Category Archives: Employment

Plain Language Rule Still Governs Interpretation of Coverage Exclusion (NJ)

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The appellate court interpreted an “insured vs. insured” exclusion in a directors and officers liability policy in Michael Abboud v. National Union Fire Insurance Company of Pittsburgh. Generally, such exclusions bar coverage for claims by one insured director or officer against another. Plaintiff Abboud sought indemnity and a defense in connection with counterclaims made against him by fellow officers of Monarch, a company which operates and leases PET/CT equipment. Defendant National Union Fire Insurance Company of Pittsburgh (NUFIC) denied coverage based on the “insured vs. insured” exclusion. Abboud filed a declaratory judgment action against National Union which ended in summary judgment dismissal and a subsequent appeal.

In the underlying litigation, plaintiff Abboud sued four members of the board of managers of Monarch. Abboud alleged the four member-managers tried to remove him from Monarch’s board of managers and his position as its chief executive office. Monarch and the individual defendants asserted various counterclaims against Abboud, alleging that he engaged in self-dealing and exploited Monarch’s opportunities for his personal gain or that of his other companies.

Defendants in Abboud’s underlying suit obtained an acknowledgement of partial coverage from National Union, subject to a reservation of rights, under the Employment Practices Liability (EPL) section of Monarch’s multi-coverage policy which also included a D&O liability section. By contrast, Abboud did not notify National Union of the counterclaims against him until 8 months after suit was initiated. Abboud attempted to excuse his late notice because Monarch and National Union had delayed responding to his requests for information about coverage.

Abboud subsequently filed his declaratory judgment action, expressly invoking and quoting the policy’s D&O section, Abboud sought indemnity and defense costs for the counterclaims in the underlying lawsuit.  National Union denied its policy provided indemnity or defense costs coverage for the counterclaims.  National Union filed a motion for summary judgment, contending the insured vs. insured exclusion within the D&O section precluded coverage. The trial court granted summary judgment in favor of National Union, finding that the insured vs. insured exclusion plainly barred Abboud’s claim for coverage.

The appellate court reviewed the language of the insurance policy and found that there was nothing ambiguous, convoluted, or opaque about the exclusions in the D&O section. The exclusion disallows coverage when the claim is raised by either an executive of the company or the company itself. Abboud sought to avoid the plain interpretation of this provision contending it violates his reasonable expectations and claiming that the exclusion applies only in cases of collusion between the individual insureds.

The appellate court found that insurance contracts should be construed to reflect the reasonable expectations of the insured in the face of ambiguous language and phrasing, and in exceptional circumstances when the literal meaning of the policy is plain. The appellate court found no exceptional circumstances in Abboud’s claim, stating that the record is devoid of competent evidence of Abboud’s expectations of coverage or proof that such expectations would be objectively reasonable. As such, the appellate court affirmed the trial court’s holding.  Thanks to Steve Kim for his contribution to this post.  Please email Brian Gibbons with any questions.

 

 

New Jersey Anti-Discrimination Statute Trumps Private Employment Contract

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In Rodriguez v. Raymours Furniture Company, Inc., New Jersey’s highest court weighed in the impact of New Jersey’s Law Against Discrimination (LAD) on a party’s freedom to contract.  Rodriguez involved a dispute over an employment contract and the limit of time in which a claimant may pursue his or her claim.  Following an offer of employment by Raymours, Rodriguez was presented with an employment contract, which included a provision that any grievance regarding Rodriguez’ employment must be brought within six months of the date that the alleged event occurred.

Rodriguez signed the contract.  Some months later, he was injured on the job.  After surgery and physical therapy, Rodrigues returned to work.  Two days later, he was terminated, purportedly due to a company-wide reduction.  Seven months following his termination, Rodriguez sued his former employer, alleging violation of the LAD, claiming that his termination was discriminatory because less senior employees (perhaps more able-bodied) were not let go.

The Supreme Court considered the well-settled legal principle that individuals are free to contract as they choose to determine whether Rodriguez forfeited his right to sue his employer after six months had passed since his termination.  However, in this instance, the Court also focused on the intent of the statute that Rodriguez based his claim on, which included a two-year statute of limitations in which to file a claim.

The LAD was enacted for the benefit of the public, the Court reasoned, to protect those workers with disabilities.  In reviewing the employment contract Rodriguez signed, the Court determined that the provision limiting a claimant to a six-month window in which to pursue litigation against the employer for alleged grievances encompassed by the LAD was against public policy, and therefore unenforceable.

Thanks to Emily Kidder for her contribution to this post and please write to Mike Bono for more information.

Court Restricts Restrictive Covenant in Employment Contract (PA)

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In Lehigh Anesthesia Association vs. Mellon, a Philadelphia Superior Court issued an opinion on appeal, granting summary judgment on behalf of a nurse, Michael Mellon, who had been sued by his former employer for violation of a restrictive covenant in his employment agreement.

