Defend Trade Secrets Act (DTSA) of 2016

Trade Secret Misappropriation Recourse and Whistleblower Protection

New Legislation Impacting Business

All businesses have intellectual property and trade secrets.  A company is in business because it is offering something of “value” which can be a number of things from product to process to promotion.  For example, proprietary software, product systems, new product generation, or even client lists.  The loss or misappropriation of such can be devastating to the success and profitability of a company.

In a measure to further protect businesses, the Defend Trade Secrets Act (DTSA) of 2016 was signed into law on May 11, 2016 after being unanimously passed in the Senate and ratified in the House. It creates a federal cause of action for trade secret misappropriation.  The central provision of the DTSA will be codified as 18 U.S.C. § 1836(b) and reads:

An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.

What this Means

A “trade secret” means “all forms and types of financial, business, scientific, technical, economic, or engineering information …  if—(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the another person who can obtain economic value from the disclosure or use of the information.”

Misappropriation includes: without permission (A) obtaining a trade secret that was knowingly obtained through improper means or (B) disclosing or using a trade secret with knowledge that either (1) it is a trade secret or (2) it was obtained through improper means. The “improper means” include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” However, misappropriation does not include “reverse engineering, independent derivation, or any other lawful means of acquisition.”

The DTSA also creates an ex parte seizure procedure for use in extraordinary circumstances where the party against whom the seizure is ordered would “destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person….”

Protection for Whistleblowers Under DTSA

The DTSA seeks to protect whistleblowers from criminal or civil liability for disclosing a trade secret if the disclosure is made for purpose of reporting a violation of law. Employers have an affirmative duty to provide employees notice of the new immunity provision in “any contract or agreement with employee that governs the use of a trade secret or other confidential information.” Failure to comply means that the employer may not recover exemplary damages or attorney fees in an action brought under the DTSA for theft of trade secrets against an employee.  The definition of “employee” is drafted broadly to include contractor and consultant work performed by an individual for an employer.

What Companies Should Do Next

Companies should update their employment manuals, employment agreements and confidentiality agreement to disclose the whistleblower immunity provisions in the DTSA. Otherwise the company is not eligible to recover double damages or attorney fees in trade secret litigation.

Trade Secrets

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The Curtain is Rising on the New Overtime Rules

Changes to the Overtime Rules are Here

On May 18, 2016, the Department of Labor announced the Final Rule defining and delimiting the changes in overtime exemption for Part 541 (“white collar workers”).¹  The new regulations significantly impact white collar overtime rules by more than doubling the salary threshold that would exempt an employer from paying employees overtime.  Prior to the new rules, if an employee qualified as a white collar employee, and had a salary more than $23,660 annually, then they were exempt from overtime pay.  The new rule changes that threshold to the 40th percentile of earning for full-time salaried workers for the lowest wage Census Region (currently the South), which is $47,476.00 annually ($913 weekly).² The threshold will be automatically updated every three years.  However, the Final Rule allows employers to satisfy up to 10% of the standard salary requirement with non-discretionary bonuses, incentive payments and commissions so long as they are paid at least quarterly.

What the Change Means to Businesses

The effective date of the Final Rule is December 1, 2016.   Employers should be taking action now to prepare.  The change in the overtime threshold for white collar employees will impact employers differently depending on the number of employees to be newly classified as non-exempt.  It is likely that the change may be felt more acutely by the retail and restaurant industries.

Cost to Employers

The cost to employers to incorporate overtime changes will vary depending on their industry size, sector and employee distribution.  However, the change itself is generally applicable and many businesses and employees will experience a substantial financial impact.  Accordingly, when CSRA businesses are budgeting, they should certainly consider the increased expense from the number of employees who are either given a raise above the new threshold to remain exempt or paid overtime because they are suddenly nonexempt.  Employers should also factor in the cost of initial compliance to include the changes in human resource and payroll.  For many businesses, there may also be cost associated with the possible increase in salary for employees up the chain if lower level employees receive raises because of the regulation.

