7th Circuit: Overbroad Non-compete Was Unenforceable
By Chris Arbery and Angela Mahdi

The 7th U.S. Circuit Court of Appeals upheld a district court’s ruling that a former employee of Cintas Corp. did not violate the terms of his non-compete agreement because the agreement itself was overbroad and, therefore, unenforceable. The appeals court further held that the district court properly refused to correct the problems in the agreement and properly awarded the defendant attorneys’ fees for prevailing in the matter.

The 7th U.S. Circuit Court of Appeals upheld a district court’s ruling that a former employee of Cintas Corp. did not violate the terms of his non-compete agreement because the agreement itself was overbroad and, therefore, unenforceable. The appeals court further held that the district court properly refused to correct the problems in the agreement and properly awarded the defendant attorneys’ fees for prevailing in the matter.

When Daniel Perry began working for Cintas in 1993 as a sales representative, he signed an employment agreement containing various restrictive covenants: non-competition, non-solicitation of employees and nondisclosure of confidential information. Although Perry was promoted to national account manager for Illinois and Indiana in 2000, he resigned in 2003.

Perry then started working for a large competitor of Cintas’ as vice president of sales for the western region. Perry provided his new employer a copy of Cintas’ employment agreement. Thereafter, Perry accompanied a fellow employee to a sales meeting with a Cintas customer, but Perry remained in the car during the meeting. He also conducted a telephone interview with an applicant, but ended the interview after learning that the applicant formerly worked for Cintas. Perry’s new employer did not hire the applicant. Perry also brought with him two computer disks containing forms he obtained from Cintas.

Cintas filed a breach of contract suit in Illinois federal court, alleging that Perry violated his employment agreement. Cintas also requested injunctive relief. Applying Ohio law, the district court denied injunctive relief and granted Perry’s motion for summary judgment. The district court found that the non-compete provision was overly broad and declined to use its authority to modify the provision and make the agreement enforceable. The district court further held that there was insufficient evidence to create a triable issue on the alleged violations. Lastly, the court ordered Cintas to pay Perry’s attorneys’ fees and costs.

On appeal, the 7th Circuit found that the only evidence that Perry violated the employment agreement was the fact that he went to work for a competitor. The appeals court held that Cintas’ contention that the district court should modify the non-compete provision to render it reasonable was “an implicit concession that the provision was overbroad and unenforceable as written.” Further, the court held that the power to modify an agreement is “discretionary, not mandatory” and that the district court did not abuse its discretion in declining to exercise its discretionary power.

The 7th Circuit further held that, even if the non-compete provision was reasonable, there was no evidence that a breach occurred. Indeed, the court held that remaining in the car while another employee conducts a sales meeting “does not amount to solicitation” of a Cintas customer. In addition, Perry’s decision not to hire a former Cintas employee “does not amount to solicitation of a Cintas employee.” The court also held that the information on the computer disks was “dated” and that Cintas had “not demonstrated how the information on the disks might provide an advantage to competitors within the meaning of the nondisclosure provision in the agreement.”

Finally, the 7th Circuit upheld the award of attorneys’ fees in Perry’s favor, even though his new employer had paid them. The court remarked that the agreement, while perhaps ambiguous, did not expressly require the employee to directly incur the fees in order to receive an award and that the ambiguity should be construed against Cintas as the drafter of the agreement.
Cintas Corp v. Perry, 7th Cir., No. 06-1958 & 06-2844 and 07-1216 & 07-1365 (Feb. 20, 2008).

Professional Pointer: Many courts are loathe to enforce non-competition agreements. This case demonstrates the importance of ensuring that such an agreement is narrowly tailored and enforceable under applicable law as written. Although a court may have the power to “blue pencil” or modify an unenforceable agreement to make it enforceable, it may choose not to do so.

HR Discussion – A Plus Benefits, Inc.
Most courts will not enforce a non-compete that prevents a former employee from working in the industry that has supported the former employee and his family. To expect that a former employee cannot continue to work in the industry would essentially require that the individual re-train in another industry. This would most certainly lead to a marked decrease in the person’s income for several years.

Randall Barker is the VP of Human Resources for A Plus Benefits, Inc.

COBRA (Consolidated Omnibus Budget Reconciliation Act) is a regulation that many employers and employees have questions about.

COBRA allows employees and their families who have lost health care benefits due to a qualifying event the opportunity to continue the benefits offered by their group health plan. In this situation a qualifying event could be voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, or divorce. Employees who qualify for COBRA may be required to pay the entire premium for their health benefits.

COBRA only affects those employers with 20 or more employees. Employers with less than 20 employees are not required to offer any continuation of health care coverage.

