Reminder: Texas Employers Owe Their Employees Numerous Duties

It is a testament to the diversified, generally pro-business Texas economy that the state has weathered recent national and international economic turmoil so well. Even with a volatile energy market and with oil prices significantly depressed, the Texas economy thrives, certainly relative to national trends. This explains, at least in part, why a number of companies have relocated to Texas in recent years.

Those companies relocating to Texas, as well as other employers operating here, should keep in mind that they owe their employees some basic, fundamental duties. This is more than the much-reported obligations not to discriminate, harass or retaliate. As the Texas Supreme Court explained forty years ago, Texas employers owe certain continuous, nondelegable duties to their employees. Farley v. M.M. Cattle Co., 529 S.W.2d 512 (Tex. 1975). Specifically, employers in Texas have, among other things, the duty to:

  • Furnish a reasonably safe place to work
  • Warn employees of hazards of their employment that are not commonly known or appreciated
  • Supervise employees’ activities
  • Hire competent co-employees
  • Furnish reasonably safe instrumentalities with which to work
  • Provide safety regulations
  • Train employees in the safe use and handling of products and equipment used in and around the employer’s premises

Central Ready Mix Concrete Co. v. Islas, 228 S.W.2d 649 (Tex. 2007). And employers must exercise ordinary care in carrying out these duties. Failure to do so can lead to time-consuming and costly litigation.

It is important for employers doing business in Texas to be aware of their duties to their employers (and others). A reasoned, proactive approach to satisfying these duties and managing risk exposure may ultimately save money, minimize liability, and better allow the company to achieve its business goals.

Employers Beware; General Assertions of Alleged Fraud May be Enough to Trigger SOX Whistleblower Protection

Under Section 806 of the Sarbanes-Oxley Act (SOX), it is illegal for publicly traded companies to retaliate against employees who report suspected fraud. 18 U.S.C. § 1514A. Seemingly straightforward in many respects, this anti-retaliation provision has generated significant litigation since its passage by Congress. Among other things, for example, courts across the country have confronted questions concerning the scope of so-called protected activity; that is, examining the type of “whistleblowing” activity required of the employee to trigger the statute’s protection.

By statute, employees are protected if they engage in lawful acts to provide information regarding “any conduct which the employee reasonably believes constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.” 18 U.S.C. § 1514A(a)(1). Employees must, generally speaking, blow the whistle on corporate fraud or, more to the point, what they reasonably believe to be corporate fraud.

Addressing this issue of protected activity, courts have struggled with defining the specificity required in the employee’s whistleblowing report to trigger protection. Companies often argue, understandably, that the whistleblowing must be specific as to the purported violation and must provide facts sufficient to establish each element of the alleged fraud. Conversely, whistleblowing employees suggest less specificity is required by statute.

The United States Court of Appeals for the Sixth Circuit recently weighed in on precisely this issue. In Rhinehimer v. US Bancorp Investments, Inc., a panel of the 6th Circuit unequivocally rejected the “definitively and specifically” standard proposed by the defendant publicly traded company (and previously adopted by the 2nd, 4th, and 5th Circuits). Instead, the Rhinehimer Court adopted the rule “that the employee’s reasonable belief is a simple factual question requiring no subset of findings that the employee had a justifiable belief as to each of the legally-defined elements of the suspected fraud.” As the court reasoned, “[t]he text and design of § 1514A does not suggest any heightened showing of a factual basis for the suspected fraud. . . . Indeed, at every juncture, the statute sweeps broadly, encompassing a wide swath of acts, limited only by their legality, to provide information or assistance to an investigation ‘regarding any conduct’ reasonably believed by the employee to constitute a violation of relevant law.”

In short, according to Rhinehimer, the employee whistleblower need not present a factual showing justifying the suspicion or reasonable belief in corporate fraud. Instead, “the complainant need only show that he or she ‘reasonably believes’ that the conduct complained of” violates one of the enumerated laws.

