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Five Things You Need to Know About Connecticut Separation Agreements

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As a result of the state of the economy, in general, and in Fairfield County, in particular, we in the Westport, Connecticut office of Maya Murphy, P.C. have seen a spate of Separation Agreements brought to us by recently terminated employees.  Our experienced employment-law attorneys review and critique these Agreements, and often advocate on behalf of our clients to enhance a separation package.

Here are five things you need to know about Separation Agreements:

They are here and more may be on the way. 

Companies are scrutinizing their bottom lines to try to increase profits, decrease expenses, and improve share value or owner’s equity.  If sales can’t be increased or cost-of-goods-sold decreased, one alternative is to cut personnel.  Often senior (and more highly paid) employees are let go in favor of younger (i.e., “cheaper”) employees, thereby also raising the specter of an age discrimination claim (a topic deserving of its own post).

They are complex. 

For an employee over the age of 40, a federal statute known as the “Older Workers Benefit Protection Act” requires that your Separation Agreement contain certain provisions, including a comprehensive release of all claims that you might have against your employer.  The statute also gives you specific time periods to review the Agreement prior to signing, and even to rescind your approval after you have signed.  It is not uncommon to have Separation Agreements exceed 10 pages in length.  All of the language is important.

They are a minefield. 

Separation Agreements frequently contain “restrictive covenants,” usually in the form of confidentiality, non-solicitation, and non-competition provisions.  These can have a profound effect on your ability to relocate to another position and have to be carefully reviewed and analyzed to avoid potentially devastating long-term consequences after the Agreement has been signed and the revocation period has expired.

They are not “carved in stone.”

Although many companies ascribe to a “one size fits all” and a “take it or leave it” policy with regard to Separation Agreements, such is not necessarily the case.  Often, Maya Murphy employment attorneys can find an “exposed nerve” and leverage that point to obtain for a client more severance pay, longer health benefits, or some other perquisite to ease the client’s transition into a new job with a new employer.  Every case is factually (and perhaps legally) different and you should not assume that your severance package should be determined by those that have gone before you.

You need an advocate.

You need an experienced attorney to elevate discussion of your Separation Agreement above the HR level.  HR directors have limited discretion and are tasked with keeping severance benefits to an absolute minimum.  Maya Murphy’s goal is to generate a dialogue with more senior management to drive home the point that a particular client under certain circumstances is equitably entitled to greater benefits than initially offered.

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If you find yourself in the unfortunate position of having been presented with a Separation Agreement, you should contact Joseph Maya and the other experienced employment law attorneys in our Westport, Connecticut office by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Expunging a Dirty U-5—Be Careful What You Ask For!

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Expunging a Dirty U-5

The view from the impending “fiscal cliff” takes in much of Fairfield County’s “Gold Coast”—Greenwich, Stamford, Darien, and Westport.  We at Maya Murphy, P.C. represent many residents employed in the financial industry, both within and without the State of Connecticut.  Some of their financial employers may be considering reductions in personnel depending upon the results of the upcoming Presidential election, Congressional action (or inaction) concerning “taxmaggedon” and “sequestration,” and their own Q4 and year-end results.  If a financial firm retrenches, there will be a dirty U-5 on “the street.”

We are often asked about the possibility of “scrubbing” a U-5 or expunging it altogether.  The current economic climate and new proposed rules from FINRA warrant a warning that usually accompanies our advice.

The current FINRA Customer and Industry Codes do not afford “unnamed persons,” i.e., the subject of allegations but not named parties to the underlying arbitration, to seek expunging of allegations reported to the Central Registration Depository (“CRD”) on Form U-5 (and available to the public through such resources as “Broker Check”).  To rectify that situation (recognizing that a dirty U-5 impacts one’s livelihood), FINRA has proposed In re expungement rules seeking to balance the respective interests of the registered professional and the investing public.  Public comment on the proposed rules was closed on May 21, 2012.

The purpose of this post is not to critique the new rules that, while not problem-free, at least address the issue of incorrect allegations remaining on CRD records in the absence of an evidentiary hearing to determine the accuracy of those allegations.  The purpose of this post is to point out that the new rules, in whatever final form they may take, can be a cure worse than the disease.

The Original Language

There is no denying the injustice of having a registered representative’s U-5 amended to reflect a customer complaint without the representative being named as a respondent in subsequent arbitration. The net effect is to have the representative tried in absentia without the ability to present evidence or cross-examine witnesses by way of defense.  The proposed In re expungement rules, however, may not be all they are cracked up to be.  A recent FINRA arbitration decision points up the problem.

In the Matter of the FINRA Arbitration between Eduard Van Raay, Claimant v. Raymond James Financial Services, Inc., et al., Respondents (FINRA 11-04544, July 16, 2012), the underlying claim was settled and an arbitrator was appointed solely for the purpose of considering a request for U-5 expunging.  The original offending, terminating language was: “Violation of firm policy. Failure to disclose an outside business activity (personal representative relationship with a client).”  After the arbitration, the recommendation was for the language to be amended to read: “Permitted to resign. Advisor chose to continue unapproved outside business activity.”  This was hardly an improvement to that which he sought to have expunged.

The Post-Arbitration Language

The original language was cryptic, susceptible to differing interpretations, and perhaps easily explained.  The post-arbitration language, however, was clear, concise, damaging, and most importantly, the product of FINRA arbitration.  Instead of vague allegations of a personal relationship with a client, the representative’s CRD will now be saddled with a finding that he chose to continue an unapproved outside business activity.  The takeaway is that the outcome would not survive a rigorous pre-arbitration risk/reward analysis.  Arbitrations, as with lawsuits, are a lot like wars—they are easier to start than to stop.  They often bring with them unintended consequences.

The new In re expungement rules present registered representatives with an additional option that was previously unavailable.  Assuming their future adoption, that does not mean that every offending CRD entry should be the subject of a FINRA arbitration.

