Recent Developments from Around the States

The TRO, issued by Superior Court Judge William J. Elfving, was ordered as the result of a lawsuit filed by Yahoo! on Feb. 27 of this year, which claimed that the former employees and MForma, a company that delivers entertainment services like games and sports to wireless devices, 'attempted' and 'intended' 'global theft of confidential and proprietary' trade secret technology related to Yahoo!'s plans to make its Web content available on cellular phones, personal digital assistants, and other such mobile devices. The TRO forbids defendants from destroying evidence relating to the lawsuit and requires defendants' counsel to return any Yahoo! source codes that defendants may still have in their possession. It also enjoins defendants from '[en]gaging in any activities relating to the planning, design, or development' of technology based on Yahoo!'s proprietary information and trade secrets.

The technology developed by Yahoo! for which it requested immediate protection allows users to receive Web-based information on their mobile devices more easily than the technology currently available to consumers. The lawsuit alleges that defendants began plotting to 'systematically and illicitly acquire and misappropriate' this confidential and proprietary information in April, 2005. It accuses defendants of violating California's uniform Trade Secrets Act and California Civil Code Section 3426 et seq.; breaching their written contracts and the covenant of good faith and fair dealing; tortious interference; violations of California's unfair competition law and California Business and Professions Section 17200; theft; conversion; fraud; unjust enrichment; and misappropriation. Yahoo! seeks an injunction and damages flowing from these alleged violations.

In particular, Yahoo!'s lawsuit accuses two of its former business development managers from its mobile business unit, David Chang and Erik Pavelka, of copying tens of thousands of pages of proprietary and confidential information, including 'highly confidential trade secret data related to practically every aspect of the techniques, manners, and methods by which Yahoo! markets, brands, prices, sells, and structures deals related to content delivery to mobile devices,' and handing it over to their new employer, while also recruiting the engineering group, with whom they worked on the project, to join MForma. Further, Yahoo!'s lawsuit alleges that MForma either knew or should have known of its new employees' duties and obligations to its former employer, both contractual and statutory, besides being aware of its own responsibilities to recruit new employees in a legal and ethical manner, with a particular regard for their possible misappropriation of proprietary and trade secret information. The California Superior Court in San Jose had scheduled a case management conference for July 11 in an attempt to begin addressing some of these allegations in the near future.

Ann Taylor to Enter $6.5 Million Settlement over Overtime Violations

Ann Taylor Stores, a women's clothing retailer, has agreed to pay $6.5 million to settle claims by California store managers who alleged that it violated state labor laws on the payment of overtime and the provision of meal and rest periods. Laykin v. Ann Taylor Retail Inc., Cal. Super. Ct., BC-328843, settlement reached 2/28/06.

The proposed settlement, the terms of which will be addressed and finalized during hearings scheduled in the Superior Court in Los Angeles for March 20 and March 27, would cover an estimated 700 to 800 store managers, senior assistant managers, and assistant managers employed at Ann Taylor's 95 California stores from Feb. 15, 2001 through the date of the settlement's approval. The breakdown of the payments and attorneys' fees will be determined at these hearings.

The settlement stems from claims made in two different class actions. Laykin v. Ann Taylor, filed in the Los Angeles County Superior Court on Feb. 15, 2005, was filed by two former store managers, Melissa Laykin and Naoko So, and alleged that the store, in misclassifying its store managers and senior assistant and assistant store managers as exempt employees, failed to pay them overtime or give them adequate meal breaks in violation of California overtime wage and hour laws. The second lawsuit, filed on May 5, 2005 in San Francisco County Superior Court, involved similar claims made by a former senior assistant manager.

In agreeing to the proposed settlement, Ann Taylor denied the claims asserted in the two cases and stated that it is settling in order 'to avoid significant legal fees, other expenses and management time that would have to be devoted to protracted litigation.' The retailer also faces a third lawsuit in California involving the same claims, Gomez v. Ann Taylor Inc., Calif. Super. Ct., No. BC 344390, case filed 12/12/05), which it intends to incorporate into the settlement.

