Can Employers Refuse to Hire Someone Because They Are Unemployed?

In this challenging economy, unemployed individuals are looking for any way to find suitable employment. However, in a recent article posted on AOL Jobs, employers across the country explained that they tend to stray away from hiring the unemployed citing reasons such as not knowing why an unemployed worker lost his or her job.  Even though employers may have a preference to avoid hiring the unemployed, the question arises, is it legal to discriminate against someone because they are unemployed?

There is no federal law prohibiting hiring decisions based on unemployed status. That being said, several states have recently taken it upon themselves to implement laws prohibiting this type of hiring discrimination, notably, the District of Columbia. In 2012, the District of Columbia passed a law which prohibits DC employers from failing or refusing to consider for employment, or failing or refusing to hire, an individual as an employee because of his or her unemployed status. DC employers should pay careful attention to this law as it essentially adds unemployed status as a protected category of discrimination. Presently, Virginia and Maryland do not have unemployed status as a protected category.

Though the federal discrimination laws have never applied to unemployed status, there is a movement through a new federal law that has been proposed to prohibit discrimination based on unemployment status nationwide. The proposed American Jobs Act would in essence provide the equally broad coverage of Title VII of the Civil Rights Act of 1964 to the unemployed. Essentially, if enacted, the American Jobs Act would prohibit unemployment discrimination in all facets of employment, notably hiring, to employers with 15 or more employees.

Congress has not yet approved this law; however, employers nationwide should pay careful attention to the proposed Act as it could significantly alter the hiring process.  Even if not passed, employers should be aware of the growing trend from state legislatures to pass state specific laws prohibiting this type of discrimination. It is glowingly apparent that the hiring process has received much greater legislative attention, likely due to the increased unemployment and fewer hiring opportunities. Employers should regularly consult with their attorney to ensure whether or not their state prohibits this type of discrimination and update their employee handbook and hiring practices to be compliant with state and federal law.

The author, Nick Johnson, is an Associate Attorney with the DC region business law firm of Berenzweig Leonard, LLP.  Nick can be reached at NJohnson@BerenzweigLaw.com.

Virginia Court Dissolution of $200 Million Dollar Business is Landmark Victory for Minority Shareholders

There is usually little or no secondary securities market on which to sell or buy close corporation stock, making investments in close corporations difficult to liquidate. Consequently, minority shareholders can find themselves in a vulnerable position. Many jurisdictions, including Virginia, have developed standards by which to identify minority shareholder oppression and afford mistreated shareholders a remedy. The Virginia Stock Corporation Act, however, allows for frequent deference to the business judgment rule, which protects directors from individual liability for decisions made on behalf of the corporation, and courts frequently rely on it in corporate litigation. Nonetheless, the recent decision in Colgate, et al v. The Disthene Group, Inc. demonstrates that at least in cases of extreme minority shareholder oppression, Virginia courts might be willing to limit the application of the business judgment rule and even order the “drastic” remedy of dissolution.

In Colgate, the Circuit Court held for plaintiff minority shareholders and ordered the dissolution of the Disthene Group, Inc., a $200 million dollar closely-held Virginia corporation which includes the Kyanite Mining Corporation, Blue Rock Resources LLC, and the Cavalier Hotel. Plaintiffs own 42% of the outstanding shares, Class B non-voting shares. Gene Dixon, Jr. and his son Guy Dixon (“Defendants”), own all of the Class A voting shares, and over 45% of the Class B non-voting shares, amounting to slightly fewer than 51% of the outstanding shares. The Court found that Defendants engaged in dividend suppression and unfair share redemptions, meanwhile paying themselves excessive compensation, favoring the interests of their immediate family members, and misusing corporate funds for non-business purposes. The Court rejected Defendants’ argument that their actions are protected by the business judgment rule, and found instead that the Board of Directors was rarely involved in decision making and that it “merely bent to Gene’s ironhanded will and rubberstamped his decisions.” It  reasoned that Defendants did not exercise their good faith business judgments in their dealings with the Plaintiffs and other minority shareholders, and were motivated by their personal best interests rather than those of the corporation.

