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2006 ANNUAL LAW UPDATE
EMPLOYMENT LAW
 

Prepared by: Kent L. Brown

Kunzie v. City of Olivette, 184 S.W.3d 570 (Mo. 2006).
Former city employee brought suit alleging whistle blower claim for retaliatory discharge, wrongful termination in violation of public policy, and breach of contract. Trial court sustained city’s motion for dismissal asserting the court lacked subject matter jurisdiction because Kunzie failed to exhaust administrative remedies and because petition failed to state a claim upon which relief could be granted because claims barred by sovereign immunity. Case reversed and remanded upon Kunzie’s appeal because exhaustion of administrative remedies did not apply because the hearing was inadequate remedy, sovereign immunity may be waived by city because it purchased liability insurance, and sovereign immunity does not apply to suits for breach of contract.

Furlong Companies, Inc., v. The City of Kansas City, Missouri, 2006 WL 696494 (Mo. 2006).
A developer brought mandamus action against city seeking an order compelling the city to approve its plat application and seeking damages under §1983. Since approval of the plat application is a ministerial act by the city based solely upon whether the plat complies with the subdivision ordinance, the city had no discretion to deny it. Mandamus was sought to compel the ministerial duty of the city to approve the plat and because the city did not conduct preliminary plat hearing as a contested case, the developer had the right to adduce any evidence relevant to proving that it presented the city with sufficient evidence for preliminary approval. Substantial evidence supported the trial court’s finding that the city’s decision to deny approval of the developer’s preliminary plat was unlawful, unreasonable, arbitrary, and capricious. The city’s conduct in denying the preliminary plat was truly irrational in violation to the developer’s due process rights and entitled relief under §1983 because the city ignored the advice of the plats review committee recommending approval, the city would not allow developer to amend or correct the plat, the council subjected developer to numerous delays and denied approval of the preliminary plat against the city attorney’s advise that it could not do so.

State ex rel Crowe v. Missouri State Highway Patrol, 168 S.W.3d 122 (Mo.App. W.D. 2005).
Sergeant suspended for 8 hours by review board, sergeant appealed suspension, superintendent affirmed suspension, sergeant filed petition for writ of certiorari, circuit court reversed, highway patrol appealed. In non-contested cases the circuit court conducts de novo review of administrative decision, hearing evidence on merits of case, make a record, determines the facts and decides if administration’s decision involves abuse of discretion. The appellate court determined the trial court substituted its own discretion for discretion of superintendent in regard to suspension because superintendent allowed by statute to impose reprimands or suspensions of less than 3 days without a hearing. The trial court’s determination that the suspension was unlawful, unreasonable, arbitrary, capricious, and a product of an abuse of discretion was against manifest weight of evidence. Reversed and remanded with directions.

Parker v. City of St. Joseph, 167 S.W.3d 219 (Mo. 2005).
Former city employee sought judicial review of employment termination under the contested case provisions. Circuit court dismissed petition for lack of subject matter jurisdiction. The court of appeals affirmed the decision because employee failed to exhaust his administrative remedies under city’s grievance procedure.

Rector v. Kelly, 183 S.W.3d 256 (Mo.App. W.D. 2005).
Employee appealed Division of Employment Security’s determination. The Division’s Appeals Tribunal determined her notice of appeal was defective because it lacked a signature and dismissed her appeal. Employee’s letter accomplished the four functions of a notice of appeal: notified the deputy of appeal, notified the Division of appeal, triggered a stay of execution of deputy’s decision, notified the Appeals Tribunal of transfer of jurisdiction. Court found the Division’s regulations did not unambiguously mandate the notice of appeal must be signed and the letter was a good faith attempt at appeal. Commission’s decision reversed, cause remanded with directions that employee’s appeal be reinstated for determination on its merits.

