Category: Employment Law

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Will Bill Belichick Really Pay a $500,000 Fine?

Patriots_punt_crop.jpgThe NFL has annouced its verdict in the New England Patriots taping scandal: Coach Bill Belichick is being fined $500,000 and the Patriots $200,000 plus one or two draft picks. Here’s my question: is Bill worried about bouncing tomorrow’s rent check? Notably, if he were a corporate CEO, the answer would almost certainly be not: he wouldn’t pay a dime out of his own pocket.

Under ordinary agency principles, the fine would seem to be for conduct within the scope of employment and therefore subject to indemnification as a matter of right. (The conduct isn’t illegal, just prohibited by a very vague league rule.) Thus, the default should be that Belichick will get reimbursed by the Pats. But something is wrong with this analysis, as the actual, distinctly administered, fine would otherwise be quite deceptive.* So we’ve got to assume that Belichick’s contract contains a clause saying something like: “All league fines are your responsibility, and you agree not to seek indemnification against us.”

If that is true, then the question becomes: can NFL coaches buy insurance against potential losses like this? On one view of the behavior, the answer is no, because you generally can’t insure against acts in your control. But maybe Belichick didn’t personally order this behavior, he just permitted it – he’s negligent. If that were so, he certainly could have puchased some kind of policy that would have reimbursed him. Whether he did or not is of course unknown, though given his reputation for strategic genius, I wouldn’t be terribly surprised.

(Image Source: Wikicommons)

*I’m assuming that the NFL isn’t so cynical as to think that a separate fine might quiet the public uproar even if it really is just a $700,000 tax on the organization.

Happy Labor Day

Two thoughts:

1) A friend of mine from law school, Nathan Newman, marked Labor Day last year with a set of observations on the state of unions. He notes that the “actual number of workers unionized has largely stabilized around 16 million members in the last decade,” and leaders have found “new ways to strengthen the freedom of workers to form unions without depending on [a now hostile] NLRB.”

2) For workers generally, Labor Day can be a day of rest & recreation. Anticipating its arrival, Krista Tippett’s “Speaking of Faith” program interviewed the founder of the National Institute for Play. He said that people can really wear down and experience a great deal of stress without play/leisure. . . a point understood by John Finnis in his Natural Law and Natural Rights, which calls play one of the seven intrinsically valuable basic goods. Pope John Paul II’s encyclical Laborem Exercens applies the theory:

[There is a] right to rest. In the first place this involves a regular weekly rest comprising at least Sunday, and also a longer period of rest, namely the holiday or vacation taken once a year or possibly in several shorter periods during the year.

Wise words from a document with a number of insights on the nature of work and the rights of workers in today’s society.

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The Law and Economics of the Doping Scandals

428px-Depo-testosterone_200_mg_ml.jpgPeter Singer has written a usefully provocative essay, “Why Not Let Doping Close the Gene Gap,” in which he questions the conventional wisdom on steroids’ moral harmfulness. Singer points out that prohibiting doping puts those with inferior genes at a disadvantage, and that the current line between that which sports leagues prohibit and that which they do not is hard to defend. Thus, why not permit athletes to take drugs, whether or not those drugs harm them.

Singer’s arguments are (as they often are) hard to cabin. If steroids, why not artificial legs, lungs, hands, eyes. Though, if not steroids, why caffeine, IVs, Gatorade, and pickle juice. I was left feeling kind of stuck in a swamp, and so I thought, as I often try to do when confronted by a vexing legal problem, WWPD? What would Posner do?

We could ask him, but he’s a busy guy. So, let’s see if we can gin up a back-of-the-envelope look at the law and economics of sports doping.

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CEOs, Just Cause, and $$$$

With the Disney case and now Grasso grabbing headlines, disputes over large payouts to former corporate executives have garnered great attention of late. Last week, another such dispute boiled to the surface, this time in the form of an appeal from an arbitration award in favor of Robert J. O’Connell, the terminated former CEO of MassMutual Financial Group. Sample media accounts can be found here, here, and here.