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Whether, and when, to pursue expunging is a decision that should be discussed thoroughly with a seasoned litigator familiar with the FINRA Rules and decisions.  We, here, in Maya Murphy’s Westport, Connecticut office stand ready to assist in that regard.  Please contact Joseph Maya and the other experienced attorneys at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com to schedule a consultation today.

Non-Compete Agreements (Restrictive Covenants) for Practicing Physicians in New York and Connecticut: Just How Enforceable Are They?

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A restrictive covenant (often referred to as a non-compete clause or a covenant not to compete) is a clause contained in an employment contract through which the employee agrees not to pursue a similar profession or trade, placing them in competition with the employer, after the employment relationship is terminated.  This clause or covenant is often put in place to prevent a former employee from using information he or she obtained through the course of their employment to gain a competitive advantage over their former employer.  

If you are currently employed as a physician and your employment agreement contains a provision similar to the type of covenant described above, you probably want to understand how a Court will determine the validity of such a clause in order to understand how such a clause will impact your future as a physician after the termination of your current employment contract, joinder and/or partnership agreement.

Below is a summary on the way Courts are handling the non-compete clauses included in the employment contracts of physicians employed in Connecticut and New York.  This review and analysis consists of two separate, but related parts.  First, a Court must determine whether the non-compete clause is valid, and therefore enforceable.  Second, if a clause is valid, as a way to prevent you from pursuing your newly found employment opportunity, your employer may ask the Court to grant a temporary and/or permanent injunction.

The second section of this analysis focuses on whether a Court will grant your employer’s request for a temporary or permanent injunction.  If granted, this injunction would prevent you from obtaining employment in any manner which violates the restrictive covenant.

The Validity and Enforceability of Physician Non-Compete Clauses in New York and Connecticut

The laws governing the validity and enforceability of non-compete clauses in New York and Connecticut are fairly similar.  In both states Courts seek to determine if the restraints provided for under the non-compete clause are reasonable.  In making that determination, Courts consider the following factors:  (1) the employer’s need to protect legitimate business interests (such as trade secrets and customer lists), (2) the employee’s need to earn a living and support his or her family, (3) the public’s need to secure the employee’s presence in the labor pool, and (4) the amount of time, and the area restricted under the covenant.

Employer’s Need to Protect Legitimate Business Interests:

In general, Courts have found an employer to have a legitimate business interest in situations where the employer needs to protect against the former employee’s use of a trade secret or a highly valuable patient list.  If the employer is not able to protect the employee from using such things in the course of their future employment, the employer’s business will noticeably suffer.  This is what the Courts will try and protect against through the enforcement of the restrictive covenant.

In Connecticut, however, it is important to note that it is not the employer who needs to prove a legitimate business interest, but instead, the employee who needs to disprove the employer’s need to protect legitimate business interests through enforcement of the non-compete clause.

Employee’s Need to Earn a Living:

When considering the impact of the enforcement of a non-compete clause on the earning potential of a former employee, Courts will try to determine if enforcement of a restrictive covenant will unreasonably prevent the employee from earning a living, and therefore being able to support themselves.  Significantly, Courts noted, however, that this does not mean the operation of a covenant not to compete must maintain a former employee’s income at present levels in order to be found reasonable.  It is the burden of the former employee to prove that if the covenant is enforced it will substantially damage his or her ability to earn a living.

The Public’s Need to Secure Employee’s Services:

The principal objection to restrictive covenants in physician employment contracts is that they can potentially interfere with continuity of care for a patient.  Therefore, a Court is more reluctant to enforce a covenant if the covenant would impact the care of the former employee’s current patients.  There are however, many covenants that are drafted to allow a physician to continue providing post-operative, or other limited care, for current patients.  If a restrictive covenant will allow for such continuity of care, the Court is more likely to find its restrictions reasonable, and enforceable.

Time and Area Restrictions:

The amount of time, and the area restricted under non-compete clauses varies greatly between different employment agreements, depending on the type of services involved and the location of the parties.  In making a finding, Courts will look to whether or not the time and area restrictions are reasonable.  Recent decisions held clauses limiting the former employee for up to a period of five years within a thirty mile radius reasonable.  Reasonableness depends, however, on the specific circumstances of the case.

Other Considerations:

Courts also consider the bargaining power between the parties to the employment contract in determining the reasonableness of a restrictive covenant.  Some Courts may be more reluctant to find a restrictive covenant unenforceable where the employment agreement is created between partners to a practice, rather then when the agreement is held between an employer and an employee.  The Courts have explained this discrepancy on the parties’ ability to negotiate the terms of the employment agreement.  A partner will most likely have a greater ability to negotiate the terms of the contract, than will an employee.

Injunctive Relief:

An injunction is an equitable remedy in the form of a Court order, whereby a party is required to do, or to refrain from doing, certain acts. In this case, those certain acts would include being employed in a way which would violate the restrictive covenant.  When considering an employer’s request for a temporary or permanent injunction, the Courts in New York and Connecticut consider whether the employer has demonstrated that he or she would suffer irreparable injury in the absence of an injunction, that he or she is likely to prevail on the merits of the case, and that the balancing of equities favors the issuance of an injunction.

Irreparable Harm:

In considering the irreparable harm an employer may suffer, a Court will rely on factors such as the employer’s revenues, patient flow and the employer’s ability to maintain their business on a long-term basis.  Such calculations will consider only the employer’s losses, and not the former employee’s gains.

Balancing of the Equities:

When balancing the equities, Courts consider the following: the effect the injunctive relief will have on the employer’s business, the effect that the injunctive relief will have on the employee’s earning potential, and the effect that an injunction will have on the public.  In determining the effect on the employer, the Court analyzes how the employer will benefit from the injunctive relief.

As for the effect on the employee, the Court considers the options available to the employee if the relief is granted.  If the employee can reasonably continue to earn a living, Courts are more willing to grant the employer’s injunctive relief request.  In considering the public interest, Courts look at factors such as the hardship the injunctive relief would have on a doctor’s existing patients and the doctor’s contributions to the surrounding community that would be limited by the granting of injunctive relief.

