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It’s year’s end — time for summing up, taking stock, looking back. So here is our take on the five most significant work matters developments of 2004, and what they will mean to general counsel in 2005. Development No. 1: Tort reform. Yes, tort reform. We’ve now had a full year to look at the effects of House Bill 4, and they are devastating for medical-malpractice and personal-injury lawyers. We recently spoke at the State Bar of Texas 2004 Advanced Personal Injury Course. At all three locations, audience members were asked to raise their hands if they filed a suit before H.B. 4, and then raise their hands if they filed one after H.B. 4. Akin to the late comedian Fred Allen’s wisecrack on sincerity in Hollywood, you could fit the number of people who raised their hands to say they’d filed suits after H.B. 4 in the navel of a firefly and still have enough room left over for three caraway seeds and a producer’s heart. All this legal talent and energy is going to go looking for a new paycheck, and it is going to be employment law. And where lawyers go, suits follow. General counsel should brace for more claims, filed by less experienced employment lawyers, taking up more of their valuable time. But a word of warning: PI lawyers know that it’s anger, not sympathy, that results in large jury awards. Development No. 2: SOX, front and center. As of late summer 2004, only 300 or so whistleblowers have filed Sarbanes-Oxley Corporate Fraud and Accountability Act of 2002 (SOX) claims. Considering the number of public companies, this is a pittance, but just wait. There is a growth spurt coming. So let’s take a minute and play a SOX version of “Where’s Waldo?” with help from Judy Collins and her former employer, Beazer Homes, as recounted in the 2004 decision in Collins v. Beazer Homes USA Inc. and Beazer Homes Corp. from the U.S. District Court for the Northern District of Georgia in Atlanta. Can you spot the protected SOX activity? Collins went to work for Beazer as the director of marketing, lasting only from May 2002 through August 2002, with her tenure best characterized, with apologies to the late author John Steinbeck, as the summer of her discontent. According to the opinion, she complained, loudly and often, about: her manager (didn’t care for his management style); implementing marketing changes she wanted (different creative visions); whether marketing costs were not being properly categorized (column A instead of column B); and her manager’s favoritism toward certain employees (they were being overpaid). After a while, her constant buzzing was all white noise to Beazer. Things spiraled downward, starting with surreptitious tape recordings and a four-page e-mail memo (we bet $5 it was single-spaced) to the chief executive officer alleging “cover ups/corruption” (kickbacks from the ad agency to her boss for using the agency), and ending with frank discussions resulting in her termination for being unable to work with others, according to the opinion. Out of this welter of activity, the court concluded she engaged in activity protected by SOX, and bestowed the whistle-blower mantel upon her. How did a law enacted because of Fortune 500 corporate pirating, large-scale stock manipulation and the loss of billions of dollars get tangled up with a petty, nickel-and-dime dispute allegedly caused because of personality conflicts, management arguments and employee favoritism? It’s pretty simple. SOX prohibits retaliation against anyone complaining about violations of, among other things, “any rule or regulation of the Securities and Exchange Commission.” Section 13 of the Securities Exchange Act of 1934 (one of many rules and regulations) requires companies to “devise and maintain a system of internal accounting controls,” and further states “no person shall knowingly circumvent or knowingly fail to implement a system of internal accounting controls.” Because Collins’ complaints touched upon internal accounting controls, she engaged in protected activity, and she is SOX-protected. In essence, 2004 saw the start of a long road toward an expansive interpretation of SOX’s whistleblower protection, which will pick up steam in 2005 with lots of issues, including whether corporate counsel can claim SOX whistleblower status. DECISIONS, DECISIONS Development No. 3: Arbitration hits its high-water mark. Let’s visit a different universe, in a different time, far, far away (well, at least 1985 or so): runaway juries, enormous verdicts, unprincipled courts, mounting legal costs, long sideburns, wide ties and big lapels. In these circumstances, mandatory arbitration of employment claims takes hold, spreading through corporate America as the new risk management tool. Yet, times change. Now, we have appellate courts increasingly policing excessive verdicts, upholding liability findings but knocking out punitive damage awards, and reining in the absurd. The legislators helped with statutory damage caps. The 5th U.S. Circuit Court of Appeals cropped back on the grounds