According to these stories, MassMutual’s allegations of O’Connell’s wrongdoing included, among other things, having affairs with several female employees, making $23 million on questionable “shadow” stock trades, intervening to prevent disciplinary actions against family members who held senior positions, and buying a fancy company-owned condo at a below-market price. The arbitration panel found that MassMutual failed to prove some of these allegations, failed to adhere to procedures for termination set forth in O’Connell’s contract, and otherwise failed to demonstrate just cause as defined in that contract. The panel did find that the firm was entitled to a return of the $23 million. Nevertheless, it awarded O’Connell compensation under the agreement worth between $40 and $50 million. MassMutual is now seeking to overturn the award in a Massachusetts court.

Without more information, we can’t tell whether the arbitrators got it right or wrong, but let’s focus instead on the contract itself. Here is how one report described the substantive portion of the just cause provision:

According to O’Connell’s contract he signed in 1998 when he joined MassMutual, he could be fired for a criminal conviction, theft or embezzlement, as well as for “conduct that constitutes willful gross neglect or willful gross misconduct … resulting in material harm to the company.”

Assuming this description is accurate, the term smacks of board of director abandonment of core principles of corporate governance. While there are many just cause provisions in employment contracts that are not the least bit problematic, this is the CEO we are talking about, this is quite a just cause provision, and the compensation at stake is, well, large.

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Employer Liability for Not Monitoring Its Employees’ Computer Use

computer2a.jpgThe United States v. Ziegler case I wrote about in a previous post brings to mind a radical employment law case decided last December in New Jersey. [Thanks to Charlie Sullivan and Timothy Glynn for bringing the case to my attention]. The case is Doe v. XYC, 887 A.2d 1156 (N.J. Super. 2005). Since I couldn’t find a version of it online, I’ve posted a copy here.

In Doe v. XYC, Jane Doe sued XYC Corporation on behalf of her daugher, Jill. XYC Corporation employed Jane’s husband and Jill’s stepfather (referred to in the opinion as the “Employee”). The Employee “had been secretly videotaping and photographing Jill at their home in nude and semi-nude positions. Jill was ten years old at the time.” The Employee “tramsitted three of the clandestinely-taken photos of Jill Doe over the Internet from his workplace computer to a child pron site in order to gain access to the site. Employee later acknowledged that he stored child pornogrpahy, including nude photos of Jill Doe, in his workplace computer.”

The court held that XYC Corporation could be liable:

We hold that an employer who is on notice that one of its employees is using a workplace computer to access pornography, possibly child pornography, has a duty to investigate the employee’s activities and to take prompt and effective action to stop the unauthorized activity, lest it result in harm to innocent third parties. No privacy interest of the employee stands in the way of this duty on the part of the employer.

Here’s how the court reached its conclusion. I’ll try my best to trace the steps of the court’s reasoning.

First, the court noted:

In this case, defendant had an e mail policy which stated that “all messages composed, sent or received on the e mail system are and remain the property of the [defendant]. They are not the private property of any employee.” Further, defendant reserved the “right to review, audit, access and disclose all messages created, received or sent over the e mail system as deemed necessary by and at the sole discretion of [defendant].” Concerning the internet, the policy stated that employees were permitted to “access sites, which are of a business nature only” and provided that:

Any employees who discover a violation of this policy shall notify personnel. Any employee who violates this policy or uses the electronic mail or Internet system for improper purposes shall be subject to discipline, up to and including discharge.

Second, XYC’s computer network administrator discovered that the Employee was visiting porn websites. Company officials told the Employee to stop. The Employee said he would halt this activity. Note that XYC was only on notice that the Employee was viewing porn, not child porn. Therefore, the court concluded, “[w]e impute to defendant knowledge that Employee was using his work computer to access pornography.”