NEW JERSEY

NJ Court Finds Definition of 'Employee' in CEPA May Include Independent Contractors

In reversing the lower court's award of summary judgment to Prudential Insurance Company of America (Prudential), the Superior Court of New Jersey, Appellate Division held that the definition of 'employee' in the state's Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 to -8, turns on the employer's direction and control of the employee, and therefore, has the capacity to also include workers classified as independent contractors at common law. D'Annunzio v. Prudential Insurance Company of America, 383 N.J.Super. 270 (Feb. 23).

Plaintiff George D'Annunzio, a licensed chiropractor, worked as a chiropractic medical director for defendant Prudential for 6 months before he was terminated for alleged unprofessional behavior and failure to follow instructions. Plaintiff filed suit against defendant and its representatives, alleging that it had terminated him in retaliation for his complaints that defendant had taken part in unethical and illegal practices, a violation of New Jersey's CEPA. Finding that D'Annunzio was an independent contractor, rather than an employee, and thus was not protected by the CEPA, the lower court granted summary judgment in favor of defendant.

In reversing the lower court's ruling, the New Jersey Superior Court held that because CEPA's definition of 'employee' does not expressly exclude independent contractors, much unlike the Legislature's unambiguous exclusion of such workers from the definition of 'employee' in other contexts, 'the definition should be construed broadly and principally focus on the 'control and definition' factor expressly mentioned in N.J.A.A. 34:19-2(b).' The court therefore rejected defendant's claim that the Pukowsky test, derived from Pukowsky v. Caruso, 312 N.J.Super. 171 (App.Div. 1998), a legal test for determining who is an 'employee' under New Jersey's Law Against Discrimination (LAD), N.J.S.A. 10:5-1, which excludes independent contractors from that definition, was the correct test for making such a determination under the CEPA. It concluded that the broad description of protected workers under CEPA 'should not be narrowed by judicially appending a test that excludes those who would be defined, at common law, as independent contractors, or by appending other discordant and disqualifying aspects of the worker's relationship to the employer that have no bearing on the 'control and direction' requirement contained in N.J.S.A. 34:19-2(b)' In so holding, the New Jersey Superior Court focused on CEPA's primary purpose and found that 'CEPA exhibits no particular interest in regulating the terms of the employer-worker relationship, except to preclude retaliation, when the worker acts in the interests of the health, safety and welfare of the public.'

The court also supported its holding by making reference to employer hiring practices in recent years, in which it found a pattern of hiring independent contractors or workers who are not given the benefits normally associated with full employment. In considering this trend along with a potential holding that independent contractors are not 'employees' under the CEPA, the court found that ' ' it is conceivable that unscrupulous employers might also adopt this hiring approach to limit their exposure to lawsuits by reducing the number of persons who, because of the employer's withholding of benefits or other badges of 'employment,' would not be eligible to assert statutory claims.' While recognizing the intended breadth of the CEPA, however, the court also admitted that the statute was only meant to protect those 'vulnerable to retaliation' and that 'some workers are contractually positioned in a way that frees them from the fear of termination or other forms of retaliation, and have no critical need for CEPA's protections.'

In applying the CEPA's definition of 'employee' to D'Annunzio, the Superior Court found that a few of the Pukowsky test's factors could illuminate his status under the statute, including the first, 'the employer's right to control the means and manner of the worker's performance,' the second, 'whether the worker was supervised,' the fourth, 'the furnishing of equipment and a workplace,' and the seventh, 'the manner of termination.' Noting that the trial judge had found the second and fourth factors to weigh in D'Annunzio's favor, the court concluded that because there were questions of fact regarding the chiropractor's treatment with regard to the first and seventh factor, summary judgment for defendant must be reversed.

Recent Developments from Around the States and The National Litigation Hotline were prepared by the Labor and Employment Relations Department of Winston & Strawn LLP's New York offices.