Connecticut – Adequate Remedy at Law:

In addition to the above factors, Connecticut Courts consider whether the employer has no other adequate remedy at law available to them.  Although some Connecticut Courts have held that the lack of an adequate remedy at law is presumed to be established where a party seeks to enforce a covenant not to compete, not all Courts have relied on that.

The Courts that do rely on that theory, however, state that it is only a rebuttable presumption; meaning that it may be possible for the employee to convince the Court that this presumption does not apply in a certain situation.

The Connecticut Courts that have not followed that presumption have held the presumption to apply only in the limited instances where the calculation of damages may be difficult or impossible and therefore limits the employer’s potential remedies.  These Courts have found that employers have an adequate remedy at law where they are in a position to bring a breach of contract claim, meaning that the employer is able to calculate the damages suffered as a result of the former employee’s actions.

Physician Restrictive Covenant Cases in Connecticut:

As a way of bringing together the above information, and to demonstrate the effects of certain factual situations on an outcome, the following illustrations provide examples of restrictive covenant cases heard and decided by the Connecticut Courts in recent years.

Restrictive Covenant Valid, Injunction Denied:

Opticare, P.C. v. Zimmerman, 2008 Conn. Super. LEXIS 759 (2008).

In this Connecticut case, a doctor entered into an employment contract with physician practice group which provided, among other things, that in the event the doctor voluntarily left the practice but intended to continue practicing medicine he would be prohibited from practicing the type of medicine he practiced with the group, within a specific area for a period of 18 months.  The restricted area was in the shape of a hexagon and ranged from between fifteen to thirty miles from the locations in which the doctor had been employed with the practice group.

After 22 years of employment, the doctor left the physician practice group and opened his own office, practicing the same kind of medicine as he had been, before the 18 month time period had passed and less than four miles away from his former employer’s office.  Upon learning of the physician’s new practice, the practice group asked the Court to grant injunctive relief to prohibit the physician from continuing his practice in violation of the restrictive covenant.

Court Denies Group’s Request:

In denying the group’s request, the Court determined that although the restrictive covenant was valid, the group did not establish a showing of irreparable harm.  The practice group was still in business, and it had failed to demonstrate that the practice was permanently harmed in any way.  The Court also determined that the employer had available to them an adequate remedy at law because the employer had the ability to calculate the damages incurred as a result of the physician’s actions.

Finally, the Court found that the equities balanced in favor of the former employee, due in part to the fact that the doctor frequently donated his time to assisting uninsured premature infants at local hospitals and that an injunction would place an undue hardship on his current patients.

Restrictive Covenant Valid:

Fairfield County Bariatrics v. Ehrlich, 2010 Conn. Super. LEXIS 568 (2010).

The case of Fairfield County Bariatrics v. Ehrlich, is a case in which the restrictive covenant was deemed valid and injunctive relief was granted to the employer.  It involved a situation where a physician developed a very prominent practice performing bariatric surgeries for the physician practice group with whom he was employed and was a one-third shareholder.

As part of his employment with the physician practice group, the physician signed an employment agreement which, among other things, provided that for a period of two years following the termination of his employment, the physician could not practice medicine or general surgery within 15 miles of the practice’s office, and that he could not practice bariatric surgery in five local hospitals.

Following his termination from the group, the physician retrieved a list of the patients he had treated during his employment with the physician practice group.  The physician contacted each patient and informed them that he was no longer associated with the group and directed them to contact him at his new office.

The physician’s new office was located within the restricted area provided for in the employment agreement.  Additionally, the physician continued to perform bariatric surgeries at the hospitals restricted under the restrictive covenant in the employment agreement.

Injunction Granted:

The Court held the restrictive covenant valid, finding the length of time and area of coverage to be within reasonable limitations.  Furthermore, the Court determined that the physician practice group had legitimate business interests that needed the protection of the restrictive covenant.

The Court relied on the practice’s fear that because of the extremely large amount of bariatric surgeries the physician performed on a yearly basis, if the physician were allowed to continue practicing bariatric surgeries at the hospitals within the county, it would drastically dilute the number of surgeries performed at the hospitals in which the practice performed those surgeries.

Additionally, the Court determined that the physician’s ability to earn an income was not so restricted by the covenant as to make it unreasonable.  Under the covenant, the physician was able to perform surgeries throughout the majority of the county in which he resided, and was able to continue providing post-operative care for his current patients.

Finally, the Court determined that the public’s need to secure the physician’s services would only be slightly impacted and that because the physician was still able to provide post-operative care, the public’s need did not render this covenant invalid.

Continuing in their decision, the Court granted the practice’s request for injunctive relief as the Court believed the practice was likely to prevail at a trial.  In its decision the Court found the physician practice group would suffer irreparable harm if injunctive relief were not granted as it was able to demonstrate the physician had the ability to drastically dilute the number of available surgeries.  As for the balance of equities, the Court determined the harm the physician practice group could potentially suffer if their request was denied was much greater than the harm the physician would suffer if the relief was granted.

Restrictive Covenant Invalid:

Merryfield Animal Hosp. v. Mackay, 2002 Conn. Super. LEXIS 2628 (2002).

In this Connecticut case, the Court determined that the restrictive covenant included in the employment agreement was invalid.  Consequently, the Court denied the employer’s request for injunctive relief.  The doctor in this case had been employed under an employment agreement that contained a non-compete provision.

This provision restricted the employee from owning, managing, operating, controlling, participating in, or being employed or in any way connected with an organization providing the services provided by the employer for a period of two years after his termination, and within a seven mile radius from the employer’s locations.

Shortly after his termination the physician obtained employment with a different practice group performing the same services he had been for his former employer. His new employment was located within the seven mile radius restricted under the restrictive covenant.  The employer turned to the Court, seeking a temporary injunction which would order the doctor to comply with the specific provisions of the restrictive covenant.

