North Carolina District Court Refuses to Enforce Overreaching Employee Non-competition Agreement

A lawsuit between two nurse staffing companies reminds us that not all non-competition agreements are enforceable under North Carolina law.  In Clinical Staffing, Inc. v.Worldwide Travel Staffing, Ltd., the U.S. District Court for the Eastern District of North Carolina found a non-competition provision contained within nurse employee contracts to be unenforceable because the restrictive language was over broad.  The court’s order provides a thorough overview of North Carolina law on this frequently confronted subject.

The underlying dispute began after Worldwide Travel Staffing (“Worldwide”) won a contract to provide nursing services to various facilities operated by the North Carolina Department of Health & Human Services.  In order to staff positions at the facilities, Worldwide hired a number of nurses who had previously worked with its competitor, Clinical Staffing, Inc. d/b/a Dzeel Clinical (“Dzeel”).  The complaint also alleged that a number of nurses resigned from Dzeel and signed on with Worldwide in violation of a non-competition provision contained within the Dzeel employee contract.  Dzeel additionally complained that Worldwide induced the nurses to join Worldwide, in part by advising the nurses that the non-competition agreement was unenforceable.  Worldwide then allegedly placed many of the nurses in the same state facilities where the nurses had previously worked as Dzeel employees.

Dzeel asserted two claims against Worldwide: (1) that Worldwide tortiously interfered with its nurse contracts, and (2) that Worldwide violated North Carolina’s Unfair and Deceptive Trade Practices Act.  Both claims were based on the non-competition provision contained within Dzeel’s nurse employee contracts.  That provision stated, in part, the following: “I will not provide service to any Dzeel client or individual who has received services under the direction of Dzeel Clinical for a period of (6) six months from my termination date.”  

After determining that the case hinged upon the enforceability of the non-competition agreement, the court noted that covenants not to compete between employers and employees are not viewed favorably by courts.  Consequently, a party attempting to enforce such an agreement has the burden to prove the covenant reasonable.  In North Carolina, such agreements are enforceable only if they are: (1) in writing; (2) reasonable as to [the] terms, time, and territory; (3) made a part of the employment contract; (4) based on valuable consideration; and (5) not against public policy.  Courts examine the reasonableness of a no-compete agreement’s time and geographic restrictions by balancing the substantial right of the employee to work with that of the employer to protect its legitimate business interests.  The time and geographic restrictions are weighed in tandem, such that a greater scope of one will require a smaller scope of the other.  The restrictions must be no wider in scope than is necessary to protect the business of the employer.  

Worldwide moved for summary judgment on grounds that the non-competition provision was unenforceable under the above principles.  In response to the argument that the language was overly broad in prohibiting a former employee from providing any “service,” Dzeel argued that the term should be interpreted to mean nursing services.  Noting that the contract must be strictly construed against the party who drafted it, the court rejected this argument and instead applied the plain language of the agreement.  

As written, the restrictive language was over broad.  The court noted that the language prevented a former employee from performing any service of any kind to any Dzeel client or individual worldwide.  The agreement was therefore unenforceable.  It necessarily followed that both of the claims asserted in the plaintiff’s complaint failed as a matter of law.  First, the court concluded that Dzeel could not establish a claim of tortious interference with contract because no valid contract existed.  In addition, there could be no valid claim for unfair and deceptive trade practices since the agreement was unenforceable and Worldwide had been correct in so advising Dzeel’s former employees.

The case is a reminder to employers of the need to craft non-competition agreements with care so as not to run afoul of the exacting reasonableness requirements imposed by North Carolina law.  As the court’s ruling underscores, non-competition agreements are not favorably, and overreaching agreements can be avoided.

North Carolina District Court Denies Discrimination Plaintiff’s Attempt to Compel Production of Defendant’s Net Worth Evidence

A ruling from the United States District Court for the Eastern District of North Carolina has denied an employment discrimination plaintiff’s motion to compel production of an individual defendant’s net worth information.  In so doing, the court aligned itself with other federal court rulings that have held that a plaintiff may obtain discovery of net worth information only after first establishing an actual prima facie entitlement to a punitive damages award.

The case, Jackson-Heard v. Elizabeth City State University, is an employment discrimination action brought by Mary Jackson-Heard, a former professor of accounting with the defendant school.  Claiming she was unlawfully terminated, the plaintiff asserted claims of race discrimination, age discrimination, and gender discrimination.  In addition to suing the University, the plaintiff also sued the Dean of the School of Business under 42 U.S.C. Section 1981. Among other relief, the plaintiff sought an award of punitive damages.

The plaintiff served discovery requests seeking detailed information and financial documents relating to the individual defendant’s personal net worth.  The plaintiff claimed that such information was discoverable in order to explore and develop her claim for punitive damages.  The defendant, however, objected to the requests on grounds that they were overbroad, unduly burdensome, and not reasonably calculated to lead to the discovery of admissible evidence.  The plaintiff filed a motion to compel production of the requested information.