King v. Community Blood Center of Ozarks, 181 S.W.3d 573 (Mo.App. S.D. 2005).
Claimant appealed order from Labor and Industrial Relations Commission denying waiting week credit for unemployment benefits. Evidence indicated claimant instructed employee under her supervision to write down on employer’s log that claimant worked 7 3/4 hours when surveillance cameras recorded that she only worked 4 hours 21 minutes. Court affirmed Commission’s order which was supported by competent and substantial evidence.

Sivigliano v. Harrah’s North Kansas City Corp., 2006 WL 386624 (Mo.App. W.D. 2006).
Employee appeals from circuit court’s dismissal of her petition alleging wrongful discharge allegedly because circuit court incorrectly concluded her petition failed to state a cause of action under the public policy exception to at-will employment doctrine. Employee’s petition alleges she was ordered to violate company policy which, she argues, was adopted pursuant to state and federal sexual harassment policies. Rule 55.05 requires a pleading set forth a claim for relief contain a short and plain statement showing why pleader is entitled to relief. Missouri law requires statement of the specific legal provision violated by employer in a wrongful discharge claim. Employee’s petition only refers to facts revolving around company policy, not a legal provision.

Stehno v. Sprint Spectrum, L.P., 2006 WL 328674 (Mo. 2006).
Database consultant brought action against employer’s client and subclient for tortious interference with business expectancy after subclient informed client it did not recommend consultant for project. Client terminated consultant from project leading to employer terminating consultant. The Supreme Court held that consultant did not have a reasonable expectancy of continued employment at subclient; subclient’s economic interest in controlling who worked on its projects was valid economic justification for removal of consultant; and subclient did not employ improper means in protecting its economic interest.

Baum v. Rockland County, 161 Fed.Appx. 62 (C.A.2 (N.Y.) 2005).
Community college employee sued employer alleging retaliation in violation of ADEA and ADA, First Amendment and an equal protection violation. Court of appeals held that requiring a medical examination to assess fitness for duty was not an adverse employment action for purposes of ADEA and ADA.

Arbaugh v. Y & H Corp., 126 S.Ct. 1235 (U.S. 2006).
Former bartender/waitress, claiming sexual harassment, brought Title VII and related state law tort claims against restaurant. Jury verdict in favor of employee. U.S. District Court for Eastern District of Louisiana granted restaurant’s motion to dismiss for lack of subject matter jurisdiction. Court of Appeals for the Fifth Circuit affirmed. The Supreme Court held that employee-numerosity requirement establishing Title VII defendant’s employer status was element of plaintiff’s claim for relief, whose satisfaction was conceded where challenged prior to trial on merits, rather than a jurisdictional requirement which can be brought at any time. The court stated that when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character. Reversed and remanded.

Silva v. Bowie State University, Slip Copy, 2006 WL 314470 (C.A.4 (Md.) 2006).
Former state university employee brought Title VII retaliation action against employer alleging university’s request that employee take a medical examination was an adverse employment action and that the university retaliated by firing employee after he filed a complaint with the university’s EEO officer. The Court of Appeals affirmed the U.S. District Court’s finding that the employer’s request for the employee to take a medical examination was not an adverse employment action. However, in regard to the charge of retaliation, the Court of Appeals found that the 10-week lapse of time between the protected activity (filing the EEO complaint) and termination was sufficient to establish a prima facie case of retaliation, therefore, it vacated and remanded that portion of the case.

Woodruff v. Ohman, 166 Fed.Appx. 212 (C.A.6 (Tenn.) 2006).
Female former post-doctoral research assistant filed action against professor for defamation under state law and gender discrimination under § 1983 and against the professor and university for gender discrimination and retaliation under Title VII. Court of appeals held that professor’s written statement asserting assistant had not been able to accumulate enough data over a two and a half year period for a paper was defamatory as there was sufficient evidence the assistant had gathered enough evidence for the paper, even if the paper was not complete, and that the professor acted with sufficient recklessness to justify awarding punitive damages.