Injunction Denied:

Although the Court found the time and area restrictions provided for in the restrictive covenant reasonable, it ultimately determined that the covenant was unenforceable and therefore denied the employer’s request.  In doing so the Court relied exclusively on its finding that the restriction under the covenant was overly broad and not reasonably necessary for the fair protection of the group’s business.

If enforced, the language of the covenant would have prevented the doctor, not only from his new position, but even from employment that could in no way bring him in competition with his former employer. Finding the expansive limitations provided for by the language of the restrictive covenant unreasonable, the Court determined the covenant unenforceable, and consequently denied the employer’s request for injunctive relief.

Restrictive Covenant Invalid, Injunction Denied:

Merryfield Animal Hosp. v. Mackay, 2002 Conn. Super. LEXIS 4099 (2002).

A Connecticut Court determined the restrictive covenant at question in this case to be overly protective of the employer’s interest, and therefore determined that the covenant was invalid.  Pursuant to the terms of that clause the doctor in this case agreed he would not involve himself with or be employed by a business providing the professional services he provided for the practice within a seven-mile radius of the practice, and for two years after his employment contract terminated. 

After providing written notice of his termination, the doctor accepted a position with another practice, located slightly less than seven miles from his former employer’s office.  During the course of his new employment the doctor did not solicit any of his former employer’s patients and even rejected any patients he knew to have been patients of his old practice.

The Court, therefore found no evidence of a legitimate business interest that the practice needed to protect.  Furthermore, the practice was unable to demonstrate it suffered or would suffer any loss as a result of the doctor’s actions.  Consequently, the Court determined the restrictive covenant was unenforceable and denied the practice’s request for injunctive relief.

Physician Restrictive Covenant Cases in New York:

As a way of bringing together the above information, and to demonstrate the effects of certain factual situations on an outcome, the following illustrations provide examples of restrictive covenant cases heard and decided by New York Courts.

Restrictive Covenant Valid:

Millet v. Slocum, 4 A.D.2d 528 (1957).

Following the termination of his employment as a partner in a physician partnership, the physician in this case brought an action before the Court asking the Court to render the restrictive covenant contained in his employment agreement unenforceable.  Under the terms of his employment agreement, following his termination, the physician was barred from practicing medicine or surgery within a 25 mile radius from the city in which the partnership was located for a two-year period.  The partnership, in response, asked the Court for injunctive relief which would prevent the physician from practicing in contravention of the employment agreement.

Before working with this partnership, the physician never worked as a physician in New York State.  During the time the physician served the partnership he developed a professional reputation for competence and earned the trust of the partnership’s patients. As a result, the Court concluded that if the physician were able to directly compete with the partnership, the remaining partners would suffer a loss of patients and good will.

Injunction Denied:

Considering next, the physician’s ability to earn a living, the Court decided that the hardship imposed on the physician was not, when balanced with the needs of the partnership, sufficient to invalidate the covenant.  The physician had the ability to practice medicine and surgery anywhere outside of the 25 mile radius, and the Court noted that since he had been able to come to New York and build such a strong professional reputation when beginning his work with the practice, it would not be so unreasonable for him to do so again.  The Court therefore, concluded that the restrictive covenant was valid and enforceable.

Despite the validity of the restrictive covenant, the Court denied the partnership’s request for injunctive relief based on its finding that the partnership breached the partnership agreement when it expelled the physician from the partnership without justification, as was required pursuant to the agreement.  The Court held the partnership’s actions constituted such a breach of the partnership agreement as to not entitle the partnership to the injunctive relief requested.

Restrictive Covenant Valid:

Gelder Medical Group v. Webber, 41 N.Y.2d 680 (1977).

After a few years of employment as a partner to a partnership practice, the physician in this case was expelled pursuant to the partnership agreement.  Under the terms of the partnership agreement, the physician had agreed not to practice his profession within a radius of 30 miles of the village in which the partnership was located for a period of five years.

Disregarding the restrictive covenant, the physician resumed his surgical practice as a single practitioner, practicing in the same village as the partnership and within two months of his expulsion.  The partnership, in an effort to protect its practice, asked the Court to enforce the restrictive covenant and grant injunctive relief.

Injunction Granted:

The Court ultimately determined this restrictive covenant was valid.  Its decision was due, in part, to the small size of the village in which the partnership was located and had built its practice.  In such a small area, the threat of competition from the physician, if allowed, could result in serious damage to the partnership’s number of patients and its revenues.  The Court also considered the impact that the covenant could have on the physician’s ability to earn a living and found that throughout the course of his career, this physician had repeatedly changed professional associations within a range of thousands of miles.

Therefore, the Court did not credit the physician’s argument that relocating his practice would unreasonably impair his ability to earn an income.  Finally, the Court considered the interest of the public and noted the public would not be affected by the enforcement of this covenant, as they could easily obtain the services provided by the physician elsewhere.  Granting the employer’s injunction, the Court noted that the damage the partnership would suffer without injunctive relief, when balanced with the losses the physician may face if the covenant were enforced, justified the enforcement of this restrictive covenant.

Restrictive Covenant Invalid, Injunction Denied:

Michael I. Weintraub, M. D., P. C. v. Schwartz, 131 A.D.2d 663 (1987). 

The physician in this case had been employed by a certain professional practice group for a period of two years at the time his employment contract was terminated.  Pursuant to the terms of his employment agreement, the physician was restricted from engaging in the type of services he performed for the physician practice group within a five mile radius from the professional practice’s office, and within a five mile radius of any hospital at which he had worked at on behalf of the professional practice for a period of one year after the effective date of his termination.

Before that one-year period lapsed the physician established an office to perform the restricted type of services within five miles from a hospital where the physician worked on the group’s behalf.  The professional group initiated an action against the physician to enforce the restrictive covenant and prevent him from breaching his employment agreement.

In reviewing the restrictive covenant, the Court determined the provision restricting the physician from practicing within five miles of the group’s offices was reasonable and enforceable.  The Court, however, found the portion of the covenant prohibiting the physician from practicing within a five-mile radius of any hospital where he worked on the group’s behalf was overly broad and oppressive, and thus unenforceable.