In its ruling, the court acknowledged the intended broad scope of discovery.  The court also quoted the language of Rule 26 stating that relevant information, for discovery purposes, need not be admissible at trial so long as it is reasonably calculated to lead to the discovery of admissible information.  At the same time, the court noted the trial court’s broad discretion in determining relevance for discovery purposes.

Turning then to the specific issue at hand, the court acknowledged that a defendant’s financial position is relevant to the issue of punitive damages.  At the same time, however, the court pointed to several federal court decisions that have held that a plaintiff must establish a prima facie case of actual entitlement to punitive damages before requiring production of sensitive financial information.  The court determined that the plaintiff had not yet shown an entitlement to punitive damages and, also, found that the information the defendant had provided was sufficient in any event.  For the reasons, the motion to compel was denied.

The ruling provides defendants with some hope for limiting harassing discovery requests.  Under this ruling and the precedents cited, a plaintiff cannot pry into a defendant’s sensitive financial status by merely asserting a claim for punitive damages.  Instead, the plaintiff must establish that the punitive damages claim has actual merit.

The ruling represents a notable difference in philosophy between federal and state courts in North Carolina.  Frequently, North Carolina’s state court judges take much more liberal views on the permissible scope of discovery in civil lawsuits.  Many times, plaintiffs in North Carolina actions pursue punitive damages claims and promptly serve discovery requests seeking similar documents and information.  Although the scope of discovery standard is theoretically the same under both federal and state rules of civil procedure, state court judges are traditionally far more accommodating to requests for net worth information.

The Equal Pay Act Turns 50 - So What Does It Add Anyway?

Last month, the Equal Pay Act, a powerful if somewhat overlooked federal employment discrimination law, turned 50 years old.  Many employers and employees mistakenly believe that the Equal Pay Act (“EPA”) provides identical, redundant protection to that provided by the Civil Rights Act of 1964, the much more widely applied legislation known as Title VII.  In fact, the Equal Pay Act provides additional protections that are often times overlooked in the employment arena.

First, the Equal Pay Act does not require an aggrieved employee to file a charge of discrimination with the EEOC.  Therefore, an employee who has missed the relatively short deadline within which to file a charge of discrimination can still pursue a lawsuit under the EPA.  The statute of limitations under the EPA is two years.  The limitations period actually expands to three years in cases of willful employer violations.

Also unlike Title VII, the Equal Pay Act does not limit its reach to employers of at least 15 employees.  Consequently, small employers who escape regulation by Title VII can still be sued for pay discrimination under the EPA.

Like Title VII, the Equal Pay Act enables a prevailing employee to recover his or her attorney’s fees.  In addition, the EPA allows employees to obtain liquidated damages, which is an amount equal to the back pay awarded for the Equal Pay Act violation.  Although the EPA does not allow for punitive damages per se, the liquidated damages award essentially serves a punitive purpose.

Perhaps the greatest distinction between the two statutes is that an aggrieved employee is not required to prove discriminatory intent under the Equal Pay Act.  Instead, an employee need only prove that he or she received lower pay for substantially equal work as members of the opposite gender.  To some extent, this distinction makes proving an EPA claim easier.  The EPA does, however, also provide employers with certain specified defenses, such as merit and seniority systems and systems under which pay is determined by quantity or quality of production.

Even after fifty years under the Equal Pay Act, wage disparities remain commonplace.  Determining whether such a disparity constitutes a violation of the Equal Pay Act and/or Title VII can be a difficult and deceptive task requiring experienced counsel. 

Join us in person at an upcoming seminar!

Both contributors to this blog, Brian Alligood and Tasha Agruso, are speaking at the 9th annual Best Practices in Labor and Employment Law seminar on June 27, 2013.  It will be held at the DoubleTree by Hilton hotel, located at 3030 High Point Road in Greensboro.  Please join us in person.  In addition to the prepared presentations, you will be given the opportunity to ask questions of Brian and Tasha, as well as the other presenters.  

Click on this link to register on line.  You may also view more information about the seminar by clicking on this link to the online brochure.  We hope to see you there.

Protection from Pregnancy Discrimination Expands as Fifth Circuit Court of Appeals Determines Lactation Discrimination is Unlawful Sex Discrimination

In a recent opinion, the Fifth Circuit Court of Appeals has ruled that an employer’s decision to terminate a woman because she is lactating or expressing milk constitutes an actionable form of sex discrimination in violation of Title VII of the Civil Rights Act of 1964 (“Title VII”).

The case, EEOC v. Houston Funding, II, involved a mother who, in December of 2008, took leave from work for the birth of her child.   Before returning to work, the mother advised her supervisor that she was breastfeeding and asked whether it would be possible for her to use a breast pump at work.  The supervisor, in turn, posed the question to Harry Cagle, the company’s Limited Partner.  Mr. Cagle responded with, “No.  Maybe she needs to stay home longer.”