Other Challenges

One additional challenge that businesses may face is the net negative impact on morale on staff from changes since many formerly exempt white collar employees will now be forced to “punch a clock.”  Some managers will now have to keep up with their lunch breaks, etc. and many will likely take issue with it.  However, if businesses focus some attention to their planning and roll out efforts they may more easily be able to highlight the positive aspects of the changes.

Steps to Prepare for the Overtime Changes

  1. Gather and assess information such as employee salary and total working hours. Taking the pulse of the organization is a great place to start.  Businesses should start to look at salary and benefit information to get an idea of how to most efficiently pay employees.  An employer should also take a close look at the hours of employees to assess how much time an employee spends both in the office and at home working.  Remember, responding to emails from cellular devices or home computers are a part of total working hours.
  1. Gather information about the actual duties of employees. An organization should take a close look at the duties of employees. The goal is to discover the actual activities performed in a position, not the written descriptions of the position, which are often outdated.  This step is important to determine how best to redistribute employees in the most efficient manner.
  1. Consider the Types of Changes Possible for your Organization to Comply with the Rules.
    a.  increase the salaries of currently exempt employees to the new threshold;
    b.  reclassify exempt employees as nonexempt and pay them hourly;
    c.  change staffing to eliminate the need for overtime;
    d.  change benefit plans.

The stage is set, and all of the actors in this production – regulatory agencies, employers and employees – must get ready to play their part.  It is imperative that local businesses take the time to familiarize themselves with the changes and start to take stock of their positions so that they can avoid the potentially crippling financial consequences of non-compliance.

overtime rules

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¹ The official document is scheduled to be published in the Federal Register on 05/23/2016 and will be made available online at http://federalregister.gov/a/2016-11754.
² The number was based on data from the fourth quarter of 2015.

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Doubling Down on Overtime Exemption

Current Overtime Law

The Fair Labor Standards Act (FLSA) requires that covered, nonexempt employees in the United States be paid at least the Federal minimum wage for each hour worked and receive overtime pay at one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek. However, there are a number of overtime exceptions to this rule. For example, the current law does not require employers to pay overtime compensation to executive, administrative, professional and outside sales employees who are paid on a salary basis and receive more than $23,660.00 per year or $455.00 per week, even if they work over 40 hours. See 29 U.S.C. 213(a)(1).   This is referred to colloquially as the “white collar exemption.”

Overtime Exemption Change

The Department of Labor (DOL) proposes to more than double the salary level that would qualify white collar workers for overtime exemption. Among other things, the proposal sets the standard salary level equal to the 40th percentile of earnings for full-time salaried workers as of 2016, which is projected to be $970 per week, or $50,440.00 annually for a full-year worker. More importantly, in order to prevent the salary levels from becoming outdated, the DOL is proposing to include a mechanism to automatically update the salary and compensation thresholds on an annual basis. The DOL estimates that during the first year alone, 4.6 million currently exempt workers would become non-exempt and entitled to minimum wage and overtime protection under FLSA, without some intervening act by their employers. See Federal Reg. Vol. 80, No. 128 (Mon. July 6, 2015).

Impact on Business

The period for public comment on the proposal closed on September 4, 2015, and the proposed change attracted both praise and criticism from worker’s groups and businesses. The comment period also served to demonstrate some of the confusion that exists under the current regulation such as the mistaken belief that payment of a salary automatically disqualifies an employee from overtime pay; or that if a white collar employee is in fact nonexempt she would have to be converted to hourly pay. See Federal Reg. Vol. 80, No. 128 (Mon. July 6, 2015). The specific impact of the proposed changes on the CSRA is difficult to project, but the potential impact could be staggering for some businesses. The pending approval of the rule would be a good time for local businesses to reassess the exemption status of their employees in preparation for the change, which many believe to be inevitable.

Since the ultimate burden of proof for the actual application of an exemption rests on the employer, employers should begin evaluating the exemption status of employees as soon as possible so that they have enough time to adjust to the proposed rule. While the proposed bright-line salary test is one step of meeting exempt status, it works in concert with the “duties test.” As was previously the case, job titles, descriptions and paying a salary versus an hourly rate are not determinative of exemption status. In order to qualify as exempt under the proposed rule, an employee must not only meet the more than doubled pay requirement, but employees must also continue to meet certain tests regarding their job duties. There is potential for employees/positions that have traditionally been exempt to be treated as non-exempt for the first time in their careers or the history of the position.