Employers, even those outside the jurisdiction of the 6th Circuit given legal trends, should be aware that a wider range of employee complaints may technically fall within the ambit of SOX protection. It remains important to promptly and seriously investigate and respond to those complaints. Doing so, as well as acting proactively, may significantly curtail potential liability exposure and legal expenses.

Rhinehimer v. U.S. Bancorp Investments, Inc., No. 13-6641 (6th Cir.) (May 28, 2015)

OSHA Initiates ADR Process for Whistleblower Complaints

In an effort to protect corporate fraud whistleblowers, Section 806 of the Sarbanes-Oxley Act makes it unlawful for companies to retaliate against employees for engaging in certain whistleblowing activity. But before a whistleblowing employee can file suit for retaliation, she must first file a complaint with OSHA.

The requirement that whistleblowers exhaust administrative remedies before turning to the courts for relief is nothing new. Similar requirements exist, for example, in discrimination and harassment complaints under Title VII that must first be presented to the EEOC. And like the conciliation process with the EEOC, OSHA has recently issued revised policies and procedures applying a new alternative dispute resolution (ADR) process for whistleblower complaints. OSHA Policies and Procedures

In a press release issued last week, OSHA explains that “[t]he new process is an early resolution process” that “offers whistleblower parties the opportunity to negotiate a settlement with the assistance of a neutral, confidential OSHA representative who has subject-matter expertise in whistleblower investigations.” OSHA Press Release

Hoping to avoid the costs associated with investigations and litigation, the OSHA program offers an early resolution process for settlement negotiations facilitated by a “neutral, non-decision-making OSHA whistleblower expert” and a mediation process that involves a one-day, in-person mediation with “a professional third-party mediator.” Whether such an ADR process will ultimately be effective in resolving whistleblower disputes remains to be seen.

Importantly, OSHA’s new ADR initiative may have an expansive application across industries. OSHA, after all, is concerned with more than just corporate fraud whistleblowers under Sarbanes-Oxley. The agency enforces the whistleblower provisions of 21 other statutes protecting employees who report violations of various trucking, airline, nuclear power, pipeline, environmental, rail, maritime, health care, workplace safety and health regulations, and consumer product safety laws. Employers would be well advised, consequently, to keep themselves at least generally advised of these laws and OSHA’s requirements in the event they confront employee whistleblower complaints.

Despite State Law Permitting Medical Marijuana Use, Colorado Employers May Still Terminate Employees for Off-Duty Medical Marijuana Use

In Colorado, the state’s Lawful Activities Statute (C.R.S. 24-34-402.5) generally prohibits employers from firing an employee who engages in lawful outside-of-work activity. But what happens when state and federal law differ as to the lawfulness of the subject activity?

In Coats v. Dish Network, plaintiff was fired under the company’s zero-tolerance drug policy after failing a random drug test. A quadriplegic with a state-issued license to use medical marijuana to treat muscle spasms keeping him wheelchair-bound, failing the drug test was no surprise. This being Colorado with its liberal state marijuana laws, however, Coats argued the termination violated the Lawful Activities Statute.

The Colorado Supreme Court ruled that the termination did not violate the Lawful Activities Statute because the activities at issue must be “lawful” under both state and federal law, which is not the case with marijuana use (21 U.S.C. 844(a)). “Therefore, employees who engage in an activity such as medical marijuana use that is permitted by state law but unlawful under federal law are not protected by the statute.”

Although this decision is obviously specific to Colorado state law, it further emphasizes the importance to employers and employees alike of closely scrutinizing termination decisions.

Coats v. Dish Network, LLC, Case No. 13SC394 (June 15, 2015)

Despite State Law Permitting Medical Marijuana Use, Colorado Employers May Still Terminate Employees for Off-Duty Medical Marijuana Use

In Colorado, the state’s Lawful Activities Statute (C.R.S. 24-34-402.5) generally prohibits employers from firing an employee who engages in lawful outside-of-work activity. But what happens when state and federal law differ as to the lawfulness of the subject activity?