Employers are responsible for notifying COBRA eligible employees within 30 days of a qualifying event. Individuals then have 60 days to elect benefits and 45 days after electing benefits to pay their first premium.

For more information about COBRA please visit the Department of Labor website or contact the benefits department at A Plus Benefits.

Samantha Bushard is an HR employee for the Idaho office of A Plus Benefits Inc.

Congress Fast-Tracks Dramatic Expansion of ADA
By Allen Smith / SHRM

The Americans with Disabilities Act (ADA) Restoration Act is “moving at warp speed” through Congress, Larry Lorber, an attorney with Proskauer Rose in Washington, D.C., said in a Dec. 10, 2007, interview.

The legislation (H.R. 3195 and S. 1881) would strike the concept of “substantial limitation of a major life activity” from the ADA’s definition of “disability” and extend the law’s coverage to anyone with a physical or mental impairment.

The ADA Restoration Act also would prohibit employers from considering the effect of mitigating measures, such as glasses or medication, when determining whether someone requesting accommodation has a disability, overturning the Supreme Court’s ruling on this issue in Sutton v. United Airlines Inc. (527 U.S. 471 (1991)).

The ADA Restoration Act has substantial bipartisan support, according to Lorber. The House version already has 241 co-sponsors, which is enough to pass that chamber. Lorber said that former President George H. W. Bush, who signed the original ADA into law, is in favor of amending it.

Shades of California Law
The ADA Restoration Act goes well beyond restoration and, if enacted, would make the ADA similar to California’s prohibition on disability discrimination, Lorber predicted.

He explained that under the California Fair Employment and Housing Act, it is “difficult if not impossible for employers to successfully deal with claims” of disability discrimination.

David Fram, director of ADA and EEO services with the National Employment Law Institute, said in an interview that the ADA Restoration Act would create an even more expansive definition of “disability” than the California law. The California law at least requires that impairments limit major life activities before there is coverage.

Camille Olson, an attorney with Seyfarth Shaw in Chicago, told SHRM Online that when she talks with anyone in HR about the ADA Restoration Act, “they can’t believe what is being contemplated and say that it’s unworkable.”

Courts Criticized
When the Senate held hearings on the proposed amendment on Nov. 15, 2007, Olson was the only person who testified about the significant problems the expansion would pose for employers. “The entire discussion was that ‘we meant for this to be inclusive,’ ” she recalled.

At the Senate hearing, Chai Feldblum, professor of law at the Georgetown University Law Center, said that “in recent years, the Supreme Court has restricted the reach of the ADA’s protections by narrowly construing the definition of ‘disability’ contrary to congressional intent. As a result, people with a wide range of impairments whom Congress intended to protect, including people with cancer, epilepsy, diabetes, hearing loss, multiple sclerosis, HIV infection, intellectual disabilities, post-traumatic stress disorder and many other impairments, are routinely found not to be ‘disabled’ and therefore not covered by the ADA.”

Feldblum said that the result has been that plaintiffs lose most ADA employment discrimination claims. “Many of us believe the ADA today is not doing the job it was intended to do. We believe the technical words of the ADA have been misused and misapplied by the courts to exclude people who deserve coverage under the law,” she stated.

‘Double Whammy’
Most disability rights groups support the legislation.

In her testimony before the House of Representatives on Oct. 4, 2007, Cheryl Sensenbrenner, chairman of the board for the American Association of People with Disabilities, said that “despite all the progress since the passage of the ADA, sadly, we still have a long way to go before the ADA’s inclusive vision becomes a reality in America. For instance, I am amazed at how routinely kind and well-educated individuals with whom I interact assume that I acquired my disability after marrying my husband, Congressman F. James Sensenbrenner, by remarking how good it was of him to ‘stick by me’ through that. The fact of the matter is Jim and I fell in love and got married during a time in which I was already disabled. You see he ‘got me’ in a wheelchair or at best on Canadian crutches.”

She went on to say that courts have set up a “double whammy” for ADA plaintiffs. “First they must prove their disabilities through a series of invasive and often highly irrelevant inquiries into the most intimate aspects of their lives. Once they have satisfied this increasingly difficult standard, only then are they given the opportunity to present the facts of discrimination.”

‘Americans Act’
Fram is surprised that so many disability rights advocates support the bill.

“By putting toothaches on the same level as breast cancer or diabetes, it winds up diminishing the importance of someone with a more serious condition,” he remarked. Fram thought the legislation would make life more difficult for employers when workers with toothaches, earaches and the flu request reasonable accommodations, but he thought the simplified definition of who is covered “arguably would make it easier for an employer.”