If the physician had been required to follow the terms of the covenant it would essentially prohibit him from practicing at or near any of the major hospitals in the two nearest counties.  The Court furthered noted an absence of evidence indicating the group’s business related concerns were implicated in any manner through the physician’s breach of the restrictive covenant.  Consequently, the Court denied the group’s motion for injunctive relief.

Restrictive Covenant Severed:

Karpinski v. Ingrasci, 28 N.Y.2d 45 (1971).

In the following case the Court held even though the restrictive covenant contained an unreasonable provision, the remaining restrictions provided for under the agreement would be enforceable against the former physician employee.  In essence, the Court severed the unreasonable restriction from the restrictive covenant, and held the remainder to be valid.  This situation involved a dentist employed by an oral surgeon.  As part of his employment with the oral surgeon he agreed to never practice dentistry or oral surgery in any of the surrounding counties except in association with the oral surgeon.

Upon voluntarily ending his employment with the oral surgeon, the dentist opened his own office in violation of the restrictive covenant.  After the competition created by the dentist’s new office forced the oral surgeon to close one of his offices, the oral surgeon asked the Court to enforce the restrictive covenant.

The Court ultimately held the employer was entitled to an injunction barring the dentist from practicing oral surgery in the five specified counties named in the covenant, but that the covenant’s restriction on the practice of dentistry was too broad.  Since the oral surgeon’s business consisted only of performing oral surgeries and related operations, a dental practice providing only dentistry services, and no oral surgery services, would provide no direct competition.

The Court, therefore determining the restriction on the practice of dentistry to be too broad, severed that restriction from the covenant, but enforced the remaining provisions of the agreement.

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Situations involving these restrictive covenants, or non-compete agreements, are very fact specific, requiring case by case analysis and determinations.  Determining the consequences of your employment agreement and your options will require an in-depth review.  A violation of a restrictive covenant, if such covenant is in fact enforceable, may result in other contractual claims being brought against you by a former employer.

If you have any questions relating to your restrictive covenant or would like to discuss any element of your employment agreement, please contact Joseph Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Beware the Casual Employee Complaint

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The United States Supreme Court had overturned long-standing law in the Federal Districts of Connecticut and New York with respect to employee claims of retaliation for registering a complaint with an employer under the Fair Labor Standards Act (“Act”). In this case note, we will tell you how the law changed, and how employers should adopt changes in policy and procedure to protect themselves from a new and difficult-to-defend source of employment-related liability.

Fair Labor Standards Act

The Fair Labor Standards Act was passed in 1938 and subsequently amended by the Equal Pay Act of 1963. The Act sets forth employment rules concerning minimum wages, maximum hours, and overtime pay. The Act contains an anti-retaliation provision prohibiting the discharge of or discrimination against any employee who has “filed any complaint” related to the Act. In 1993, the United States Court of Appeals for the Second Circuit (whose jurisdiction includes Connecticut and New York) decided Lambert v. Genesee Hospital, 10 F.3d 46 (2d Cir. 1993).

There the Court held that “[t]he plain language of this [anti-retaliation] provision [of the Act] limits the cause of action to retaliation for filing formal complaints, instituting a proceeding, or testifying, but does not encompass complaints made to a supervisor.” Id. at 55. Such was the settled law within this Circuit until March 22, 2011, when the Supreme Court issued its decision in Kasten v. Saint-Gobain Performance Plastics Corp., 2011 U.S. LEXIS 2417 (2011).

Kasten v. Genesee Hospital

In Kasten, the Supreme Court conducted a thorough exegesis of the phrase “filed any complaint” in the context of whether the statutory language included oral, as well as written complaints, and whether oral complaints thereby constituted protected conduct under the Act’s anti-retaliation provision. The case involved an employee who complained orally to his supervisor about the physical placement of time clocks so as to deprive workers of compensable time. The employee was fired soon after his complaint.

The Supreme Court found the text of the statute to be inconclusive as to its meaning and harkened back to the words of Franklin D. Roosevelt and pre-World War II census data to further divine the Act’s legislative intent. The Supreme Court ultimately concluded: “[t]o fall within the scope of the anti retaliation provision, a complaint must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection. This standard can be met, however, by oral complaints, as well as by written ones.” Kasten at * 23.

Left unanswered by the Court, however, is the actual level of clarity and detail required to elevate some employee “letting off steam” (e.g., to a supervisor at a Friday night, after-work happy hour) to the protected activity of “filing of a complaint.” Turning the already murky waters opaque, the Court offered this guidance: “[t]he phrase ‘filed any complaint’ contemplates some degree of formality, certainly to the point where the recipient has been given fair notice that a grievance has been lodged and does, or should, reasonably understand the matter as part of its business concerns.”

Dangers to Employers

Lurking behind the Court’s holding is the spectre of an employee dismissed for cause suddenly recalling his prior oral complaint to his supervisor about violations of the Act, thus playing his anti-retaliation “get out of jail free” card. While the Supreme Court paid lip service to the requirement that an employer be given “fair notice” (albeit orally) of a claimed violation of the Act, it “[left] it to the lower courts to decide whether Kasten [the plaintiff-employee] will be able to satisfy the Act’s notice requirement.” Id. at * 27. As of this point, there is no such lower court advice to depend upon, but there are steps an employer can now take to reduce its exposure to a fabricated, after-the-fact claim of employer retaliation.

Employer Protections

Employee Handbooks or Company Policies and Procedures Manuals should be amended to require that all employee complaints to supervisors or management be written (even if anonymous) on a form prescribed by the employer and delivered to a specific location (e.g., suggestion box) or a designated member of management. A sample form should be appended to the Handbook or Manual as an Exhibit, and a supply of forms should be made readily (but discretely) available to employees. The Company needs to establish a usual, customary, and accepted practice of addressing only written employee complaints, irrespective of their subject, seriousness, or source.