Hart v. City of Little Rock, 432 F.3d 801 (C.A.8 (Ark.) 2005).
Police officers brought §1983 action against city employer alleging disclosure of personal information in their personnel files violated substantive due process. The U.S. District Court for the Eastern District of Arkansas denied city’s motion for judgment and upon jury verdict, entered judgment in favor of officers awarding each officer $225,000 in damages. City appealed. The Court of Appeals, held that city’s release of personnel files did not rise to level of deliberate indifference for purpose of substantive due process claim. Reversed and remanded.

Kay v. Likins, 160 Fed.Appx. 605 (C.A.9 (Ariz.) 2005).
Former state university employee brought federal and state law claims against the board of regents and various university officials. The Court of Appeals held that individual defendants in their official capacities were not “persons” subject to suit under § 1983.

Garcetti v. Ceballos, 126 S.Ct. 1951 (2006).
Deputy district attorney filed § 1983 complaint against county and supervisors at his office alleging he was subject to retaliation for engaging in protected speech in regard to a disposition memorandum he wrote recommending dismissal of a case based on purported governmental misconduct. The Supreme Court held that when public employees make statements pursuant to their official duties, they are not speaking as citizens for First Amendment purposes and the Constitution does not insulate their communications from employer discipline; and, the district attorney did not speak as a citizen so was not protected by the First Amendment.

Canady v. Wal-Mart Stores, Inc., 440 F.3d 1031 (8th Cir. 2006).
The Eighth Circuit determined that there was no direct evidence to connect the racist remarks of Canady’s supervisor with his termination to be sufficient to allow a jury trial. Canady was terminated for eating an orange in the food preparation area and was terminated by someone else in the chain of command rather than the supervisor and Canady did not offer any evidence to show that the reason for termination given by Wal-Mart was pretextual.

Quick v. Wal-Mart Stores, Inc., 441 F.3d 606 (8th Cir. 2006).
A seven year employee of Wal-Mart took 12 weeks of maternity leave under the Pregnancy Discrimination Act. Upon her request, her supervisor advised that it did not make “good management” sense to take the 12 weeks of leave and was surprised when the employee informed him that she would be returning and asked if she had made childcare arrangements. It was learned during her absense that she had broken company policy by extending a promotion without her supervisor’s approval. She was terminated upon her return from maternity leave. As in Canady v. Wal-Mart Stores, Inc., the Eighth Circuit determined there was no direct evidence to connect the discriminatory remarks to the termination to allow for a jury trial and the plaintiff failed to offer evidence showing the reason given by Wal-Mart was pretextual.

Wedow v. City of Kansas City, Missouri, 442 F.3d 661 (8th Cir. 2006).
Two female firefighters filed sex discrmination claim against City because it failed to provide them with adequate fitting protective clothing and facilities based on sex. These claims were not precluded by earlier case since evidence was excluded and there was no decision on the earlier claim. The claim was not time barred because each time they donned the clothing a new 300 day period to file started. Jury returned verdict in favor of firefighters. The court denied request by employees for equitable relief. Affirmed.

Wilson v. City of Des Moines, 422 F.3d 637 (8th Cir. 2006).
Admission of evidence of employee’s own alleged sexual comments and sexual behavior are not barred in sex discrimination case by rule that excludes evidence of victim’s own sexual behavior. Being shunned or ostracized by coworkers was not adverse employment action for purposes of a retaliation claim.

Davis v. Lambert - St. Louis Intern. Airport, 2005 WL 2276714 (Mo.App. E.D. 2005).
Motorist brought tort action against municipal airport and airport police officer based on alleged negligence of officer resulting in collision with motorist. Jury verdict in circuit court for motorist. Airport and officer appealed. Case law indicates employee’s official immunity does not transfer to employer. If employee is exonerated then no liability will attach to employer, however, if employee simply protected by immunity then employee’s wrongdoing may attach to employer. Court of Appeals held that any negligence on part of officer fit within doctrine of official immunity, airport was liable under doctrine of respondeat superior, and official immunity was personal to officer. Case transferred to Supreme Court.