for vacating an arbitration award in Brabham v. A.G. Edwards & Sons Inc. (2004), in which it severely circumscribed an already severely circumscribed area: an appellate’s court ability to set aside an arbitrator’s award. After Brabham, courts are no longer able to set aside awards if they are “arbitrary and capricious” or if they fail to draw their essence from the agreement at issue. And, our experiences with arbitrators show that a jury of one can be just as unpredictable as a jury of 12. All of which makes arbitration of employment disputes a less compelling proposition to enter into. And even if you’ve lost the sideburns and lapels, but kept the arbitration agreements, watch out. Texas courts are starting to invalidate them as being substantively unconscionable. Look at the September 2004 decision out of the 1st Court of Appeals in Houston, In Re: Johnny Luna. The court found that the arbitration agreement provisions requiring the splitting of arbitration costs, the truncating of damages allowable in a court proceeding and discovery provisions favoring the employer all added up to substantive unconscionability and an invalid arbitration agreement. Arbitration is looking less desirable as 2004 ends. Development No. 4: Covenants not to compete. If there is one area of the law that drives corporate counsel nuts in whatever year, this is it, and 2004 was no exception. Businesses need certainty, predictability and consistency. Texas courts hit zero for three on these, instead giving them confusion, conflicts and conundrums. This year, in Trilogy Software Inc. v. Callidus Software Inc., Austin’s 3rd Court of Appeals said covenants only are valid if confidential information was given to the employee simultaneously with his signature on the noncompete. Giving the information on the heels of signing his name, as soon as possible afterward, or soon thereafter just doesn’t cut it. But look at the 9th Court of Appeals in Beaumont, which chimed in this year in Dan Wright and Riddell Inc. v. Sports Supply Group Inc., saying that’s silly, and holding it’s sufficient consideration to give the information, no matter when. To make it all the more difficult, the 5th Circuit sides with Austin, not Beaumont. Throw into the mix whether covenants are valid if an employee signs one after becoming employed: Must there be new consideration or is the old consideration sufficient? The 3rd Court in Alex Sheshunof Management Services LP v. Johnson said new consideration. But, to borrow a phrase from former vice presidential candidate and U.S. Sen. John Edwards, D-N.C., “Hope is on the way,” or at least we hope so. On Sept. 10, the Texas Supreme Court granted a writ in Sheshunof and held oral arguments on Nov. 10. It looks as if the high court finally will resolve what it takes to have a valid covenant not to compete, whether the employee works in the piney woods, the Hill Country or under the Marfa lights. Of course, that’s what we thought when the Texas Supreme Court decided Light v. Centel Cellular Co. of Texas in 1994, and what followed was 10 years of being lost in the legal wilderness. Development No. 5: 1981, rediscovered. Section 1981 of the Civil Rights Act of 1866 got a good dusting off in 2004. Section 1981 prohibits discrimination based upon race or ethnicity. And ethnicity is broadly defined as evidenced by the 2004 opinion of the U.S. District Court for the Southern District of New York, Franchitti v. Bloomberg L.P., which found that being French is an ethnicity unto itself, deserving of 1981 protections. Section 1981 provides for the typical remedies, but there are no damage caps, no requirement that an employee exhaust administrative U.S. Equal Employment Opportunity Commission remedies before suing, and no exemptions from personal liability for managers and executives. Add in the U.S. Supreme Court’s opinion in Jones v. R.R. Donnelley & Sons Co. (2004), holding that 1981 claims have a four-year statute of limitation, and we’re talking about having lots of work for those personal-injury lawyers. In 2004, the 5th Circuit in Ware v. Cleco Power LLC put the cherry on the banana split, saying that employees could use 1981 to sue for retaliation. There, employee Ware, a white man, complained that a “black coalition” of supervisors ran the company, giving preference to black employees over white employees, according to the opinion. He alleged he was fired for this opinion, and the 5th Circuit said that 1981 lets him do just that, sue for retaliation. That’s it. Our top five work matters developments for 2004, and some thoughts on what they mean for 2005. However one slices and dices them, or adds them up, the inevitable outcome is more work matters issues for the GC’s office. Michael P. Maslanka, [email protected], is co-chairman of the labor and employment section at Godwin Gruber in Dallas. Maslanka writes the Texas Employment Law Letter and Texas Workers’ Comp Reporter, which can be viewed at HRhero.com. Burton D. Brillhart is a partner in the firm.

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