Moving Forward

The new overtime white-collar exemption rule will be issued approximately July 2016, according to the U.S. Department of Labor’s fall 2015 regulatory agenda.  The DOL may also make some changes to the “duties test,” which have yet to be proposed. The proposed change is particularly relevant in Georgia and South Carolina where the annual pay is often less than the national average. The bottom line is that it matters, and moving forward, employers should pay close attention to employee’s job functions and make sure they brace for the impact of change to their current classification structure. A specific strategy is based on the needs of each individual business, but reclassification will require an effective roll-out strategy for all. As the DOL gears up to double down on overtime exemption, CSRA businesses should not gamble with their economic security. Businesses should be prepared to incorporate a communication plan, maintain proper documentation of the reclassification and schedule training regarding policies affecting employees.

Salary Threshold Increase for Overtime Exemption

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Witnesses in the Making: Opposing Counsel Communicating to Employees

Navigating a workplace incident can be a company’s nightmare. Claims of workplace injury, harassment, hostile work environment, OSHA violations, or the like put employers on pause as to the manner of properly handling legal proceedings. This is compounded when opposing attorneys interview company employees about the workplace incident without the presence and/or permission from the company’s counsel to interview such employees (commonly referred to as ex parte communications).

Ex parte communications can result in more than a few harmless comments. The interviewing attorneys may call upon these employees as liability witnesses at trial—often on cross examination. Under Georgia agency law, the statements and actions of employees regarding incidents for which an employer may be liable can be attributed to the employer. And, statements made by these employees are admissible at trial if it concerns a matter within the scope of the employment and is made during the time of employment. Thus, employees may make statements during ex parte communications with attorneys without the presence of defense counsel that could potentially be damaging to the company in a subsequent trial.          

Know the Ethical Violations of Ex Parte Communications

Lawyers must subscribe to ethical standards, and pursuant to Georgia Rule of Professional Conduct 4.2(a), “[a] lawyer who is representing a client in a matter shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or court order.” Comment 4A to this rule clarifies that a lawyer cannot have ex parte communications with:

  • Officers, directors, managers, and supervisors.
  • Employees who have the authority to obligate the organization with respect to the matter.
  • Employees who regularly consult with the organization’s lawyer concerning the matter.
  • Employees whose act or omission in connection with the matter may be attributed to the organization for purposes of civil or criminal liability.

The above parties are protected as clients under the counsel of the company. It is a violation of ethics, therefore, for an attorney to have ex parte communications with a company’s current employees regarding a dispute without the presence and/or permission from defense counsel if the employee falls within one of these categories.

There Are Always Exceptions

1.    Georgia Rule of Professional Conduct 4.2 requires that opposing counsel must know that the employer is represented by counsel at the time of the communications. Documentation will prove knowledge! Thus, a company should have its counsel send a letter of representation to the opposing attorney immediately upon receipt of information that the complainant has retained representation. Without such a letter, the opposing attorney will likely be able to participate in ex parte communications with employees by disclaiming knowledge of representation of the company.

2.    An attorney is allowed to have ex parte communications with employees who do not fit the descriptions listed in Comment 4A including:

  • Employees who do not hold positions with responsibilities related to directing, managing, or supervising;
  • Employees whose acts or omissions cannot be ascribed to the company; and
  • Former employees.

An employer’s counsel should, therefore, encourage employees to refer any questions related to incidents to counsel to prevent such ex parte communications.

3.    Georgia case law allows an attorney to call co-workers of the plaintiff for cross-examination in suits against a company. In order to prevent this, defense counsel should argue to the trial judge that if the opposing attorney can interview a party’s co-workers without the presence and/or permission from defense counsel, then the attorney should not also be permitted to cross-examine the employee.

