Therefore, it appears as though the inevitable disclosure doctrine remains as a potential common law theory of liability for the issuance of injunctive relief in the misappropriation of trade secrets context.  Accordingly, it is important that employees remain aware of this theory of liability.

If you have any questions about the New Jersey Trade Secrets Act, the inevitable disclosure doctrine, and/or restrictive covenant agreements, please contact the Law Office of Frank A. Custode, LLC.

Union Member’s New Jersey Law Against Discrimination Claim Is Not Preempted by Federal Labor Law

In Hejda v. Bell Container Corporation, decided on May 9, 2017, the New Jersey Appellate Division held that a union member’s disability discrimination claim under the New Jersey Law Against Discrimination and retaliatory discharge claim under the Workers’ Compensation Law are not preempted under the federal National Labor Relations Act.  As set forth below, this decision has important ramifications for union members who assert claims under the New Jersey Law Against Discrimination.

Brian Hejda, a member of Teamsters Local 813, was employed as a commercial truck driver by Bell Container Corporation.  In August 2012, he suffered a workplace injury to his knee.  Following physical therapy sessions, Mr. Hejda was cleared to return to “light duty” work, with certain restrictions.  However, the company did not have any light duty positions available for him at the time.  In late September 2012 and early October 2012, Mr. Hejda was cleared to return to work with the same restrictions.  Later in October 2012 and November 2012, an orthopedic specialist recommended surgery, and cleared Mr. Hejda for “sedentary work” only, with no commercial driving. However, the company did not allow him to return to work in that capacity.  As such, in November 2012, Mr. Hejda filed a workers’ compensation claim with the New Jersey Department of Labor and Workforce Development, Division of Workers’ Compensation.

Ultimately, in February 2013, another orthopedic specialist agreed that surgery was required, but cleared Mr. Hejda to return to work without any restrictions.  The company, however, advised the union that Mr. Hejda could not return to work until he was recertified under a Department of Transportation Federal Motor Carrier Safety Regulation as “physically qualified to operate a commercial vehicle.”  The union then filed a grievance on behalf of Mr. Hejda, claiming, among other things, that the company should return him to his commercial truck driver position immediately.  In April 2013, Mr. Hejda’s family physician certified that he met the Department of Transportation requirements.  Nonetheless, the union’s grievance was denied.  In November 2013, Mr. Hejda submitted another certification from his family physician, again stating that he met the Department of Transportation requirements.  In response, the company offered him a position as a “night switcher” rather a commercial truck driver.

Thus, Mr. Hejda filed a lawsuit against the company alleging disability discrimination under the New Jersey Law Against Discrimination and retaliation under the Workers’ Compensation Law.  In response, the company filed a motion to dismiss the lawsuit, asserting that the claims were preempted under the National Labor Relations Act.   The trial granted the motion.  Mr. Hejda then appealed the trial court’s decision.

On appeal, the Appellate Division reversed the trial court’s decision, and held that the claims were not preempted by federal labor law.  Specifically, the Appellate Division determined that “none of these allegations call for the interpretation of the CBA” and that “the complaint alleges a cause of action under the LAD, which plainly establishes rights that are independent of the CBA.”

This is an important decision for employees who are union members. Now, the court has clarified that union members may proceed with state law discrimination claims without concern that their cases are subject to preemption under federal labor law.  This removes a significant hurdle for union members and should lead to the filing of more state law discrimination cases by union workers.

If you have any questions about the New Jersey Law Against Discrimination and/or have suffered from workplace discrimination, retaliation or harassment, please contact the Law Office of Frank A. Custode, LLC.

Understanding Severance Agreements

In general, it is a good business practice for employers to present a severance agreement to departing employees when a company has a reduction-in-force or terminates an employee.  At its core, a severance agreement is an agreement between an employer and the departing employee where the departing employee releases potential legal claims against the employer in exchange for receiving monetary benefits to which the employee would not otherwise be entitled.