In Coats v. Dish Network, plaintiff was fired under the company’s zero-tolerance drug policy after failing a random drug test. A quadriplegic with a state-issued license to use medical marijuana to treat muscle spasms keeping him wheelchair-bound, failing the drug test was no surprise. This being Colorado with its liberal state marijuana laws, however, Coats argued the termination violated the Lawful Activities Statute.

The Colorado Supreme Court ruled that the termination did not violate the Lawful Activities Statute because the activities at issue must be “lawful” under both state and federal law, which is not the case with marijuana use (21 U.S.C. 844(a)). “Therefore, employees who engage in an activity such as medical marijuana use that is permitted by state law but unlawful under federal law are not protected by the statute.”

Although this decision is obviously specific to Colorado state law, it further emphasizes the importance to employers and employees alike of closely scrutinizing termination decisions.

Coats v. Dish Network, LLC, Case No. 13SC394 (June 15, 2015)

Fifth Circuit Confirms that SOX Whistleblowers Must Specifically Exhaust Administrative Remedies Before Litigating Issues

Under Section 806 of the Sarbanes-Oxley Act (18 U.S.C. 1514A(a)), employees are protected from retaliation for engaging in certain protected activity related to blowing the whistle on corporate fraud. “Essentially, the employee has to provide information or assist in an investigation that he reasonably believes relates to one or more of six categories of laws and regulations” relating to fraud or SEC rules violations. But before an aggrieved employee can file a lawsuit, he or she must first file a complaint with the Secretary of Labor.

This statutory requirement for SOX whistleblowers is consistent with similar requirements in other laws, but an open question existed as to how specifically courts would examine whistleblowers’ complaints to determine exhaustion. With the Fifth Circuit’s recent decision in Wallace v. Tesoro Corporation, it appears that courts may, indeed, closely scrutinize the specific allegations contained in whistleblowers’ complaints to evaluate exhaustion of administrative remedies.

In Wallace, the plaintiff employee filed an administrative complaint alleging that he was retaliated against for complaining about his employer’s accounting methodology with respect to counting taxes as revenue. After his administrative complaint was dismissed, he filed a lawsuit alleging the same protected activity (complaining about accounting methodology as to taxes as revenue), as well as new allegations that he also engaged in protected activity when he investigated and reported suspected wire fraud. The district court dismissed the new allegations because they were outside the scope of the administrative complaint.

Reviewing the dismissal on appeal, the Fifth Circuit agreed that dismissal was appropriate. Applying the same exhaustion requirement used in Title VII cases, the Fifth Circuit concluded that a SOX whistleblower lawsuit may only properly include those allegations of protected activity that the administrative complaint could be reasonably expected to encompass. Specifically, “[t]he scope of a judicial complaint is limited to the sweep of the OSHA investigation that can reasonably be expected to ensue from the administrative complaint.”

Clearly, SOX-retaliation lawsuits in the Fifth Circuit are limited in scope by the administrative complaint. For employees, that means it is critically important to include everything in the administrative complaint. And for employers, a standard litigation practice should obviously include comparing the allegations in the lawsuit to those in the administrative complaint, moving to dismiss those that were not subject to administrative review.

Wallace v. Tesoro Corp., Case No. 13-51010 (July 31, 2015)

Lone Pine Orders: Forcing Plaintiffs in Fracking and Other Suits to Show Their Cards Before Discovery

In recent years, a trend has developed in toxic tort and other personal injury-based complex litigation in which defendants ask the court to enter a case management order requiring the plaintiff to produce evidence of a prima facie case before being allowed to proceed with discovery – a so-called Lone Pine order. Last month, in a lawsuit brought by a family alleging physical and property injuries sustained from nearby natural gas drilling operations, the Colorado Supreme Court ruled that trial courts in Colorado lack the authority under state law to enter Lone Pine orders. Specifically, the Court had been asked to decide “whether a district court is barred as a matter of law from entering a modified case management order requiring plaintiffs to produce evidence essential to their claims after initial disclosures but before further discovery.” The Colorado Supreme Court concluded that district courts were, indeed, barred from entering such orders.

