Maryland Business Law Blog

Is My Social Media Policy Legal?

Posted by Edward Sharkey on Thu, 02/09/2017 - 05:00

Even small employers are getting wise to the prudence of solid employment policies. This includes implementing policies concerning social media. Businesses are trying to be practical about protecting valuable assets, like their brand and confidential information. At the same time, government regulators are acting aggressively in challenging efforts to restrict employee use of social media.

In a recent case, the National Labor Relations Bureau (NLRB) affirmed a decision by a judge who held that Chipotle violated the National Labor Relations Act (Act) by adopting a restrictive "Social Media Code of Conduct." The code prohibited employees from “posting incomplete, confidential, or inaccurate information and making disparaging, false, or misleading statements."

The employee wrote multiple tweets disparaging his employer. In response to one customer's gratitude for complimentary food, the employee wrote, "nothing is free, only cheap #labor. Crew members only make $8.50hr how much is that steak bowl really?" When another customer tweeted a remark about receiving Chipotle's guacamole for free, the employee wrote, "it's extra not like #Qdoba, enjoy the extra $2."

Chipotle fired the employee for violating the policy, and the employee complained to the government. The NLRB held that the policy violated the Act because prohibiting the publication of false or misleading information is too broad a restriction. A prohibition is only permitted where the employee has a proven malicious motive – meaning he knows that what he is publishing is false.

In addition, any prohibition against publishing confidential information must carefully define “confidential” so that employees do not interpret it to cover subjects they are legally permitted to discuss. The discussion of topics like work conditions or wages is protected under the Act, even though an employer may consider them confidential. The NLRB held that failing to carefully define the term could chill protected speech.

Finally, the NLRB stated that an add-on legal disclaimer, which assured employees that the policy is not meant to infringe on employees' labor rights, was not enough to fix the unlawfulness of the policy. Employers must take greater care to avoid chilling their employees’ right to publicly comment on work conditions.

The NLRB probably will not track down your business and its social media policy all on its own. But it is likely to become involved if you ever need to discipline an employee. So if your policy is meant for more than show, give it a look and see how it stacks up to Chipotle’s.

Have You Ever Waived “Consequential Damages” in a Vendor Contract?

Posted by Edward Sharkey on Wed, 02/08/2017 - 05:00

One thing we see all the time when reviewing clients’ vendor service contracts is a “waiver of consequential damages” for breach of the contract. I have never met a client who knows what this means. Most lawyers do not know. Buyers rarely think about it because it is boilerplate and common. A recent lawsuit involving a service contract highlights the substantial risks of waiving consequential damages.

In the case, a court of appeals affirmed a decision holding that literally all damages caused by a vendor’s breach of contract were consequential, and were thus not recoverable.

It is not so easy to determine whether prospective damages would be consequential or the alternative, “direct.” Here is the general rule: If a stranger to the deal could foresee that the damages would arise from a breach just by looking at the contract, they are direct. If the stranger would have to know more about the parties or their personal circumstances to foresee the damages, they are consequential.

An example: a contractor finishes building a house. One month later, the roof caves in. Direct damages would be the cost to repair the house. Unknown to the contractor, the owner of the house had just sold it, but, because of the damage, the buyer revokes. The loss of the sale of the house would be consequential damages.

The take away for businesses is that they should beware of any waivers of liability - including waivers of consequential damages. Waivers are not innocuous, even if they are boilerplate and common.

What is a reasonable response to a proposed waiver of consequential damages? Depending on the business’s negotiating leverage, there are a couple of options:

• Get rid of it. Most vendors do not know what it means either. Or they expect inattentive buyers to sign anything. If the vendor protests, ask them to explain why you should not be compensated for damages arising from a breach.

• If you cannot delete it altogether, assess the damages you would expect to arise from a breach, and negotiate a clarification of the term. The contract can include statements of anticipated damages, making them more apparent to a hypothetical stranger. This will expand the scope, and recoverability, of potential direct damages.

After all, if the expected harm from a breach is obvious and important to you, there is no good reason to keep it a secret from the vendor.

Can the Government Restrict the Confidentiality Term in My Settlement Agreement?

Posted by Edward Sharkey on Wed, 12/07/2016 - 05:00

Confidentiality is key when resolving claims in the employment context. In fact, sometimes it is the most important part of a settlement or severance agreement. Recently, federal regulators have decided the business world needs feedback on how much confidentiality is reasonable. The government is concerned that some confidentiality provisions may discourage employees from participating in certain protected activity - like whistleblowing.

The SEC recently issued a cease and desist order requiring a company to remove language from its severance agreements prohibiting employees from accepting monetary awards from the SEC for whistleblowing complaints.

OSHA soon followed, issuing new guidelines on the types of provisions it will not approve in settlement agreements. The guidelines, and interpretations of them, require employers to change the way they are drafting settlement agreements.

Provisions that were not an issue before will now cause a settlement agreement to be rejected. Broad language, on its own, can also be an issue. In general, language that restricts an employee’s ability to provide information to the government, participate in investigations, file a complaint, or testify in proceedings based on a respondent’s past or future conduct will be rejected.

Some examples of problematic language are:

• Provisions that require a complainant to notify his or her employer before filing a complaint;

• Settlement agreements that contain a waiver of accepting monetary awards from the SEC for whistleblowing complaints;

• Provisions that require an employee to affirm that he or she has not previously provided information to the government, or engaged in other protected activity.

OSHA also expressed concern about agreements imposing liquidated damages on a breaching party. Although the agency did not ban the practice, it may do so in future guidelines.

Given that the need for confidentiality is not going away, businesses need to be mindful of the regulators' rules in order to craft terms that can be enforced.

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