CALIFORNIA

TRO Issued Against Former Yahoo! Employees and New Employer

The California Superior Court for Santa Clara County has granted a temporary restraining order (TR) against seven of Yahoo! Inc.'s (Yahoo!) former employees and their new employer, MForma Group, Inc. (MForma) (collectively, 'defendants'), barring defendants from '[a]ccessing, retrieving, copying, deleting, destroying, altering or disseminating, obtaining, using or disclosing any of Yahoo!'s 'Trade Secrets.” Yahoo! Inc. v. MForma Group Inc., Cal. Super. Ct., No. 106CV058810, TRO granted 3/1/06.

The TRO, issued by Superior Court Judge William J. Elfving, was ordered as the result of a lawsuit filed by Yahoo! on Feb. 27 of this year, which claimed that the former employees and MForma, a company that delivers entertainment services like games and sports to wireless devices, 'attempted' and 'intended' 'global theft of confidential and proprietary' trade secret technology related to Yahoo!'s plans to make its Web content available on cellular phones, personal digital assistants, and other such mobile devices. The TRO forbids defendants from destroying evidence relating to the lawsuit and requires defendants' counsel to return any Yahoo! source codes that defendants may still have in their possession. It also enjoins defendants from '[en]gaging in any activities relating to the planning, design, or development' of technology based on Yahoo!'s proprietary information and trade secrets.

The technology developed by Yahoo! for which it requested immediate protection allows users to receive Web-based information on their mobile devices more easily than the technology currently available to consumers. The lawsuit alleges that defendants began plotting to 'systematically and illicitly acquire and misappropriate' this confidential and proprietary information in April, 2005. It accuses defendants of violating California's uniform Trade Secrets Act and California Civil Code Section 3426 et seq.; breaching their written contracts and the covenant of good faith and fair dealing; tortious interference; violations of California's unfair competition law and California Business and Professions Section 17200; theft; conversion; fraud; unjust enrichment; and misappropriation. Yahoo! seeks an injunction and damages flowing from these alleged violations.

In particular, Yahoo!'s lawsuit accuses two of its former business development managers from its mobile business unit, David Chang and Erik Pavelka, of copying tens of thousands of pages of proprietary and confidential information, including 'highly confidential trade secret data related to practically every aspect of the techniques, manners, and methods by which Yahoo! markets, brands, prices, sells, and structures deals related to content delivery to mobile devices,' and handing it over to their new employer, while also recruiting the engineering group, with whom they worked on the project, to join MForma. Further, Yahoo!'s lawsuit alleges that MForma either knew or should have known of its new employees' duties and obligations to its former employer, both contractual and statutory, besides being aware of its own responsibilities to recruit new employees in a legal and ethical manner, with a particular regard for their possible misappropriation of proprietary and trade secret information. The California Superior Court in San Jose had scheduled a case management conference for July 11 in an attempt to begin addressing some of these allegations in the near future.

Ann Taylor to Enter $6.5 Million Settlement over Overtime Violations

Ann Taylor Stores, a women's clothing retailer, has agreed to pay $6.5 million to settle claims by California store managers who alleged that it violated state labor laws on the payment of overtime and the provision of meal and rest periods. Laykin v. Ann Taylor Retail Inc., Cal. Super. Ct., BC-328843, settlement reached 2/28/06.

The proposed settlement, the terms of which will be addressed and finalized during hearings scheduled in the Superior Court in Los Angeles for March 20 and March 27, would cover an estimated 700 to 800 store managers, senior assistant managers, and assistant managers employed at Ann Taylor's 95 California stores from Feb. 15, 2001 through the date of the settlement's approval. The breakdown of the payments and attorneys' fees will be determined at these hearings.

The settlement stems from claims made in two different class actions. Laykin v. Ann Taylor, filed in the Los Angeles County Superior Court on Feb. 15, 2005, was filed by two former store managers, Melissa Laykin and Naoko So, and alleged that the store, in misclassifying its store managers and senior assistant and assistant store managers as exempt employees, failed to pay them overtime or give them adequate meal breaks in violation of California overtime wage and hour laws. The second lawsuit, filed on May 5, 2005 in San Francisco County Superior Court, involved similar claims made by a former senior assistant manager.