In Antero Resources Corp. v. Strudley, the plaintiffs alleged that drilling operations near their home caused physical and property damages, including the assertion that exposure to pollutants from the drill site caused them a variety of physical injuries. After the parties exchanged initial disclosures, Antero Resources asked the district court to enter a Lone Pine Order requiring the Strudleys to present prima facie evidence of their claims before the parties engaged in further discovery. The district court granted the request and precluded the Strudleys from pursuing any discovery until they satisfied this evidentiary requirement.

The Strudleys submitted evidence relating to the pollutants released and a medical affidavit that asserted further investigation of their physical ailments was warranted, but offered no evidence of actual causation. Antero Resources moved to dismiss the case, arguing, in part, that the plaintiffs failed to demonstrate a prima facie case of causation. The district court agreed, dismissing the lawsuit. On appeal, the appellate court reversed and reinstated the plaintiffs’ claims. Antero Resources then appealed to the Colorado Supreme Court.

In its review, the Colorado Supreme Court first observed that Lone Pine orders developed from an unpublished opinion of the Superior Court of New Jersey in Lore v. Lone Pine Corp. Such orders, typically used in toxic tort cases, generally require plaintiffs to proffer evidence establishing a prima facie case of injury, exposure and causation before conducting any discovery. In this way, courts have used Lone Pine orders to minimize burdens on defendants by erecting a preliminary evidentiary requirement for plaintiffs to satisfy.

Rather than wading into a policy discussion of the costs and benefits of Lone Pine orders, the Colorado Supreme Court concluded that existing Colorado law and procedures do not authorize state courts to adopt Lone Pine orders.

Although this opinion is limited to an interpretation of Colorado state law, it presents useful guidance to parties in other states, including Texas, involved in fracking, oil and gas, and other toxic tort litigation matters.

Antero Resources Corp. v. Strudley, No. 13SC576 (Colo. Apr. 20, 2015).

Just Say No, It Might Be Enough to Support a Title VII Retaliation Claim

Employers and employees alike understand that Title VII prohibits discrimination and harassment based on things like sex, race, and national origin. Likewise, employers by and large recognize that they cannot retaliate against employees who “oppose” unlawful discrimination or harassment. If an employee, for example, files a complaint alleging she has been discriminated against or harassed, the employer cannot retaliate against her for submitting the complaint and opposing the discrimination or harassment.

What if, however, the employee never gets to the point of actually submitting a complaint? What if, instead, the employee just says no to her sexually harassing supervisor? Is that enough to trigger protection under Title VII’s opposition clause?

Addressing this issue, the Sixth Circuit recently determined that an employee who made verbal demands to her supervisor to stop offensive conduct, but who never filed an actual complaint, was protected from retaliation under Title VII. That is, it may be enough for an employee to just say no or otherwise voice verbal opposition to the alleged harasser to stop the harassment.

The federal appellate court broadly read Title VII such that “a complaint to a harassing supervisor constitutes protected activity” and “a demand that a supervisor cease his/her harassing conduct constitutes protected activity covered by Title VII.” Although this ruling diverges from a 2004 determination by the Fifth Circuit, the federal appeals court reviewing federal cases filed in Texas, employers in Texas should nonetheless take note of the decision and prepare accordingly.

In addition to anti-harassment and discrimination policies, employers should have policies in place relating to making complaints and non-retaliation. And in all events, employers should be careful; retaliation claims may arise unexpectedly based on little more than an employee telling her supervisor to stop.

EEOC v. New Breed Logistics, No. 13-6250 (6th Cir., April 22, 2015)

Whistleblower Complaints Face Low Administrative Threshold for Full-Blown Investigation and Prosecution

In addition to its focus on worker safety, OSHA is the front-line agency under the Department of Labor responsible for investigation and enforcement of various whistleblower laws. For those whistleblower laws administered by OSHA, a case is initiated when an employee submits a complaint to OSHA alleging unlawful retaliation for blowing the whistle. OSHA is then charged with, first, assessing whether the complaint alleges a prima facie case of retaliation and, second, if so, investigating the complaint to determine whether it has merit.