Bessent v. Dyersburg State Community College, 415 F.Supp.2d 874 (W.D. Tenn. 2006).
Former administrator of adult literacy program sued community college and its president claiming retaliation for her criticism of consolidation of program into college’s activities. Defendants moved for summary judgment. The district court found the First Amendment rights of administrator were not violated because she was not speaking on a matter of public concern but rather on bureaucratic internal matter. The district court also found that administrator was not entitled to name-clearing hearing because the statement made by president of college regarding her termination because of recurring problems with grant management did not go beyond allegations of inadequate performance, incompetence, neglect of duty or malfeasance, which were inadequate to trigger a right to hearing.

Public School Retirement System of School Dist. Of Kansas City v. Missouri Commission on Human Rights, 2006 WL 325374 (Mo.App. W.D. 2006).
The Public School Retirement System (PSRS) filed petition for writ of mandamus to compel Missouri Commission on Human Rights (MCHR) to withdraw a right to sue letter issued to former PSRS employee who filed an age discrimination complaint. Circuit court granted summary judgment to MCHR. PSRS appeals and court of appeals held that PSRS could seek judicial review by way of writ of mandamus of MCHR decision. PSRS not prejudiced by failure of MCHR to notify PSRS of discrimination complaint because PSRS could not show that if it had received notice that MCHR would have completed its investigation within 180 days and issued a finding of no probable cause. MCHR did not breach ministerial duty when it failed to complete investigation within 180 days.

Simpson v. Merchants & Planters Bank, 441 F.3d 572 (8th Cir. 2006).
The court held that there was evidence sufficient to show that a male and female employee held equal jobs, there was insufficient evidence to establish that the pay differential was based on factors other than sex, and sufficient evidence established the bank’s violation of the Equal Pay Act. 20% reduction in attorney fees awarded to employee was not an abuse of discretion.

Winskowski v. City of Stephen, 442 F.3d 1107 (8th Cir. 2006).
A city councilmember called the police chief a liar and a cheat during a council meeting discussing whether to discontinue the police department and contract with the county for police services. The council voted to discontinue the police department and the chief sued the city for violation of procedural due process rights with respect to his liberty interest in his good name. The court of appeals reversed the district court and held that the meeting with the city council constituted a sufficient pre-termination name clearing hearing and that the chief failed to request a name clearing hearing after his termination and so it precluded his liberty interest claim.

Coyne v. Cargill, Inc., 167 S.W.3d 800 (Mo.App. S.D. 2005).
Employee’s decision to make herself available for part-time employment only “can be treated by the [E]mployer as a resignation.” Record supported findings that Employee’s refusal to travel prevented her promotion, but did not trigger her termination, and that her request for a raise did not cause her to be fired, and refusal of raise caused her to quit.

Medrano v. Marshall Electric Contracting, Inc., 173 S.W.3d (Mo.App. W.D. 2005).
Employer encouraged Employee to take apprenticeship class and controlled attendance. Employee’s death in wreck during trip home arose out of and in the course of employment because it benefitted Employer to offer expanded services to customers. Any two Labor and Industrial Relations’ Commissioners may constitute a quorum, even non-lawyer Commissioners.

Healthcare Services of the Ozarks, Inc. v. Copeland, 2005 WL 1759942 (Mo.App. S.D. 2005).
Employer was not entitled to injunctive relief on covenant not compete because covenant was contrary to public policy. The only “legitimate protectable interest[s] of the employer” that covenant may serve are trade secrets and client lists. Judgment for Employer reversed and case remanded for new trial on Employees’ counterclaims for tortious interference with business relationship. TRANSFERRED TO MISSOURI SUPREME COURT.

Langlois v. Pemiscott Memorial Hospital, 2006 WL 163564 (Mo.App. S.D. 2006).

State ex rel. Lebanon School District v. Winfrey, 2006 WL 224191 (Mo. 2006).

Acton, et al., v. City of Columbia, Missouri, 436 F.3d 969 (8th Cir. 2006).

Hutchings v. Roling, 2006 WL 851824 (Mo.App. E.D. 2006).

Richardson v. Sugg, 2006 WL 1445025 (8th Cir. (Ark.) 2006).