The complaint forms should be numerically serialized upon receipt and logged in so that there is no question as to whether or when it was received. In this way, the company can argue that the absence of such a written complaint form raises a rebuttable presumption that no such complaint was ever made. It will thus deprive a discharged employee of the opportunity after he is fired to conjure up a “stealth” retaliation claim based upon a “phantom” oral complaint.

In the meantime, supervisors and management should be made aware that seemingly innocuous oral complaints from employees about wages and hours are sufficient to trigger the anti-retaliation provision of the Act and should be investigated and acted upon.

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The Attorneys at Maya Murphy, P.C. regularly draft and review Employee Handbooks and advise employers on the full spectrum of employment law and employer-employee relations. For additional information, contact attorney Joseph Maya at (203) 221-3100 or JMaya@Mayalaw.com.

Connecticut School Districts and Bullying: What Can Parents Do?

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I was greeted one morning with a very unfortunate email.  The email concerned bullying in Westport, Connecticut Schools and included a heart-wrenching video of an 8th-grade girl claiming to be a victim of bullying in Westport schools. It is just not enough to feel sorry for this victim of bullying, we need to question the effectiveness of the current law and policies in place to avoid the tragic consequences that other towns have dealt with because their students were victims of bullying.

Connecticut General Statute Section 10-222d

I previously blogged about the revisions to Connecticut’s law against bullying in 2008.  Under Connecticut General Statute section 10-222d, the law requires “any overt acts by a student or group of students directed against another student with the intent to ridicule, harass, humiliate or intimidate the other student while on school grounds, at a school sponsored activity or on a school bus, which acts are committed more than once against any student during the school year.” In addition to definitional changes, the statute requires:

  1. teachers and other staff members who witness acts of bullying to make a written notification to school administrators;
  2. prohibits disciplinary actions based solely on the basis of an anonymous report of bullying;
  3. prevention strategies as well as intervention strategies;
  4. requires that parents of a student who commits verified acts of bullying or against whom such bullying occurred be notified by each school and be invited to attend at least one meeting;
  5. requires schools to annually report the number of verified acts of bullying to the State Department of Education (DOE);
  6. no later than February 1, 2009, boards must submit the bullying policies to the DOE;
  7. no later than July 1, 2009, boards must include their bullying policy in their school district’s publications of rules, procedures and standards of conduct for school and in all of its student handbooks, and
  8. effective July 1, 2009, boards must now provide in-service training for its teachers and administrators on prevention of bullying.
Westport’s Bullying Policy

Westport responded to the requirements of this statute with a comprehensive bullying policy which can be found on the school district’s website under the tab for parents, and then selecting policies.

Armed with Connecticut’s law and Westport’s policy, what should we do as parents, community members, and professionals?  I do not profess to have the answers but at a minimum, we should discuss this with our children, question the school administrators, and guide staff and teachers. Together we should challenge ourselves to make a difference using the channels available to us.  There are ways that we can help to effectuate change before it is too late.

If you know of a child affected by bullying, please act on their behalf.  Not every student will post a video to tell you this is happening. If the school is not addressing the bullying in a meaningful way to eradicate the conduct, legal redress is available and the courts will readily intervene.

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If you have any questions regarding bullying or other education law matters, please feel free to contact Joseph Maya and the other experienced attorneys at Maya Murphy, P.C. at (203) 221-3100 or by e-mail at JMaya@Mayalaw.com.

What is “FINRA” and What Does (Should) It Do?

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Attorneys here at Maya Murphy frequently are called upon to represent individuals who are the subject of a FINRA inquiry, or a party to a FINRA arbitration.  We routinely post to our website client alerts regarding FINRA-related decisions but it occurred to us that we should take a step back and issue a post about FINRA itself—what it is, what it does (or doesn’t do), and where it came from.  Knowledge is power and because FINRA so pervades the financial industry to be forewarned is to be forearmed.

What is FINRA?

“FINRA” is an acronym for the “Financial Industry Regulatory Authority,” a so-called “Self Regulating Organization.”  On July 30, 2007, the New York Stock Exchange and the National Association of Securities Dealers (“NASD”) combined to form FINRA.  To be sure, FINRA is cloaked in official garments of the purest silk.  It was established under § 15A of the Securities Exchange Act of 1934, 15 U.S.C. § 78o-3, Karsner v. Lothian, 532 F.3d 876, 879 n.1 (D.C. Cir. 2008). It is authorized to exercise comprehensive oversight over “all securities firms that do business with the public.”  Sacks v. SEC, 648 F.3d 945 (9th Cir. 2011) (quoting 72 Fed. Reg. 42170 (Aug. 1, 2007)).

With respect to the creation of FINRA, the NASD, itself, made it clear that the new entity was directed at “the regulation of the financial markets.”  Id. “By virtue of its statutory authority, NASD wears two institutional hats: it serves as a professional association, promoting the interests of its members; and it serves as a quasi-governmental agency, with express statutory authority to adjudicate actions against members who are accused of illegal securities practices and to sanction members found to have violated the Exchange Act or Securities and Exchange Commission  . . . regulations issued pursuant thereto.”  NASD v. SEC, 431 F.3d 803, 804 (D.C. Cir. 2005) (citations omitted).

FINRA is a private corporation and the largest “independent” regulator of securities firms in the United States, overseeing approximately 4,800 brokerage firms, 172,000 branch offices, and 646,000 registered securities representatives.  It (not necessarily by claimant choice or mere happenstance) benefits from up to 9000 arbitration filings every year.  FINRA has a staff of approximately 3,000 employees and in 2009, collected revenue of $775 Million.  Senior FINRA management enjoys seven-figure annual salaries.

Codes for Industry Disputes and Customer Disputes

FINRA maintains two separate but similar “Codes of Arbitration Procedure”: one for “customer disputes” and another for “industry disputes.” In drafting its Industry Code, FINRA has apparently chosen to “trim some of the fat” off of the controlling law.  For example, Rule 13209 (amended December 15, 2008) states: “During an arbitration, no party may bring any suit, legal action, or proceeding against any other party that concerns or that would resolve any of the matters raised in the arbitration.”