What To Do If Ex Parte Communication Has Taken Place

It is critical for an employer to protect itself in that event that ex parte communications occur between an employee and opposing counsel. If such communications do transpire, an employer and/or its counsel should do the following:

  • Confirm with the employee-witness the timing and substance of the communications.
  • Depose any investigators that have conducted interviews in the case.
  • Request copies of all interview statements with witnesses in discovery.
  • Require opposing attorney early in litigation to seek a court order prior to speaking directly with employees.
  • Seek the appropriate remedy based on the facts of your case.

What Remedies Can an Employer Seek?

The primary remedy for a company in this situation is the disqualification of the offending opposing counsel. This is quite helpful when the case is nearing trial because another attorney (who is likely less familiar with the case) must assume the responsibilities of the case from the offending counsel. Additionally, other remedies are available. A court may exclude the employee-witness with whom counsel had ex parte communications, a court may issue sanctions, or the attorneys could enter into an agreement to stipulate to a jury instruction that the acts or omissions of the employee-witness with whom the offending counsel had ex parte communications cannot be used for the basis of any liability against the defendant employer. Finally, defense counsel could request a mistrial, but this is rarely granted.

If your company finds itself with a notice of lawsuit or investigation by an attorney for a workplace incident, converse with your lawyer, educate your employees about communication, and make sure opposing counsel has documentation that your company is represented.

ex parte communications

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Implications to the Public of Denying Access to GBI Records

GEORGIA SUPREME COURT DENIES FORMER SUSPECT ACCESS TO GBI RECORDS

Open-Records-for-Web

A recent decision by the Georgia Supreme Court denying access to records has an impact outside of the criminal justice system and extends to individuals, businesses and the public as a whole.

In Evans v. Georgia Bureau of Investigation, decided June 15, 2015, a unanimous Supreme Court denied access to records sought in a lawsuit filed by Christopher Evans. Evans was a Director of Operations for the Georgia Electronic Design Center at Georgia Tech. In 2010, he was arrested and charged with RICO violations. Two other persons were also arrested.

Ultimately the arrest warrants against Evans were dismissed and no indictment was returned against him. At that time, pursuant to an open records request, he requested copies of the GBI records that had been assembled insofar as they related to him. The GBI objected to the open records request on the ground that the investigation was still pending against the other two individuals.

Under Georgia law, there is no dispute that the GBI records concerning the arrest warrants taken out against Evans in September of 2010 are “public records.” However, the Supreme Court agreed with the GBI that there was still a pending investigation and therefore the requested records were exempt from disclosure under O.C.G.A § 50-18-72(a)(4) – the “pending investigation and prosecution” exemption, which reads as follows:

Records of law enforcement, prosecution, or regulatory agencies in any pending investigation or prosecution of criminal or unlawful activity, other than initial police arrest reports and initial incident reports; provided, however, that an investigation or prosecution shall no longer be deemed to be pending when all direct litigation involving such investigation and prosecution has become final or otherwise terminated; and provided, further, that this paragraph shall not apply to records in the possession of an agency that is the subject of the pending investigation or prosecution; and provided, further, that the release of booking photographs shall only be permissible in accordance with Code Section 35.

And while information regarding the other individuals might be redacted from the records, the Supreme Court has previously held that where (a)(4) applies, it exempts from disclosure the “entirety” of such records. The Court noted, but did not decide, that the pending investigation might be concluded after the expiration of the five-year statute of limitations for prosecution of any racketeering charges against those who were arrested.

The effect of denying the open records request is as follows:

1.     It prohibits the public from having access to law enforcement records.

2.     It restricts the ability of an individual wrongfully accused of a crime from timely accessing the necessary documentation to receive an expungement of the underlying arrest.

3.     It impacts business from a human resources standpoint, as companies require details of an investigation to determine an employee’s continued status with the company.  Being unable to access records pertaining to the investigation may paralyze human resource department’s ability to conduct its own inquiry.  Even though Georgia is an at-will employment state, most employers have reasonable standards for dismissal.  This could have a negative impact on the employer’s operations and can lead to potential litigation.