Given OSHA’s important gatekeeper role in the administrative process, the standard it applies to determine whether a complaint has merit is significant to companies subject to whistleblower laws. On April 20, 2015, OSHA’s Acting Director of the Directorate of Whistleblower Protection Programs issued a memorandum entitled “Clarification of the Investigative Standard for OSHA Whistleblower Investigations.” This memorandum, issued to OSHA’s Regional Administrators and Whistleblower Program Managers, sets forth the investigative standard OSHA applies to its whistleblower investigations.

Companies subject to whistleblower laws administered by OSHA should note that “OSHA issues merit findings when there is reasonable cause to believe that a violation of the relevant whistleblower statute has occurred.” Importantly, as the memorandum explains, “the reasonable cause standard is somewhat lower than the preponderance of the evidence standard that applies following a hearing. The threshold OSHA must meet to find reasonable cause that a complaint has merit requires evidence in support of each element of a violation and consideration of the evidence provided by both sides during the investigation, but does not generally require as much evidence as would be required at trial. . . . OSHA must believe that a reasonable judge could rule in favor of the complainant.”

To obtain a merit finding, therefore, the employee need not prove that a violation did occur. Instead, she need only present sufficient evidence suggesting that a reasonable judge could conclude there was a violation. This relaxed standard may result in more merit findings, encouraging more employees to file whistleblower complaints and subjecting companies to increased scrutiny.

Clarification of the Investigative Standard for OSHA Whistleblower Investigations, OSHA Directorate of Whistleblower Protection Programs (April 20, 2015).

Even Calling the Boss a “Nasty Mother F**ker” May Not Warrant Termination

Section 7 of the National Labor Relations Act (NLRA) protects employees, among other things, from termination for engaging in concerted activity. All employees, union and non-union alike, have the right to engage in “concerted activities for the purpose of . . . mutual aid or protection.” Generally, activity is “concerted” if it is engaged in with or on the authority of other employees and it is “protected” if it concerns employees’ interests as employees. That is, employees working together to address things like work conditions, treatment, workload, hours, and pay would be protected.

In the age of social media, there has become increasing focus on the scope of “concerted activity” and employers’ ability to terminate or otherwise discipline employees for negative social media posts. Recently, the NLRB held in Pier Sixty, LLC and Hernan Perez and Evelyn Gonzalez that an employee’s offensive Facebook post about his boss was protected concerted activity under Section 7 of the NLRA. The employee, who was upset with his supervisor for treating he and his coworkers unfairly and in a demeaning manner, posted the following in his personal Facebook account after a negative interaction with his supervisor:

Bob is such a NASTY MOTHER FUCKER don’t know how to talk to people!!!!!!! Fuck his mother and his entire fucking family!!!! What a LOSER!!!! Vote YES for the UNION!!!!!!!

Coworkers, both current and former, commented on the post. The employee later deleted the post and comments after a previously-scheduled union election. The company, though, initially suspended the employee and ultimately terminated him for violating the company’s anti-harassment policy.

On review, the NLRB determined that the employee’s termination was unlawful. The latter portion of the post, specifically addressing the union vote, was clearly protected concerted activity. But even the obscene comments about his supervisor, according to the NLRB, constituted protected concerted activity. To arrive at that conclusion, the NLRB noted that the post was in response to perceived mistreatment and that mistreatment by management was one of the reasons behind the union organizing campaign and election.

Whether negative, or even vulgarity-laced, social media posts by employees constitute protected concerted activity under Section 7 will require case-by-case consideration. What remains clear, though, is that employers must carefully consider their responses to negative online postings.

Floyd R. Hartley, Jr.

Floyd is a well-respected trial lawyer who has spent his career litigating high-stakes business and employment disputes for small, midsize, and Fortune 100 companies in Texas and across the country. He was named a “Best Lawyer in Dallas” by D Magazine in 2017, a “Super Lawyer” for Civil Litigation: Defense from 2013-2017, and a “Rising Star” in 2012.

1-720-473-5938
fhartley@talawfirm.com
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