Employment Rights and Responsibilities SUMMER 2013 Newsletter | ABA Section of Labor & Employment Law

ABA Section of Labor and Employment Law

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Employment Rights and Responsibilities Committee News

Issue: SUMMER 2013

ERR Subcommittee Reports

The Supreme Court of the United States' emphasis on the primacy of plan language in resolving ERISA (Employee Retirement Income Security Act) disputes was again front and center in its decision in U.S. Airways, Inc. vs. McCutchen 133 S. Ct. 1537, 2013 U.S. LEXIS 3156, No. 4-1285 (April16, 2013). The Court held that a clearly written plan term can displace background equitable principles that would otherwise apply to a given claim.

McCutchen had received over $66,000 in medical benefits from the health plan of his employer, U.S. Airways, for injuries he suffered in an accident. He then recovered approximately $110,000 in a tort settlement relating to the same accident. As a fiduciary to the health plan, U.S. Airways then sought to have McCutchen repay the plan out of that settlement for the benefits he previously received asserting that the plan's language required him to do so. McCutchen argued that the amount he had to repay should be reduced (a)only to the amount that the settlement actually created a double recovery--what the Supreme Court called the "double recovery rule" and (b) by a proportionate share of the attorney's fees taken out of the settlement--what the Supreme Court referred to as the "common fund rule."

The case involved around the portion of ERISA's Section502(a)(3), 29 U.S.C. ยง1132(a)(3), which states that an action may be brought "to obtain other appropriate equitable relief . . . to enforce . . . the terms of the plan." Effectively, McCutchen emphasized the equitable relief portion of that provision while U.S. Airways emphasized that such relief was appropriate only to the extent it enforced "the terms of the plan."

The Court agreed unanimously with U.S. Airways and held that the plan, if appropriately drafted, could eliminate the application of the equitable doctrines on which McCutchen relied. The Court required, however, that any such provision of the plan be drafted clearly to abrogate the background equitable doctrines. "[I]f U.S. Airways wished to depart from the well-established [equitable rules], it had to draft its contract to say so." After examining the language, the Court held that it clearly precluded the application of the "double-recovery rule," but not the "common-fund rule."

The result in U.S. Airways will lead to more predictable outcomes for plan administrators and participants. Whether it chills employees from rigorously pursuing tort recoveries in cases like this, as lawyers representing plan participants have argued, remains to be seen.

ABA Non-Competes, Trades Secrets, and Duty of Loyalty Subcommittee 2013

The Employee Rights and Responsibilities' subcommittee on Non-Competes, Trades Secrets, and the Duty of Loyalty enjoyed a robust and well-attended luncheon meeting on Thursday, March 21, at the Loews Hotel on fabulous South Beach in Miami. After introductions and banter, the group bandied about numerous ideas for the 2014 program. Led by subcommittee chairs Arnie Pedowitz, Eric Tate, and David Carr, the attendees ultimately whittled down its list to three finalists: (1) "Non-Compete Purgatory." You know you are leaving; but you aren't gone. What can you do? What must you do? What must you refrain from doing? (2) "TRO non-compete primer for the 21st Century" What pleadings and why? What court?/race to courthouse (state or federal); Flashdrives; cell phones and electronic media (entry upon land)--how do you handle? (3) "Uniform Trade Secrets Act Pre-emption" What does it mean? How do you deal with it? Trends/ Challenges? We hope the leaders, in their infinite wisdom, will find favor with one of our selections. See you in Cabo!

Co-Chairs: David J. Carr | Arnie Pedowitz | Eric Tate

Hiring v. Extreme Hiring: Courts Continue to Recognize the Tort of Tortious Interference with Business Relations in the Context of Hiring Decisions

What applicants appear more appealing than those already trained by a competitor, and ready to hit the ground running from day one? No non-compete, so no problem, right?

Hiring remains a common trap for the unwary employer. Too often employers focus on merely the qualifications of candidates, and fail to appreciate the larger context of the employment scenario. Even when dealing with employees-at-will, and the absence of any non-compete obligation, big problems may surface after the hire.

In one recent case, an employer happily hired a group of employees from a competitor. The competitor responded by filing a lawsuit, alleging, among other claims, tortious interference with business relations.

Not all hiring of a competitors' employees runs afoul of the law. Indeed, the law generally favors competition. Instead, the court provided the following guidelines for assessing whether tortious interference occurred: (a) the nature of the defendant's conduct; (b) the defendant's motive; (c) the interests of the plaintiff with which the defendant's conduct interferes; (d) the interests sought to be advanced by the defendant; (e) the social interests in protecting the freedom of action of the defendant and the contractual interests of the plaintiff; (f) the proximity or remoteness of the defendant's conduct to the interference; and (g) the relations between the parties.

If the court rules that the new employer hired the employees in order to obtain trade secrets, undercut pricing of the competitor, and intentionally harm the competitor's business, a claim for tortious interference stands a good chance of succeeding.

Consequently, wise employers will examine the larger context of any hiring involving a direct competitor. This means using proper communication with applicants, and making sure that applicants make a "clean" departure from their prior employer. Any such hiring requires careful coordination and a clear strategy for avoiding accusations of tortious interference with business relations.

David J. Carr, Partner, Ice Miller LLP, Indianapolis, Indiana

2013 ERR Midwinter Meeting Report from Insurance Subcommittee

A group of ten committee members discussed the reoccurring EPLI issues from the perspective of lawyers and insurers. The chief concerns were ethical dilemmas related to coverage issues, defense strategies, and settlement. The committee also discussed the uncertainty that remains as to MMSEA and the potential ramifications for insurers, defense counsel, and plaintiff's counsel in instances of noncompliance. The group made plans to prepare a state-by-state survey on critical issues in the EPL context including insurability of punitive damages, who is the client when counsel is retained by the insurer, and who controls the defense of a claim covered by EPLI.

CONTENTS: Opening Page | A Beginner's Guide to the MMSEA

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