The agreement is valuable to both an employer and an employee.  From an employer’s perspective, obtaining a release of potential legal claims by the departing employee is the only vehicle that assures that the departing employee will not bring legal action against the employer regarding the employee’s separation of employment.  From an employee’s perspective, severance allows the employee to obtain additional compensation while transitioning to new employment.

Typically, severance agreements include various core provisions.  Among such provisions included in severance agreements are general release of claims language, non-disparagement language, confidentiality language, and choice of law/choice of forum provisions.  Since severance agreements involve the waiver of important legal rights, it is a good practice for employees to consult with an attorney prior to signing such an agreement.

If you have any questions about severance agreements and/or have been presented with a severance agreement by your employer, please contact the Law Office of Frank A. Custode, LLC.

Non-Compete Agreements Remain Alive and Well

In ADP, LLC v. Lynch, 2017 U.S. App. LEXIS 2159 (3d Cir. 2017), the United States Courts of Appeals for the Third Circuit affirmed the partial enforcement of non-compete agreements against former employees, who agreed to the non-compete agreements online when accepting stock awards.

Jordan Lynch and John Halpin worked in sales at ADP for approximately six years.  During the course of their employment, Mr. Lynch and Mr. Halpin accepted incentive stock awards on five occasions that were offered to select employees for their performance.  The incentive stock awards were offered online, and required the employees to “select the check box” to indicate they “read all associated documents” before accepting the incentive stock awards.  There was a 19-page PDF document next to the check box, which included, among other documents, the non-compete agreements at issue.   The non-compete agreements stated, in relevant part, that “for a period of 12 months after the end of employment, the employee 1) would not join an ADP competitor and 2) would not solicit any business from any current or prospective ADP client.”   Mr. Lynch and Mr. Halpin ultimately resigned from ADP and started to work for a competitor, Ultimate Software.  Shortly thereafter, ADP brought a lawsuit against them and requested a preliminary injunction to enforce the non-compete agreements.

The District Court granted the preliminary injunction in part. Specifically, the Court enjoined Mr. Lynch and Mr. Halpin from soliciting current ADP clients for 12 months following their resignations; however, it restricted the solicitation of prospective ADP clients only to the extent the former employees gained knowledge of the prospective clients while employed by ADP and allowed Mr. Lynch and Mr. Halpin to continue to work for their new employer.  The Third Circuit affirmed this ruling, finding that the issuance of a preliminary injunction under these circumstances was not an abuse of discretion.

Accordingly, this decision illustrates that restrictive covenants remain alive and well in the State of New Jersey.  As such, companies should continue to protect their legitimate business interests through the use of restrictive covenants and individuals who sign restrictive covenants should be mindful of their post-employment obligations.

If you have any questions about non-compete agreements or restrictive covenants in the State of New Jersey, please contact the Law Office of Frank A. Custode, LLC.


Appellate Division Rules That Back Pay Award Is Not Offset By Unemployment Compensation

In Fornaro v. Flightsafety International Inc., Docket No. A-1295-14T2 (March 6, 2017), the Appellate Division ruled that unemployment compensation benefits do not offset back pay awarded by juries in actions involving the New Jersey Law Against Discrimination.  Plaintiff Rex Fornaro filed an action alleging disability discrimination and retaliatory discharge under the New Jersey Law Against Discrimination against his former employer, Flightsafety International, Inc.  The case proceeded to trial, and the jury found that defendant terminated plaintiff due to his disability and as reprisal for seeking accommodations for his disability.  Thus, the jury awarded back pay to plaintiff in the amount of approximately $83,000.00.

However, the trial judge reduced the back pay award by $14,000.00, representing fifty percent of the unemployment compensation received by plaintiff.  Plaintiff appealed this ruling, contending that the trial judge erred in offsetting his back pay award by fifty percent of his unemployment compensation.