On February 17, 2009, the employee called Mr. Cagle to report that she had been medically cleared to return to work.  During this same conversation, she again mentioned that she was lactating and asked whether she could use a back room to pump milk.  According to the employee, Mr. Cagle paused at length before responding that her position had been filled.  On February 20, 2009, the company mailed a letter, dated February 16, 2009, to the employee stating that she had been terminated for abandoning her job.

The EEOC filed a Title VII lawsuit against Houston Funding alleging that it had discriminated against the employee, based on her sex, including her pregnancy and childbirth, by terminating her employment.  Houston Funding moved for summary judgment on grounds that Title VII does not prohibit “breast pump discrimination.”  The District Court for the Southern District of Texas granted the motion, finding that firing a person because of lactation or breast pumping is not sex discrimination.

The Fifth Circuit Court of Appeals reversed the District Court.  In so doing, the Court pointed to the Pregnancy Discrimination Act, which amended Title VII to make clear that sex discrimination includes “pregnancy, childbirth, or related medical conditions.”  The Court then concluded that lactation is a medical condition related to childbirth.  The Court also held that terminating a woman because she is lactating or expressing milk states a cognizable Title VII cause of action.  Without detailed discussion, the Court additionally concluded that ample evidence had been produced for finding the employer’s offered reason for the termination pretextual.  Consequently, the lower court ruling was vacated and the case remanded to the District Court.

The ruling sends a clear message that protection from pregnancy discrimination expands beyond the period of pregnancy and childbirth.  Women are equally protected from discrimination on the basis of medical conditions related to childbirth.

Finally, it should be noted that the Patient Protection and Affordable Care Act (“PPACA”), which was signed into law on March 23, 2010, added still additional statutory protections to breastfeeding mothers.  It did so by amending the Fair Labor Standards Act to require covered employers to provide “reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth each time such employee has need to express the milk.”  Consequently, an employer who discriminates against a woman for expressing milk in the workplace today would face potential exposure under both the FLSA and Title VII.

As the above case law and statutory developments reflect, pregnancy and its aftermath continue to present significant legal issues in the workplace.  If you are confronting uncertainty with respect to legal rights and/or obligations arising from a current or recent pregnancy, you should contact experienced legal counsel for assistance.

North Carolina Federal Court Dismisses Wrongful Discharge Claims Under Both ADEA and North Carolina Equal Employment Practices Act

In previous posts, we have discussed the exacting proof that is necessary in order for a claim of age discrimination to prevail.  A United States District Court case from the Western District of North Carolina, Darnell v. Tyson Foods, Inc., demonstrates well the proof challenges an age discrimination plaintiff faces. 

As we explained in a previous post, the Court dismissed this case short of trial in part because it determined that a company’s decision to require a 63 year-old, forty year veteran employee to change to a third shift position, immediately after his return from prostate surgery, was not an adverse employment action.  The Court therefore determined that the plaintiff could not establish the second of four essential elements of a prima facie case of age discrimination.

In its decision, the Court also found that the plaintiff failed to establish the fourth and final element of the required prima facie case of age discrimination.  Recall from our prior posts that this fourth element requires a showing that the employment position from which the plaintiff was terminated remained open or that the plaintiff was replaced by a substantially younger individual.

In this case, the plaintiff was eventually replaced by a 57 year-old man.  In other words, the plaintiff’s replacement was only six years younger.  The Court therefore assessed whether a six year difference in age was sufficient to constitute replacement by a substantially younger individual.  After noting that the Fourth Circuit Court of Appeals (which is the Circuit that oversees North Carolina federal district courts), the Court found that sister circuits have generally found age differences of less than ten years insufficient to satisfy this prima facie case element.  The Court then determined, “[a]bsent any evidence to suggest discrimination, the six year age difference in this case is not sufficient by itself to satisfy the substantially younger requirement.”  Consequently, the plaintiff’s prima facie case failed for this further reason.

In the absence of a prima facie case of age discrimination, the plaintiff’s primary claim under the Age Discrimination in Employment Act (“ADEA”) was dismissed via summary judgment.

Finally, the plaintiff had also asserted an alternative claim for wrongful discharge under North Carolina state law.  The plaintiff based this claim on N.C. Stat.Gen § 143–422.2, a statute recognizing that it is against North Carolina public policy for an employer of 15 or more to discriminate, “on account of race, religion, color, national origin, age, sex or handicap.”  The statute is found in North Carolina’s Equal Employment Practices Act.  In its opinion, the Court made short work in dismissing this alternative claim for the same reasons cited in dismissing the federal age discrimination claim.  In this way, the Court concluded, as have other federal courts to consider the issue, that the North Carolina public policy claim is subject to the same analysis and proof standards as the analogous federal law cause of action.

Darnell demonstrates well the proof difficulties that claims of age discrimination face.  In addition, the case confirms that North Carolina public policy claims are hardly a panacea for claimants.  Although claims pursued under North Carolina’s Equal Employment Practices Act offers certain advantages, such as a longer limitations period and the option of foregoing EEOC administrative review, these claims are ultimately subject to the same substantive analysis and demanding proof requirements as claims pursued under the Age Discrimination in Employment Act.