In Arnold Chase Family, LLC v. UBS AG, 2008 U.S. Dist. LEXIS 58697 (D. Conn. Aug. 4, 2008), Judge Kravitz (in analyzing the analogous FINRA “customer” Rule 12209) demonstrated remarkable restraint in reminding UBS that within the Second Circuit (which includes Connecticut and New York) since at least 1998, United States District Courts have had not only the right, but also the duty to entertain requests for preliminary injunctions during the pendency of arbitration.  See Am. Express Fin. Advisors, Inc. v. Thorley, 147 F.3d 229, 231 (2d Cir. 1998). But FINRA’s arbitral disdain for the twin plinths of fundamental fairness and the opportunity to confront one’s accusers does not stop there.

Code Requirements

The Code’s §§ 13400-13402 require that at least one “non-public arbitrator” (i.e., one who within the last five years was associated with, or registered through, a broker or a dealer) serve on every three-person arbitration panel.  Given the state of the economy, in general, and the sudden appearance, disappearance, and consolidation of Wall Street firms, in particular, it is not unreasonable for a “non-public arbitrator” to have past connections or future aspirations with respect to a corporate party to the arbitration.[1] 

This ethical tar pit is bottomless, as evinced by Rule 13410, which vests in the “Director of FINRA Arbitration” discretion to retain an arbitrator who fails to make a required disclosure, notwithstanding a timely notice of disqualification by one of the parties.  See, generally, Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119 (9th Cir. 2005).

Interfering with Productive Arbitration

FINRA also makes it clear that it will not permit its Code to let the discoverable truth get in the way of an otherwise productive arbitration.  Rule 13506(a) ostensibly permits pre-arbitration requests for documents or information, provided such requests do “not require narrative answers or fact finding,” thereby rendering such requests virtually useless.  Rule 13510 states outright that depositions are “strongly discouraged” and permitted “only under very limited circumstances.”  The absence of meaningful pre-arbitration discovery makes the proceeding something akin to “trial by ambush.”  Rule 13604(a) states: “The panel will decide what evidence to admit.  The panel is not required to follow state or federal rules of evidence.”

Finally, Rule 13904 permits rendition by the panel of a skeletal or elliptical award devoid of underlying factual findings or legal reasoning.  Even if the parties jointly request an “explained decision” (requiring an additional $400.00 “honorarium” to the FINRA chairperson), only “general reasons” for the award are required, and inclusion of legal authorities and damage calculations is specifically not required.  Under these circumstances, mere comprehension of the basis for the award, much less meaningful judicial review of the award even under the most stringent “manifest disregard” standard (assuming such standard of review still exists, see Stmicroelectronics, N.V. v. Credit Suisse Securities (USA) LLC 648 F.3d 68, 78 (2d Cir. 2011), is rendered impossible.

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The take-away from this is that for financial industry professionals, FINRA rules, investigations, and arbitrations (however unsatisfying) are often the only game in town.  If you find yourself trying to negotiate the FINRA minefield and need help, contact us at the Maya Murphy, P.C. office located in Westport, Connecticut, at (203) 221-3100.

Should you have any questions relating to FINRA, arbitration or employment issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

[1] In Arnold Chase Family, LLC v. UBS AG, 2008 U.S. Dist. LEXIS 58697 (D. Conn. Aug. 4, 2008), Judge Kravitz made pointed reference to both the sudden demise of Bear Stearns and the fact that securities customers do not have much say in the writing of FINRA’s rules.  Id. at *8-9, *13-14.

The Best Employment Lawyers in Connecticut and New York

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Employment Discrimination Lawyers in New York and Connecticut

State and national laws protect employees from being subjected to discriminatory treatment and termination in the workplace because of the employee’s gender, race, age, national origin, religion, pregnancy, sexual orientation, or disability. If you have reason to believe that you have experienced discrimination on the job, you should contact Joseph C. Maya, Esq. right away. Mr. Maya has a national reputation for successfully handling employment discrimination matters. He can be contacted via e-mail at JMaya@Mayalaw.com or by dialing (203) 221-3100 in Connecticut or (212) 682-5700 in New York.

Laws Protect Employees from Sexual Harassment in the Workplace

These laws also protect employees from sexual harassment, a hostile work environment, and from being touched in an offensive manner in the workplace by supervisors, coworkers, or even clients. Employees have a right to stop discriminatory conduct in the workplace. If an employee tries to stop that conduct or notifies a supervisor that discriminatory conduct has occurred, that employee also has protection, under state and national laws, from retaliation by the supervisor or employer.

In fact, any person who complains to his or her superior or employer has protection from the law against retaliation by his or her employer. If you feel you might be a victim of racial, gender, or sexual discrimination on the job, you should contact Joseph C. Maya, Esq. at JMaya@Mayalaw.com or (203) 221-3100. Let our experience guide you and protect your legal rights at work.

Serving Stamford, Greenwich, Norwalk and surrounding communities including Darien, New Canaan, Westport, Wilton & Weston; the greater Bridgeport area including Fairfield, Stratford, Monroe & Redding; the greater Danbury area including Ridgefield, Newtown & Bethel; and the communities surrounding Milford and New Haven. We also serve all of Westchester and New York Counties.

NYC Expands Law to Ensure Employers Provide Adequate Accommodations to Pregnant Employees

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According to Day Pitney, an expansion to the New York City Human Rights Law to include pregnancy discrimination will go into effect. Under the new law, NYC employers with four or more employees will have a duty to provide reasonable accommodations to pregnant women and those who suffer medical conditions related to pregnancy and childbirth.

Reasonable Accommodations

Examples of reasonable accommodations listed in the bill include assistance with manual labor, bathroom breaks, disability leave for a reasonable period of time arising from childbirth, breaks to facilitate increased water intake and periodic rest breaks for those who stand for long periods of time.

