Articles Posted in Business Law

For the second time in the last year a judge has precluded expert testimony regarding bath faith claims asserted against insurance companies. The most recent case out of the Western District of Pennsylvania involved a motor vehicle accident where the insurance company offered $13,000 on a policy with a $300,000 limit. In response to the paltry offer where plaintiff had sustained substantial injuries, plaintiff sued Geico alleging it had breached its contract with plaintiff and was handling the claim in bad faith.

To support his claim, the plaintiff attempted to introduce an insurance claims expert to provide the jury with information about the concept of bad faith. There have been cases in the past where insurance experts testified with explanations about standards and practices within the insurance industry. In this case however, the judge determined that the concept of bad faith and how it relates to the insurance industry was not too difficult or complex for the average juror to understand. Accordingly, the judge prevented the plaintiff from presenting his expert to the jury.

This is the most recent in a series of decisions in Pennsylvania since 1997 to establish that while bad faith is a legal concept, the general population doesn’t require scientific or technical knowledge to understand it. In other words, the judge decided that the members of the jury were smart enough to understand the concept and any additional information presented to the jury in court would simply impede on the jury’s fact finding function.
Continue reading

On May 29, 2013, the Pennsylvania Supreme Court decided an interesting case regarding how an initial offer letter to a prospective employee can potentially impact a restrictive covenant in an employee’s employment agreement. Before discussing this case, we need a very brief summary regarding what courts look to when deciding whether to enforce a restrictive covenant.

In Pennsylvania, the law is clear that a restrictive covenant (non-compete or non-solicitation of clients or employees for example) is valid and enforceable against an employee under certain conditions so long as the covenant does not impose an illegal restraint of trade. There are many different components that make a restrictive covenant enforceable. However, this post will only focus on the timing requirement.

To be enforceable, a restrictive covenant has to be part of the initial employment terms at the time the offer of employment is made to the employee. The key is that there must be no employee/employer relationship at the time the covenant is being imposed. The restrictive covenant must be part of the overall prospective terms of employment. A restrictive covenant will always fail where the employer seeks to impose the covenant on an unsuspecting employee (already employed by employer) and offers no additional consideration (value) in exchange for the additional restriction.

With this as background, we can now better understand what the Pennsylvania Supreme Court was grappling with. In this case, an employee resigned from his position at one company and went to work for a competitor. The former employer sought a preliminary injunction to stop its former employee from working for a competitor. What prompted this case to travel through the appellate courts was the wording of the offer letter. The courts were struggling with the issue of whether the offer letter that the employee signed was the actual employment contract and not the later agreement titled “Employment Agreement” that the employee signed on his first day of work. The “Employment Agreement” and not the offer letter contained the restrictive covenant.

If the offer letter was the actual employment agreement because it contained all the essential terms of employment, the restrictive covenant would not have been enforceable. The reason for this conclusion under the fact scenario above would have been that the employee had already accepted his position with the company when he signed the offer letter and thus received no additional consideration when he signed his “employment agreement” with the company on his first day of work.

Luckily for the former employer the Pennsylvania Supreme Court reached the conclusion that the offer letter was just part of the overall process and not the employment agreement. The offer letter clearly stated that employment was conditioned upon the signing of an employment agreement. However, be warned, you cannot simply include language in your offer letter to indicate that employment is conditioned upon the signing of an employment agreement as concurring opinions by certain of the Justices stated their problems with just such a broad holding.
Continue reading

Last month the New Jersey Legislature introduced Assembly Bill 3970 that if passed will invalidate any restrictive covenant in an employment contract if the affected employee was eligible to receive unemployment compensation benefits. The reasoning behind this rule is that an employee who lost his job through no fault of his own (and thus be eligible for unemployment compensation) should not be held hostage to a restrictive covenant in an employment agreement. Restrictive covenants include, for example, covenants not to compete, agreements not to solicit employees, and agreements not to disclose information.

This is quite an unusual step for the New Jersey legislature in proposing a law in an area that has typically been left to the courts to decide on a case by case basis. As it stands now, Courts inquire into whether the restriction protects a legitimate employer interest, imposes no hardship on the employee and does not injure the public. Also considered by the court is a temporal component relating to both length and geographic boundaries of the restriction.
Continue reading

Companies today that routinely perform criminal background checks as part of their hiring process run the very real danger of running afoul of the Fair Credit Reporting Act (FCRA) and other federal and state statutes. Generally speaking, an employer may conduct a criminal background check only with the consent of the job applicant. Upon receiving the report, the employer must provide a copy of the report to the applicant along with a written notice of rights under the FCRA. The requirements are confusing and the costs for not complying are high as Pennsylvania’s very own Toll Brothers, Inc. is finding out.

In the recently filed putative class action, it is alleged that Toll Brothers did not comply with the basic FCRA requirements set forth above. If this is true, Toll Brothers will be responsible not only for the damages to a nationwide class of unhappy job applicants, but also be responsible for statutory damages, punitive damages and the attorneys’ fees of the plaintiff class, all in addition to their own counsel fees.

Notwithstanding this recent class action, a criminal background check is a useful tool when it is related to the employment being offered. For example, a bank seeking candidates to work as a teller would want to know if a job applicant has convictions for drugs and theft. No problem here as long as the bank complies with the requirements under the FCRA and Pennsylvania state law. On the other hand, perhaps a background check is not relevant to a landscaping company who is seeking employees to cut grass over the summer. The Pennsylvania Human Relations Commission has weighed in on this recently and stated that employers “must be able to show the inquiry into conviction is substantially related to an applicant’s suitability to perform major job duties and required by business necessity.”
Continue reading