While the Court recognized that dissolution is a “drastic” remedy, it found that it was necessary given that “the corporation is controlled by a domineering shareholder who is unlikely ever to treat the minority shareholders fairly" and the fact that the minority shareholders “are inherently disadvantaged” by their nonvoting, minority status in the company and have "no market for their shares should they decide to sell.” Pending the outcome of the appeal, this decision could mark a shift in the way Virginia courts approach the rights and protections of minority shareholders, and perhaps even encourage minority shareholder investment in Virginia companies.

The author, Sara Dajani is an Associate Attorney with the DC region business law firm of Berenzweig Leonard, LLP. She can be reached at SDajani@BerenzweigLaw.com.

Handling of Trade Secrets

Businesses often store proprietary information in automated systems, and it is much easier to pilfer proprietary information.  It can be done with a few keystrokes.  In a commendable burst of foresight, in 1986 Congress saw this problem looming on the horizon and enacted the Computer Fraud and Abuse Act (“CFAA”), 18 USC §1030.  The CFAA was designed principally to prevent outsiders from hacking into computer systems and not to prevent theft by employees.  However, depending on the circumstances, the CFAA can also cover theft by corporate employees.  The statue makes it a crime to intentionally access a computer “without authorization” or to “exceed authorized access” to obtain information on the computer.  The CFAA is a criminal law, and, although the general rule is that criminal laws do not create private causes of action, in the CFAA Congress expressly created a private cause of action, allowing a private party to obtain compensatory damages and injunctive relief.

Recently, the U.S. Court of Appeals for the 4th Circuit decided a case applying the CFAA in a civil action involving an employee’s alleged theft of trade secrets. WEC Carolina Energy Solutions, LLC v. Miller, et al., 4th Cir. No. 11-1201 (26 July 2012).  The defendant, Miller, was an employee of the plaintiff, WEC, and WEC authorized Miller to access WEC’s computers.  WEC alleged that Miller transferred the company’s trade secrets from the company’s computers to a competitor.  WEC alleged, inter alia, that Miller violated the CFAA.  The case presented the following issue: If a company authorizes an employee to access the company’s computers and to access the information on the computers, and if the employee, acting within the scope of his authorization, transfers information to a competitor, does the employee violate the CFAA?  The Court acknowledged that there are two conflicting decisions in other courts reaching opposite conclusions. Int’l Airport Ctrs., LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006); United States v. Nosal, 676 F.3d 854 (9th Cir. 2012)(en banc).  

In WEC, the Fourth Circuit Court focused on the “plain language of the statute, seeking first and foremost to implement congressional intent,” saying that the words of the statute should be given their ordinary, contemporary and common meaning.  The Court noted that because the statute has criminal penalties the Court must strictly construe the statue applying the so-called “rule of lenity,” rejecting interpretations not strictly warranted by the text.  The Court concluded that based on the ordinary and common meaning of “authorization,” an employee is authorized access to a computer when the employer approves his admission to that computer.  Thus, an employee accesses a computer without authorization only if he gains admission to that computer without the employer’s approval.  Similarly, the Court concluded that an employee “exceeds authorized access” when he has approval to access the computer, but uses his access to obtain or alter information that falls outside the bounds of his approved access.  For example, if the employee accesses files that are outside the scope of his authorization.  According to the Fourth Circuit, the CFAA does not reach the improper use of information validly accessed.  For example if the employer authorizes the employee to access the information, and the employee then improperly uses the information by transferring the information to a competitor, the employee has not violated the CFAA.

The WEC decision does not leave employers without remedies for the theft of trade secrets.  Employers can still sue for violation of state trade secrets laws, breach of fiduciary duty, and, depending on the facts, fraud.  However, in cases like the WEC case, employers cannot sue for violation of the CFAA.

Author John Polk is Special Counsel at the D.C. regional business law firm of Berenzweig Leonard, LLP.  He can be reached at jpolk@berenzweiglaw.com.

A License to Libel: Virginia Federal Court Extends Immunity under Communications Decency Act

Today, every business knows how important its online reputation is when it comes to attracting new customers.  With businesses becoming increasingly impacted by online review sites, many have taken to the courts in an effort to protect themselves against negative internet postings. One such advertising company, Directory Assistants, Inc. (DAI) sued its competitor, SuperMedia, LLC, two of its sales representatives, and a district sales manager, for allegedly emailing prospective customers with links to negative and allegedly defamatory postings about DAI on consumer websites, such as ripoffreport.com.