However, Olson is troubled by the seemingly limitless coverage advocated by proponents of the ADA Restoration Act, saying that the legislation would transform the law into the “Americans Act.” Olson asked, “who among us does not have an impairment? Who is perfect?”

And if everyone is covered, employers may face such daunting new realities as “unlimited sick leave,” she added.
Olson anticipates that Congress will hold more hearings on the legislation and recommended that employers “voice their concerns about why this isn’t workable.”

Allen Smith, J.D., is SHRM’s manager of workplace law content.

The following case was highlighted in a recent edition of BNA’s Bulletin to Management.

Was Termination Retaliation for Workers’ Compensation Claim?

“You fired me for filing for workers’ comp,” complained employee Jennifer Lilly. “That’s illegal retaliation.”

“We let you go because of your poor work habits,” countered Human Resources Director Sylvia Potter. “Nothing more.”

Did the employer retaliate?

Facts: A worker at a door factory injured her back at work. Her doctor put her on light duty and referred her to a specialist. A few days later, the department supervisor gave the employee a step warning for substandard performance. Under company policy, an employee would be fired for receiving four step warnings within a certain time frame.
The employee’s doctor faxed more specific work restrictions to the company. Three days later, a supervisory assistant issued the employee another step warning for substandard work. Her doctor notified the workers’ comp insurer that the employee had a herniated disc with nerve root impingement.

Two days later, the employee’s supervisor sent an e-mail to a human resources official suggesting that the employee be assigned a list of dirty jobs, including cleaning the rest rooms, or be moved back to her previous, lower-paying job in another department. The worker reluctantly accepted the transfer, which also resulted in a loss of seniority.
There, her new supervisor questioned whether her work restrictions were necessary. He picked up the chair that she used—as directed by her doctor—for periodic rest breaks and threw it across the room.

The employee was injured again when a co-worker pushed a stack of doors onto her ankle. She twisted her knee at work weeks later, and her supervisor questioned whether she should continue working at the company in light of her “excessive” injuries.

The employee hired an attorney to help obtain workers’ comp benefits. Her supervisor issued her a third step warning for using the wrong machine. She then complained to the human resources department about her supervisor. Two weeks later, he gave her a fourth-step warning for substandard work, triggering her discharge.

A jury ruled in favor of her claim of wrongful discharge in violation of public policy and awarded her $25,000 for emotional distress, $50,000 in back pay, $150,000 in future pay, and $775,000 in punitive damages. The employer challenged the award, and the appeals court sent the case back to the trial court for reconsideration of damages. The trial court found in the employer’s favor.

Award: The Iowa Court of Appeals Oct. 12 reinstated the $1 million jury verdict for the employee (Holding v. Graham Mfg. Corp., Iowa Ct. App., No. 7-411/06-1729, 10/12/07).

Discussion: Reversing the lower court and upholding the earlier jury verdict, the appeals court said that “a reasonable juror could conclude [the employee] was disciplined under false pretenses because most, if not all, of the four step warnings for improper performance did not reflect any mistake on her behalf.”

Her first supervisor’s e-mail to human resources and a meeting to discuss workers’ compensation costs in his department “may be viewed as showing that she was demoted because of the expenses associated with her workers’ compensation benefits,” the court said. It also found that her new supervisor demonstrated “open hostility” toward her work-injury claims.

Pointers: Under workers’ compensation programs, injured employees usually receive benefits regardless of fault, that is, whether the employee, the employer, or a third party such as another employee caused the injury.

Employers cannot call or harass employees who file workers’ compensation claims to find out when they plan to return to work.

Most states require employers to work with an employee, the insurer, and the medical provider to attempt to return the employee to work.

If employers fail to follow the required workers’ comp procedures, they may be subject to penalties from their state.

There is one circumstance when an employer is permitted to terminate an employee on workers’ compensation leave. This is when the employee’s medical condition has been discussed with her physician and it has been determined she will not be released to return to work without job restrictions (e.g., the employee can no longer lift more than 10 pounds) and those job restrictions preclude her from performing the essential functions of her position.

If an employer wants to terminate an employee for fraudulently collecting workers’ compensation benefits when the employee is capable of working, its first call should be to the state workers’ compensation agency’s fraud department (for A Plus clients this call would go to Justin Rowley, VP Risk Management).

This case discussion illustrates the handling of a problem in employee relations. It is based on an actual court ruling, although the names and dialogue are fictitious.

Further discussion: An employee who has experienced a work place accident can be discharged if the employee tests positive for substance abuse. Even though the employee has tested positive for drug abuse the medical costs will still be covered by workers’ compensation insurance but the employee will not qualify for TTD – total temporary disability payments. Also, an employee who is terminated for testing positive for drug use subsequent to an on the job injury will not qualify for unemployment insurance benefits.