Dooley v. St. Louis County, 187 S.W. 3d 882 (Mo.App. E.D. 2006).

State ex rel. Dean v. Cunningham, 182 S.W.3d 561 (Mo. 2006).

NON-COMPETE AGREEMENTS AND UNFAIR COMPETITION

I. Purpose: The purpose of a non-compete agreement is to protect the employer from unfair competition by a former employee. Enforceability of a non-compete agreement is not to punish the employee but to protect an employer ’s trade secrets and customer contacts and relationships from unfair competition. An employer must be able to demonstrate that its trade secrets and customer contacts and relationships will be protected by the enforcement of a non-compete agreement.

II. Trade Secrets: In order to protect employer information, that information must be confidential. That is, the employer must take steps to maintain the confidentiality of the protected information. Trade secrets can include technical information as well as customer contact information, as long as the information has independent economic value and the employer has actively sought to reasonably maintain the confidentiality of the information. In addition, trade secrets which have a short shelf life, or are only useful for a short period of time, can only be considered “trade secrets” during the period in which they are useful.

III. Customers: A customer has repeated business with a particular business or tradesman. If the customer is used to dealing with the same employee the majority of the time he does business, the customer may come to rely on and trust that employee. If the employee then leaves to work for the competition, because of the relationship he developed with the customer he may be able to use his influence to take the customer away from the prior employer. Consequently, an employee’s exposure to the customer is crucial in determining the reasonableness of the restrictive covenant sought by the employer. However, if an employer cannot sufficiently show the employee’s influence over the customer, the non-compete agreement cannot be enforced.

IV. Reasonableness: The non-compete agreement needs to be reasonable in its duration and geographic area in order to be enforceable. However, Missouri courts may, at their discretion, “blue pencil” a non-compete agreement to make them reasonable in the eyes of the court rather than deny enforceability altogether.

V. Defenses: The best defense against a non-compete agreement is to argue the former employer does not have legitimate protectable interests.

A. Material Breach: Where an employer has previously breached an employment agreement, it cannot seek benefits under the same agreement. If an employer, however, breaches the employment agreement and the employee does not complain for an extended period of time, the employee may be seen as waiving the employer’s breach.

B. Unclean Hands: Where an employee may not be able to prove a prior material breach, he may still raise the defense of unclean hands.

C. Termination without Cause: Generally if an employer terminates an employee for no cause, a court of equity will refuse to order injunctive relief to enforce the employee’s non-compete agreement.

D. Lack of Consideration: A court will not enforce a non-compete agreement if there is no consideration for it. However, most Missouri courts have held that continued employment is sufficient to support a finding of consideration.

E. Waiver: An employee may be able show that the former employer has not enforced the non-compete agreement in the past against other employees in similar positions. This defense is fact specific and depends largely on the number of past instances the employer failed to enforce the non-compete agreement, how recent those instances are and whether the other employees had similar positions. This defense is intertwined with whether the employer has a protectable interest in confidential information or customer relationships. If the employee can show that the employer did not enforce the non-compete agreement against other employees with access to the same information, then they may be able to prove that the employer itself does not belief it has a protectable interest. An employer may seek to exclude evidence of enforcement so as to avoid a series of mini-trials in regard to the circumstances surrounding each former employee and its decision not to enforce the agreement. Regardless, failure to enforce the non-compete agreement in the past does not necessarily mean that the court will determine the current situation is unenforceable. See Thomson v. Allain, 377 S.W.2d 465, 468 (Mo.App. W.D. 1964), wherein the court determined that the employer may have had good reason for not objecting to having former employees compete with it in certain circumstances.

VI. Assignability of Non-Competes

A. Assignments in General: An employment contract is viewed as a “personal services” contract, it can only be assigned with the consent of the employee. Consequently, a common practice would be to include clauses in non-compete agreements in which the employee consents to future assignments of the agreement. However, a recent decision by the Missouri Court of Appeals for the Southern District appears to have created a more stringent standard of assignment by holding that the assignment is void unless the consent is given at the time of the assignment. See Roeder v. Ferrell-Duncan Clinic, Inc., 155 S.W.3d 76, 86 (Mo.App. S.D. 2005).