In its recent ruling, a Norfolk, Virginia federal court dismissed DAI’s case on the ground that the Communications Decency Act (CDA) shielded SuperMedia from liability. Section 230 of the CDA provides that “no provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” While many federal courts of appeal, including the Fourth Circuit, have held that the CDA creates broad federal immunity for internet service providers, this was the first Virginia federal case to extend immunity under the CDA to a third party “user” who finds and forwards content posted online. The Court recognized that Congress has granted “anonymous posters on these websites a license to libel people” and that such blanket immunity could have potentially catastrophic consequences for individuals and businesses alike, but concluded that “under the CDA, the Court’s hands are tied.”

Thus, unless Congress amends the CDA, business owners are limited to suits against individuals who actually wrote, created, or developed the allegedly defamatory content. As such, businesses should make every effort to take a proactive approach to improving their online reputation, survey their customers for reviews and honest feedback, and timely respond to any customer grievances.

Author Sara Dajani is an Associate Attorney with the D.C. regional business law firm of Berenzweig Leonard, LLP.  She can be reached at sdajani@berenzweiglaw.com.

Employee’s Access of Company Computers Was Not Unauthorized

In the case of WEC Carolina Energy Solutions LLC v. Miller, employee Miller had access to his employer WEC’s computer files.  Miller accessed WEC’s files using his valid log-in rights, but then downloaded information in order to help another company compete against WEC.  WEC found out what Miller did and sued him for, among other claims, violation of the federal Computer Fraud and Abuse Act (CFAA).

The CFAA is often invoked by companies to sue employees who steal confidential information for use by competitors.  The law applies when someone accesses a computer without authorization, or when someone exceeds the level of authorized access to a computer.  So a big question faced by appellate courts in recent years is whether it is a violation of the CFAA if an employee uses his valid access to his employer’s computer files to download confidential information in order to compete against the company.

There is a split among the nation’s federal appellate courts on this issue, with some jurisdictions such as the 7th Circuit saying the above case is a violation of the CFAA because the access by the employee is being done to the company’s detriment, and therefore by definition is not authorized by the company.  But Miller’s case arose in the 4th Circuit, which covers Virginia, Maryland, West Virginia and the Carolinas.  The 4th Circuit opined that Miller did not violate the CFAA because he had valid log-in rights to WEC’s computer system at the time he logged on to download the confidential information.  According to the court, WEC has other tort claims it can bring against Miller, just not a claim under the CFAA.

Given the split among the federal appellate courts on this issue, it is likely to end up before the United States Supreme Court for final resolution, so stay tuned.

Declan Leonard is managing partner of Washington, DC business law firm Berenzweig Leonard, LLP.  He can be reached at DLeonard@BerenzweigLaw.com.

Courts start considering injuries caused while texting

Can businesses be exposed to liability just because their employees are texting while driving, even during lunch or on their way home at night?  In view of recent trends reflected in various parts of the United States, the answer is arguably yes. 

A couple of years ago, a Virginia court upheld an injured parties’ right to sue a law firm when its employee was distracted while driving home, because she was talking on her cell phone and badly injured a pedestrian.   The court ruled that the driver was negligent while arguably acting ‘in the scope’ of her employment, because she was discussing company business while on the call.  More recently, a New York court indicated that it would permit a lawsuit to go forward against a driver’s girlfriend who texted and allegedly distracted him, resulting in his car hitting people on a nearby motorcycle and causing serious injury.  This scenario is particularly troubling, because she was not even in the car and may not have known that he was driving at the moment that she sent him the text.  He read her text and then swerved into the other lane, resulting in the accident.

Companies should implement internal policies making it clear that employees should not use their cell phone, for any business purpose, while driving.  That will not only head off possible accidents caused by distracted driving, but could help insulate the company by establishing that someone is not properly acting within the scope of their job if they text while driving.  While no steps are totally foolproof, establishing clear HR policies at the workplace can represent an important and helpful step to help employers avoid liability.