A Plus Benefits suggests that clients take the opportunity of discussing a possible discharge for any employee who is currently on leave or light duty due to a workers’ compensation covered injury with the Human Resources department.

Randall Barker is the VP of Human Resources for A Plus Benefits, Inc.

Read Randall’s previous HR update.

Here’s a question we hear from time to time:

Q – Can I require a doctor’s note from an employee who has taken time off for an illness?

A – Generally – Yes

EEOC Office of Legal Counsel staff members wrote the following informal discussion letter in response to an inquiry from a member of the public.

ADA: Disability-Related Inquiries and Medical Examinations of Employees

October 5, 2004

Dear:This responds to your July 30, 2004, letter to the Equal Employment Opportunity Commission (Commission) asking whether the Americans with Disabilities Act (ADA) permits an employer to require medical records from employees to justify their use of sick leave. Specifically, you state that a commercial airline recently began requesting pilots to provide all of their medical records to justify the use of sick leave even when, in some instances, the leave was taken more than one year prior to the employer’s request. Pilots who refuse to provide their records may be disciplined or fired for insubordination.

The ADA strictly limits the circumstances under which an employer may make disability-related inquiries or require medical examinations of employees. Generally, an employer only may ask questions or request medical documentation when it has a reasonable belief, based on objective evidence, that: (1) an employee’s ability to perform essential job functions will be impaired by a medical condition; or, (2) an employee will pose a direct threat due to a medical condition. See EEOC Enforcement Guidance on Disability-Related Inquiries and Medical Examinations of Employees Under the Americans with Disabilities Act (Guidance), July 26, 2000. (This Guidance can be found on our website at www.eeoc.gov. ) An employer also is entitled to know whether an employee’s absence or request for sick leave is due to legitimate medical reasons. An employer, therefore, may ask an employee to justify the use of sick leave by providing a doctor’s note or other explanation for the use of sick leave, as long as it has a policy of doing so for all employees. Id. at Question 15. An employer, however, may not ask for documentation unrelated to the use of sick leave (such as information about an illness or condition other than that for which sick leave was requested) or for more information than is necessary to justify the sick leave request. We believe that requiring all of an employee’s medical records to support a sick leave request will violate the ADA.Employers also may make disability-related inquiries or request medical documentation when an employee who has been on leave for a medical condition seeks to return to work, if the employer has a reasonable belief that the employee’s present ability to perform essential job functions will be impaired by a medical condition or that he or she will pose a direct threat because of a medical condition. Any inquiries or documentation, however, must be limited to what is needed to assess the employee’s ability to work. A request for medical records made a year or more after sick leave has been taken and after a pilot has resumed flying cannot be justified under this standard. The ADA strictly prohibits an employer from using an employee’s leave as a justification for making far-ranging disability-related inquiries or requiring unrelated medical documentation. Id. at Question 17.

I hope this information is helpful to you. This letter is an informal discussion of the issues you raised and does not constitute an official opinion of the EEOC. If you have any questions, please contact me or Joyce Walker-Jones at Joyce.Walker-Jones@eeoc.gov.)Sincerely,

HR Discussion – As the letter above points out it is acceptable to require that an employee bring a doctor’s note when the employee has used an illness as an excuse for missing work.

Perhaps the most important element of having a policy that requires a doctor’s note is consistency. The best way to be consistent is to establish a policy long before the business in required to consider how to handle this kind of situation.
Many businesses will not require a doctor’s note for a one or two day illness but will have a threshold of a 3 day illness requiring a doctor’s note before the employee can have the absence excused.

As the letter above points out, it is not a good idea to discharge and employee who refuses to bring a doctor’s note as required by your policy. However, you can still discipline the employee. The discipline in this case would be for an unexcused absence but not for refusing to bring the required note.

The attendance policy should be very clear, for example, within the attendance policy there could be a statement that advises employees that an absence of 3 or more days for an illness will be considered to be an unexcused absence if an employee does not bring a doctor’s note stating that the employee was too ill to work for the time missed by the employee. Don’t ask for a diagnosis – just a statement that the employee was seen by the doctor and that the doctor determined that the employee should stay home for X number of days. The policy should also state that an unexcused absence of three or more days is considered an infraction that requires a discharge from employment.

There is no magic number of days or number of infractions – each business needs to decide what is appropriate for their situation. However – be consistent. And when in doubt, please call the HR Dept at A Plus Benefits.

Next week we will re-visit some issues of doctor’s notes and FMLA.

Randall Barker is the VP of Human Resources for A Plus Benefits, Inc.

Read Randall’s previous HR Update.