 

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Physician Employment Contracts: Important Considerations

Whether a young physician finishing up residency or an experienced surgeon, negotiating and signing an employment contract can be overwhelming.  Physician employment contracts are especially unique, and it is this contract that will ultimately determine your relationship with the hospital or group with whom you chose to join.

When looking at these contracts, it is important to have a complete understanding of the terms of the contract.  Below are just a few of the contract clauses to which you should be paying close attention:

The Term

The contract should specify a start and end date.  Some contracts are only written for a year while others are automatically renewable.  It is important to consider the term and how the renewal process works.

Compensation Formula

The starting salary is just one number among many which will ultimately determine how you are compensated.  Many groups provide a base salary but will ultimately compensate based upon performance.  Understanding the compensation formula is of utmost importance in deciding whether the contract meets your expectations.

Non-Compete Clauses/Restrictive Covenants

Most physician employment contracts will have a non-compete clause that prohibits the physician from practicing medicine for a specified period of time in a specific geographical area.  Restrictive covenants may also limit the physician’s ability to keep certain patients.  Knowing the restrictions that will be placed on you should you chose to leave the group may play a major role in knowing whether this arrangement is right for you.

Physician-Contract-for-web

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Written by Mary Runkle Smith

Repercussions for Social Media in the Workplace

Employees’ Time on Social Media

Whether we’re talking about Facebook, Instagram, Twitter, Google+ or even or good ole MySpace, the use of social media and social networking is here to stay. As more and more of us use social media services, employers and their employees are coming to terms with the legal impact of social media in the workplace. Businesses can find themselves struggling to respond to the actions that their employees take online.

Most of us recognize that employees who spend time at work on Facebook or other social media sites may be disciplined for doing so. Most employers have explicit policies prohibiting their employees from using work time and work computers for personal activities. On the other hand, it is natural for employees to assume that online activity conducted at home and outside of work hours will not affect their employment. But what happens when two employees begin feuding with each other on Twitter? Or when one employee uses Facebook to make inappropriate, harassing comments to another?

When to Use Discipline

When an employee’s use of social media begins to disrupt the workplace, the employer is generally allowed to discipline those involved, even when that activity takes place outside of the office. If an employee is using the internet to sexually harass a co-worker, the employer may be required to impose discipline. Likewise, employers may be justified in disciplining an employee whose actions online are particularly disreputable or egregious. For example, a business might consider disciplining an employee who uses his spare time to post racist diatribes on an online message board or displays pictures of himself using illegal drugs on Instagram.

When NOT to Use Discipline

On the other hand, federal law gives all employees the right to engage in concerted activities intended to address the terms and conditions of their employment. In other words, employees may act together to try to improve their pay and working conditions. When your employees engage in this activity using social media, it is illegal for you to retaliate against them. For example, employees complaining on Facebook about their pay or about the amount of work they are required to do are protected by law and should not be subject to discipline.

No Peeking

Finally, most social media sites include privacy settings that allow users to restrict access to the posts they make. An employer should respect these privacy settings. It may be tempting to try and sneak a peek at what your employees are saying about you, but doing so may subject your business to liability under federal and state law.

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E-Verify Requirements for Employers: Are you in Compliance?

On January 1, 2012 Georgia and South Carolina added E-Verify Requirements. If you have an employee working in Georgia or South Carolina make sure you are in compliance.

South Carolina: Amendments to the “South Carolina Illegal Immigration and Reform Act” requires all employers to enroll in the U.S. Department of Homeland Security’s E-Verify system and to verify the legal status of all new employees through E-Verify within three business days. Failure to enroll in and use E-Verify to verify new hires will result in probation for the employer or suspension/revocation of the employer’s business licenses.
Georgia: “The Illegal Immigration Reform and Enforcement Act of 2011” mandates employers with 500 or more workers to use E-Verify for their employees starting on January 1, 2012. As of July 1, 2012, businesses of 100 or more employees will have to start using E-Verify as well, and as of January of 2013, all businesses with 10 or more employees will have to use the system. Businesses with fewer than ten employees are exempt from the E-Verify requirement.

Contact Hull Barrett’s Labor & Employment Group to Learn More About E-Verify