Michael Mellon began working for Lehigh Anesthesia Association in 2001 as a certified nurse anesthetist.  His employment agreement contained a restrictive covenant that prohibited him from working for any entity that had entered into a contract with LAA within four years prior to termination of his employment agreement. Although the covenant did not bar Mellon as to geographic area, it limited his ability to render services to any of the defined clients for up to two years after termination.

In May 2012, LAA terminated Mellon’s employment based on complaints of poor work performance and behavior. Mellon thereafter began working for Professional Anesthesia Consultants, which provided services to Carlisle Endoscopy Center, a client of LAA from 2001-2011.

LAA filed a complaint alleging a breach of its restrictive covenant against Mellon on February 28, 2013. In Pennsylvania, for a restrictive covenant to limit competition to be enforceable: it “must be: (1) ancillary to the employment relationship; (2) reasonably necessary for the protection of the employer; and (3) reasonable in duration and geographic reach.” Agreements are considered ancillary if they pertain to the employment relationship. So long as the employment restriction is “an auxiliary part of the taking of employment and not a later attempt to impose additional restrictions on an unsuspecting employee, such a covenant is supported by valid consideration and is therefore enforceable.” In Pennsylvania, post-employment restrictive covenants are subject to a higher level of scrutiny. Under this the additional scrutiny, reasonableness is determined by whether a covenant is necessary to protect particular business interests such as trade secrets or highly specialized employee training by an employee; the protection must extend beyond the mere elimination of competition.

In affirming summary judgment for Mellon, an appeals court held that the covenant was broader than necessary to protect LAA’s business interests and placed an undue hardship on the nurse in finding future employment. Notably, the lack of geographic scope added to the over-breadth of the covenant, and the court found that LAA’s broad interpretation of the term clients to include any entities with whom LAA had contracted within two years of termination, would unduly restrict the nurse’s potential employers.

Thanks to Sathima Jones for her contribution.

For more information, contact Denise Fontana Ricci at .

Temporary Employees are Employees Too, At Least for Summary Judgment Purposes (PA)

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To bring a claim for employment discrimination in Pennsylvania, a plaintiff may allege a violation of Title VII and /or the Pennsylvania Human Relations Act (“PHRA”), both of which require proof of an employer-employee relationship. Temporary workers in Pennsylvania, who are hired and assigned jobs through employment agencies, face a significant legal hurdle in proving that such a relationship exists before they can get their case to a jury.
On November 18, 2015, the Third Circuit Court of Appeals ruled that temporary workers suing for bias can overcome summary judgment on the issue of an employer employee relationship. In Faush v Tuesday Morning, the court reversed a district court decision that granted summary judgment to retailer Tuesday Morning.

The appellant, Matthew Faush was an African American employee of Labor Ready, a temporary employment firm, that assigned him to work at a Tuesday Morning retail store. He claims that he was subjected to racial slurs by his immediate supervisors. The district court previously ruled for summary judgment in favor of Tuesday Morning on the issue of whether an employment relationship existed. Reviewing the grant of summary judgment de novo, the Third Circuit concluded that an application of the Darden factors was enough to establish that Faush’s relationship with Tuesday morning was more than sufficient to preclude summary judgment

The US Supreme Court’s Darden test, which the Third Circuit employed to determine the existence of an employment relationship, iterates an exhaustive list of factors that establish an employment relationship, including, but not limited to: the skill required for the worker’s task, the source of the instrumentalities and tools used, location of the work, duration of the relationship between the parties, the hiring party’s right to assign additional projects to the hired party, extent of the hired party’s discretion over duration and location of work, tax treatment of the hired party, and method of payment. Here, the Circuit reasoned that with respect to Faush’s relationship to Tuesday morning, the district court overstated the extent to which the factors relating to compensation, hiring and firing, and control over temporary employees cut against Faush.
With respect to method of payment, the court focused particularly on the payment to Labor Ready, which “were functionally indistinguishable from direct employee compensation.” Control over the employee was evident in Tuesday Morning’s direct supervision and provision of assignments. Tuesday Morning also had the power to hire and fire employees, which it could exercise through its demand for a replacement if it was unhappy with a temp’s performance.

Aside from the Darden test, the court paid particular attention to the use of the term “temporary employee” as distinguished from independent contractor, as the descriptor used for workers at Tuesday Morning. The court was further persuaded by Fourth Circuit precedent, particularly Maynard v. Kenova Chem. Co. and Butler v. Drive Automotive Industries of America, Inc., both of which involved the court holding the existence of an employment relationship for temporary employees as a matter of law.

While the Faush v Tuesday Morning ruling merely holds that a temporary employee can move past summary judgment, we think it may serve to open a broader class of individuals who can and thus will bring employment discrimination suits in Pennsylvania.

Special thanks to Sathima Jones for her contributions to this post. For more information, please e-mail Bob Cosgrove .