The Legislative Intent section of the bill suggests that when an employee requests a reasonable accommodation in order to maintain a healthy pregnancy, it generally is not reasonable for the employer to place that employee on an unpaid leave of absence.

Although the New York City Commission on Human Rights and the New York courts have not yet interpreted or applied this new law, the Legislative Intent section suggests that employers may have a duty to accommodate pregnant employees with medical restrictions by providing such employees modified job duties, assistance to perform certain job duties or alternative job duties.

Accommodation Requirements

An employer is required to provide such accommodations that would permit the employee to perform the “essential requisites of the job,” unless (i) the employer is unaware that the employee is pregnant, has given birth or has a related medical condition; (ii) providing the accommodation will result in an undue hardship for the employer; or (iii) the employee would not be able to perform the essential requisites of the job even with the accommodation.

NYC employers will be required to provide written notice of these new pregnancy and childbirth accommodation rights to new employees at the start of their employment and to existing employees within 120 days of the law’s effective date of January 30, 2014. In addition to providing each individual employee with written notice of these rights, employers also should post in a conspicuous location the poster provided by the New York City Commission on Human Rights.

Violations of the Law

Employees who believe their employers have violated the new law will have the ability to file a claim with the New York City Commission on Human Rights or pursue a private right of action in court without first exhausting administrative remedies. Remedies for violating the law include back pay, front pay, compensatory damages, punitive damages, attorney fees and costs.

Credit: Basil Sitaras

If you have any questions regarding employee accommodations or other matters of employment law, please do not hesitate to contact Joseph Maya and the other experienced attorneys at Maya Murphy, P.C. at (203) 221-3100 or JMaya@Mayalaw.com to schedule a free initial consultation.

Court Finds That Form U5 Employment Termination Statement is Absolutely Privileged Under New York Law

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Rosenberg v. Metlife, Inc., 493 F.3d 290; 2007 U.S. App. LEXIS 15341 (2d Cir. 2007)

Mr. Rosenberg brought an action against his former employer, MetLife, Inc. (“MetLife”).  Mr. Rosenberg’s allegations included an assertion that MetLife’s statements on his Form U5 were malicious and defamatory.  Form U5 stated the following reason for Mr. Rosenberg’s employment termination from MetLife:

An internal review disclosed Mr. Rosenberg appeared to have violated company policies and procedures involving speculative insurance sales and possible accessory to money laundering violations.

Judge Rakoff of the United State District Court for the Southern District of New York held that such statements are absolutely privileged and granted summary judgment to MetLife on the libel claim.  Rosenberg v. Metlife, Inc., 2005 U.S. Dist. LEXIS 2135 (S.D.N.Y. 2005).  The United States Court of Appeals for the Second Circuit found on appeal that the issue of whether the statements were subject to an absolute or qualified privilege was a question of New York law.  Rosenberg v. Metlife, Inc., 453 F.3d 122 (2d Cir. 2006). 

The Second Circuit certified to New York State’s highest court, the New York Court of Appeals, to rule on the issue.  Id.  The New York Court of Appeals ruled that such statements are subject to an absolute privilege.  Rosenberg v. Metlife, Inc., 866 N.E.2d 439, 8 N.Y.3d 359, 368, 834 N.Y.S.2d 494 (2007).  Thereafter, the Second Circuit affirmed the initial summary judgment ruling on the libel claim.

Should you have any questions relating to the Form U5, expunging information on the Form U5 or employment issues generally, please feel free to contact Joseph Maya and the other experienced attorneys by telephone at (203) 221-3100 or by e-mail at JMaya@Mayalaw.com.

FINRA Arbitration Awards Employer Over $500,000 for Promissory Notes Accelerated by Employee’s Termination

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In the Matter of the Arbitration between Claimants Morgan Stanley Smith Barney and Morgan Stanley Smith Barney FA Notes Holdings, LLC v. Respondent Robert W. Hathaway (2012 WL 2675417)

In a recent Financial Industry Regulatory Authority (FINRA) arbitration, a sole FINRA arbitrator held that an employee is liable to satisfy his indebtedness on promissory notes, including interest, to his employer upon termination of employment.

Case Details

In this case, Morgan Stanley Smith Barney (“MSSB”) and Morgan Stanley Smith Barney FA Notes Holdings, LLC, alleged that Robert W. Hathaway (“Hathaway”) was in breach of two promissory notes executed while he was employed by MSSB.  In its arbitration filing, MSSB claimed the principal balances due under both notes, per diem interest for both notes, and costs of collection and arbitration.  This matter proceeded pursuant to Rule 13806 of the Code of Arbitration Procedure because Hathaway neither filed a Statement of Answer nor appeared at the hearing.

On or about March 8, 2008, Hathaway executed the first promissory note with MSSB for $729,560, at an interest rate of three-percent per annum, to be repaid in nine consecutive annual installments beginning on March 19, 2009.  The terms of the note included an agreement to pay all costs and expenses of collection, including reasonable attorneys’ fees.  On or about June 9, 2009, Hathaway executed the second promissory note for $75,257.83 at an interest rate of 2.25-percent per annum, to be repaid in eight consecutive annual installments beginning on June 9, 2010.

The Decision

On or about September 19, 2011, Hathaway’s employment at MSSB ended.  MSSB alleged that termination of employment triggered acceleration of the promissory notes and made a demand for immediate re-payment.  Hathaway failed and refused to satisfy the indebtedness.

After considering the pleadings and the submissions, the sole arbitrator decided that Hathaway was liable for the principal balance due under each promissory note.  Hathaway was also liable for per diem interest accruing from the date employment was terminated through the date of payment on each note.  Finally, Hathaway was to reimburse MSSB for the non-refundable portion of its initial claim filing fee.  The final award to MSSB totaled $542,816.00.

Should you have any questions relating to FINRA, arbitration or employment issues generally, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County at 203-221-3100 or at JMaya@Mayalaw.com.