The Appellate Division agreed with plaintiff, and held that unemployment compensation benefits may not be deducted from back pay awarded under the New Jersey Law Against Discrimination.  In so doing, the court found that “shifting the benefit of unemployment compensation from the wronged employee to the discriminating employer does not serve the LAD’s deterrent purpose.”  In addition, the court noted that model jury charge applicable to damages in cases involving the New Jersey Law Against Discrimination specifically provides that unemployment benefits are not deducted from back pay awards.

This case is a significant victory for plaintiffs in LAD cases given that there is now clear appellate case law authority on the issue of whether unemployment benefits compensation offset back pay awards for employees.   If you have any questions about the New Jersey Law Against Discrimination, please contact the Law Office of Frank A. Custode, LLC.

The Importance of Anti-Harassment Policies In New Jersey Law Against Discrimination Cases

The recent Appellate Division decision of Edries v. Quick Chek Food Stores, Inc., (A-0091-15T1, January 20, 2017), illustrates the importance of anti-harassment policies in lawsuits involving claims under the New Jersey Law Against Discrimination.   When Quick Check hired plaintiff, she received the company’s Team Member Handbook, which contained an anti-harassment policy.  The company also had a separate “No Harassment” policy, which was distributed to plaintiff; and the company required plaintiff to watch training videos on sexual harassment.

At the company’s “Total Customer Dedication” awards dinner, one of Quick Chek’s loss prevention representatives made a series of vulgar comments to plaintiff.  The next day, plaintiff completed an anonymous survey, noting that the loss prevention representative has “a filthy and nasty mouth and he needs to stop with his sexual comments . . .”  In addition, in response to a question regarding what she would add or change about the dinner, plaintiff stated, “just to feel comfortable and not have to deal with people like [the loss prevention representative] and his sexual comments.

Upon receipt of the survey, Quick Chek conducted an investigation regarding the incident.  The investigation included meetings with plaintiff’s supervisor, discussions with human resource members, and a meeting with the company’s General Counsel.  In response to plaintiff’s complaints, the company issued a “constructive advice” written warning to the alleged harasser, which included requiring the employee to decline assignments at plaintiff’s store,  attend an anti-harassment training program,  refrain from making any further inappropriate comments, and refrain from taking any retribution against plaintiff.

Nearly two years later, plaintiff went on disability leave, and asked the company’s Chief Executive Officer if the company could demote the alleged harasser, or move him to different region “so she would never have to go to meetings where he speaks . . .” She also advised that she refrained from applying for promotions because she was afraid of having to interact with him.  Plaintiff never returned to work from her disability leave, and filed a complaint alleging hostile work environment and retaliation in violation of the New Jersey Law Against Discrimination.

At the conclusion of discovery, the trial court dismissed the case, granting summary judgment in favor of Quick Chek.  In so doing, the trial court concluded that the company had “effective procedures for reporting and responding to complaints of harassment” and that the company “did, in fact, respond in an effective way to [plaintiff’s] complaint of harassment.”  With regard to plaintiff’s retaliation claim, the trial court found that there were no “adverse employment consequences to [plaintiff’s] complaint.”

The Appellate Division affirmed the trial court’s rulings.  In so affirming, the Appellate Division agreed that Quick Chek had effective procedures in place to report and remedy harassment given that it had “formal policies prohibiting harassment in the workplace,” “complaint structures for employee’s use,” and conducted “anti-harassment training.”  The Appellate Division also noted that the company disciplined the alleged harasser and there was no evidence that he ever harassed plaintiff or any other employee again.

From an employer’s perspective, this case clearly illustrates the importance of having anti-harassment policies in place and implementing said policies.  From an employee’s perspective, the case illustrates the importance of utilizing a company’s anti-harassment policies in the event of harassment and/or discrimination in the workplace.  Indeed, if the employer in this matter had not adequately remedied the alleged harassment, the result of this matter may have been different.

If you have any questions about anti-harassment policies and/or workplace harassment or discrimination, please contact the Law Office of Frank A. Custode, LLC.