In agreeing to the proposed settlement, Ann Taylor denied the claims asserted in the two cases and stated that it is settling in order 'to avoid significant legal fees, other expenses and management time that would have to be devoted to protracted litigation.' The retailer also faces a third lawsuit in California involving the same claims, Gomez v. Ann Taylor Inc., Calif. Super. Ct., No. BC 344390, case filed 12/12/05), which it intends to incorporate into the settlement.

NEW JERSEY

NJ Court Finds Definition of 'Employee' in CEPA May Include Independent Contractors

In reversing the lower court's award of summary judgment to Prudential Insurance Company of America (Prudential), the Superior Court of New Jersey, Appellate Division held that the definition of 'employee' in the state's Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 to -8, turns on the employer's direction and control of the employee, and therefore, has the capacity to also include workers classified as independent contractors at common law. D'Annunzio v. Prudential Insurance Company of America, 383 N.J.Super. 270 (Feb. 23).

Plaintiff George D'Annunzio, a licensed chiropractor, worked as a chiropractic medical director for defendant Prudential for 6 months before he was terminated for alleged unprofessional behavior and failure to follow instructions. Plaintiff filed suit against defendant and its representatives, alleging that it had terminated him in retaliation for his complaints that defendant had taken part in unethical and illegal practices, a violation of New Jersey's CEPA. Finding that D'Annunzio was an independent contractor, rather than an employee, and thus was not protected by the CEPA, the lower court granted summary judgment in favor of defendant.

In reversing the lower court's ruling, the New Jersey Superior Court held that because CEPA's definition of 'employee' does not expressly exclude independent contractors, much unlike the Legislature's unambiguous exclusion of such workers from the definition of 'employee' in other contexts, 'the definition should be construed broadly and principally focus on the 'control and definition' factor expressly mentioned in N.J.A.A. 34:19-2(b).' The court therefore rejected defendant's claim that the Pukowsky test, derived from Pukowsky v. Caruso, 312 N.J.Super . 171 (App.Div. 1998), a legal test for determining who is an 'employee' under New Jersey's Law Against Discrimination (LAD), N.J.S.A. 10:5-1, which excludes independent contractors from that definition, was the correct test for making such a determination under the CEPA. It concluded that the broad description of protected workers under CEPA 'should not be narrowed by judicially appending a test that excludes those who would be defined, at common law, as independent contractors, or by appending other discordant and disqualifying aspects of the worker's relationship to the employer that have no bearing on the 'control and direction' requirement contained in N.J.S.A. 34:19-2(b)' In so holding, the New Jersey Superior Court focused on CEPA's primary purpose and found that 'CEPA exhibits no particular interest in regulating the terms of the employer-worker relationship, except to preclude retaliation, when the worker acts in the interests of the health, safety and welfare of the public.'

The court also supported its holding by making reference to employer hiring practices in recent years, in which it found a pattern of hiring independent contractors or workers who are not given the benefits normally associated with full employment. In considering this trend along with a potential holding that independent contractors are not 'employees' under the CEPA, the court found that ' ' it is conceivable that unscrupulous employers might also adopt this hiring approach to limit their exposure to lawsuits by reducing the number of persons who, because of the employer's withholding of benefits or other badges of 'employment,' would not be eligible to assert statutory claims.' While recognizing the intended breadth of the CEPA, however, the court also admitted that the statute was only meant to protect those 'vulnerable to retaliation' and that 'some workers are contractually positioned in a way that frees them from the fear of termination or other forms of retaliation, and have no critical need for CEPA's protections.'

In applying the CEPA's definition of 'employee' to D'Annunzio, the Superior Court found that a few of the Pukowsky test's factors could illuminate his status under the statute, including the first, 'the employer's right to control the means and manner of the worker's performance,' the second, 'whether the worker was supervised,' the fourth, 'the furnishing of equipment and a workplace,' and the seventh, 'the manner of termination.' Noting that the trial judge had found the second and fourth factors to weigh in D'Annunzio's favor, the court concluded that because there were questions of fact regarding the chiropractor's treatment with regard to the first and seventh factor, summary judgment for defendant must be reversed.

Recent Developments from Around the States and The National Litigation Hotline were prepared by the Labor and Employment Relations Department of Winston & Strawn LLP's New York offices.