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Mel Gibson and the IAT

My corner of the academic cabbage patch is consumed these days with whether intent to discriminate includes “unconscious bias,” one of many terms for a phenomenon that is helpfully taxonomized by my colleague Mark Poirier in his article Using Stereotyping and Cognitive Bias Evidence to Prove Gender Discrimination: Is Cognitive Bias at Work a Dangerous Condition on Land?, 7 EMPLOYEE RTS. & EMP. POL’Y J. 459 (2003). Research in this area includes the Implicit Association Test, which you can take from the comfort of your computer to determine your implicit attitudes towards a wide variety of traditional discrimination subjects (race, sex, sexual orientation), and some not so traditional (Presidents). Needless to say, there is a great controversy as to whether this test measures what it purports to measure, and, if so, whether such attitudes are likely to affect conduct in real world situations, and, if so, whether the law can or should do anything about it. Amy Wax savaged the IAT in a co-authored commentary in the Wall Street Journal last December.

Now along comes Mel Gibson and pushes the issue into the limelight. Sort of….

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Wild KPMG Fees Decision

Barely one day old, and Gonzalez-Lopez is already making waves in corporate law. To see the connection, however, you’ll have to bear with me for a bit of brush-clearing.

Judge Lewis A. Kaplan (S.D.N.Y.) today ruled on certain individual defendants’ motions to dismiss an indictment arising from the KPMG tax shelter investigation. (Large pdf here.) According to the defendants, their due process rights were violated when the U.S. Attorney pressured their former employer (KPMG) not to advance and reimburse legal fees incurred as individuals defendants. Judge Kaplan found a due process violation, scolded the government, and suggested a new lawsuit against KPMG to recover those legal fees, in which today’s decision would have collateral effect and make the proceedings summary. In short: the decision seems to constitutionalize the right to receive indemnification from your employer.

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Disney, Bob Iger, and Michael Eisner

Bob Iger has been in the driver’s seat at Disney for over half of a year, and I am excited about what Iger’s Disney is starting to and will, ultimately, look like. Disney announced yesterday a new promotion – “Where Dreams Come True” – which the WSJ reports as being a “new global campaign to draw more guests to Disney’s theme parks.” The promotion, to start in October, involves a million giveaways to Disney visitors, including things like an overnight stay in Cinderella’s castle or the *entire* Magic Kingdom park to oneself for a day. I get giddy just thinking about it, in large part because I *love* the Magic Kingdom, and I like what I view to be the start of a return to the business concepts underlying Walt Disney’s ideas from decades past. I sincerely hope that Iger ends up delivering to the degree that we hard-core Disney fans expect.

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Whistleblowers and Stereotyped Cultural Norms

I’m a little slow to weigh in on this issue, but I just received the latest edition of the ABA Journal. This month, they have a story, “Culture Clash,” by John Gibeaut describing how Sarbanes-Oxley’s whistleblower provisions are causing trouble for foreign cross-listed companies. Ideoblog and Conglomerate have already provided some commentary about the article, which begins as follows:

Americans like to elevate whistleblowers to near folk-hero status, from Daniel Ellsberg, who leaked the Pentagon Papers to Sherron Watkins, who exposed the Enron Corp. financial scandal that in 2002 moved Congress to pass the fraud-busting Sarbanes-Oxley Act. Indeed, Watkins shared Time magazine’s Person of the Year honors in 2002 with World Com Inc. whistleblower Cynthia Cooper and FBI agent Collen Rowley, who accused the bureau of mishandling information on suspected hijacking plotter Zacarias Moussaoui before the Sept. 11 terrorist attacks.

Say whistleblower in Germany, however, and the term most likely conjures up memories of the Gestapo, Adolf Hitler’s secret police. In France, the term evokes images of the Vichy regime’s collaboration with the Nazis and of neighbors ratting out one another.

I think that the beginning of the article relies on some flawed cultural stereotypes of both Europeans and Americans. Be that as it may, I would question the author’s proposition that American whistleblowers enjoy some sort of elevated status. About a year and a half ago, I wrote an article about (American) whistleblowers and the Sarbanes-Oxley Act. In the article, I argue that whistleblowers are not being given enough protection. Not under state employment law, and not under Sarbanes-Oxley either. Studies – cited in my article – show in graphic detail that American whistleblowers end up unemployed, broke, divorced, and depressed.