B. “Assignment” in the Case of a Statutory Merger: In the case of a statutory merger, the new entity or employer is the successor to the rights and liabilities of the original employer, and notwithstanding the law of assignments, the non-compete agreement remains in full force and effect after the merger. See Alexander & Alexander v. Koelz, 722 S.W.2d 311, 313 (Mo.App. E.D. 1986).

VII. The New Employer’s Exposure: When a new employer is considering hiring someone who has a covenant not to compete, it should consider it’s own exposure to suit by the former employer, especially if they intend for the employee to solicit customers of the former employer. Suit may be brought against the new employer by the former employer on the theories of civil conspiracy, tortious interference with a contract or business expectancy, unfair competition or head start and misappropriation of trade secrets under the Missouri Uniform Trade Secrets Act. The new employer may also be liable for the former employer’s attorneys’ fees if it suffers from lost profits in violation of a non-compete agreement based on the “collateral litigation” doctrine.

VIII. Anti-Raiding Provisions: An employer may try to protect itself from unfair competition by asking it’s employees to sign an anti-raiding agreement which prohibits the former employee from soliciting or hiring away other employees from the employer. In 2000 the Missouri Court of Appeals ruled that such agreements were not enforceable in Missouri. However, the Missouri legislature passed a statute making such agreements generally enforceable if they last no longer than one year after termination of employment and do not cover secretarial or clerical employees. See Section 431.202 RSMo. Supp. 2005.

IX. Obtaining a TRO or Preliminary Injunction to Prevent Unfair Competition: In determining whether to issue a TRO, the Missouri courts consider (1) the probability of success on the merits of the underlying claim, (2) whether without the entry of TRO or preliminary injunction the movant will suffer irreparable harm, (3) whether the harm suffered by the movant, in the absence of such relief, is greater than that which will be inflicted on other interested parties, and (4) whether public interest will be served by the injunction. See Emerson Electric, 418 F.3d at 844. Consequently, the party seeking preliminary injunctive relief must adequately and specifically allege in it’s petition or motion the protectable interests at stake and the immediate, irreparable harm that will be suffered without relief.

X. Preemptive Strike: The Declaratory Judgment Action: In cases where an employer threatens a former employee with litigation in regard to a non-compete agreement, the former employee may preemptively file a declaratory judgment action seeking an order that the non-compete agreement is unenforceable. By filing the declaratory judgment action, then, the former employee is given some control over the selection of the forum and puts the employee in the position of plaintiff rather than defendant. In addition, this may also push the employer to stop threats and either seek settlement or face the possibility of an adverse court decision holding the non-compete agreement unenforceable. It is possible, though, that the employer may file a counterclaim for breach of the non-compete agreement in addition to filing a TRO to enforce the agreement which, depending on the facts of the case, may put the employer in control of the litigation to some extent.

XI. Missouri Computer Tampering Act: A former employer may have a claim for damages against its former employee and the new employer in cases regarding stolen documents or computer data under the Missouri Computer Tampering Act. The MCTA appears to protect data and other information irrespective of whether the information constitutes a trade secret.

XII. Duty of Loyalty: A current employee not subject to a non-compete agreement still owes his employer a duty of loyalty. An employee may plan, prepare and dream of his/her competing enterprise while still employed but if his/her activities manifest into actual competitive activities, the employee then breaches his/her duty of loyalty. See Scanwell Freight Express STL, Inc. v. Chan, 162 S.W.3d 477, 479 (Mo. 2005).

XIII. Conclusion: The basic priciple to remember is that Missouri courts will enforce a non-compete agreement only to protect a former employer from unfair competition.

Corrigan, William M. Jr. and Michael B. Kass. “Non-Compete Agreements and Unfair Competition - An Updated Overview.” Journal of the Missouri Bar. March-April 2006.