Monthly Archives: December 2014

An Epic Heist: Nike Trade Secrets and Breach of Non-Compete

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Nike has sued three former employees who left to work for Adidas. The company is suing for breach of contract, theft of trade secrets, fraud, conspiracy and more. In the Complaint, Nike details fairly shocking allegations against the defendants who launched a plot to leave the Company, steal numerous Nike plans and products and then parlay that into lucrative new careers at Adidas.

The three employees all have a relatively long tenure at Nike. Two of the defendants have worked at Nike for 9 years. The remaining defendant has worked there for 6. Their collective experience covers soccer, football, basketball, cross-training, women’s apparel, running. All three of them climbed the corporate ladder. It is unsurprising that the defendants signed agreements that contained non-compete and non-disclosure provisions. Those provisions themselves were quite reasonable: a one-year non-compete, a one-year non-solicitation and a two-year non-disclosure.

During their years at Nike, all three of these individuals exemplified a great deal of talent and intellect—which explains them reaching such high-level positions within such a major corporation. But greed and arrogance can quickly cancel out other positive qualities like talent and intellect. In April 2014, the defendants began executing the plan for their departure from Nike.

Noteworthy is the fact that defendants launched this plan while still working for Nike. In May 2014, after one of the defendants had a visa issue, Nike paid more than $50,000 to relocate him and his family to Italy, on the understanding that one of the defendants would remain employed with the Company long-term. Upon securing Nike’s commitment to fund his relocation to Italy, the defendants allegedly discussed how the move to Italy would serve their scheme well because Italy was one of those “countries where [Nike’s] non-compete is difficult to enforce.”

While still at Nike, the defendants signed lucrative deals with Adidas. Shortly after resigning from Nike, the defendants began a sloppy attempt to steal as much Nike information as possible and then destroy any evidence.  One defendant copied all of his laptop’s contents onto an external hard drive, then damaged the laptop to a point he thought would render it inoperable and shipped it back to Nike. The defendant sent an email to his personal email address containing a zip file with design drawings for an unreleased shoe tied to a prominent, Nike-sponsored athlete. Unlike in most such instances, where the plaintiff offers vague assertions about confidential information and trade secrets, the materials at issue in this case are certainly confidential and  trade secrets. Between their collective efforts, the Defendants walked away from Nike with a treasure trove of information, including:

  • High-level strategic development plans for the next 3 to 4 years. These plans included proposed and prospective product offerings and the timing of releases.
  • Unreleased product design materials for the next 2 to 3 years. This included models, sketches and designs for soccer footwear and other soccer related products (e.g. team uniforms). These design plans included very detailed information on fabrics, cuts, colors, manufacturing and more.
  • Financial data including both a historical breakdown of all Nike footwear sales by product for the past year and a forward looking projection of growth my product for the next twelve to eighteen months.
  • Documents regarding Nike’s product marketing strategies including documents on product promotions, in-store presentations, pr campaigns, product launches, plans for specific sponsored athletes and plans for specific Nike-sponsored sports teams.

Nike is suing the defendants for every claim imaginable, and rightfully so. Turns out, Nike was, rather obviously, able to retain enough electronically stored data to present a very compelling Complaint. In many cases, especially many non-compete and trade secret cases, there is another side to the story. In many cases, the Complaint talks vaguely about wrongful conduct, confidential information and trade secrets, but never really gives specifics. Here, Nike’s complaint is filled with specific, credible and highly damaging allegations. There is unlikely to be anything the Defendants can say that would mitigate their liabilities.

WAITING TO WORK OR WAITING TO LEAVE: PAID TIME? SUPREME COURT DECIDES

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The U.S. Supreme Court has ruled that employees who wait on a security line before leaving the worksite to go home is not compensable or paid time under the Fair Labor Standards Act (FLSA). Please refer to our blog post on 10.21.14 for how this case came about. Basically, contracted employees before leaving an Amazon warehouse are required to go through security screenings. They sought overtime compensation for the time spent. The unanimous decision was in favor of the employer.

When Congress enacted the FLSA, it purposefully left vague a number of provisions. As a result, a floodgate of litigation ensued as employees wanted to be paid for walking to and from job sites. More than $6 billion in payouts in 1940s dollars were paid, almost bankrupting several industries. As a result, congress passed and emergency law, the Portal to Portal Act that exempted travel to or from work. It also exempted from overtime pay “activities which are preliminary [before work begins] to or postliminary [after work ends] to said principal activities.”

The key in deciding whether a particular activity is exempt is determining whether it is “integral and indispensable” to the main work performed.

Thus, battery-plant workers’ showers after work have been held to be integral to their work duties because the chemicals were toxic and changing clothes and showering were indispensable to the principal work done. Similarly, meat packers sharpening their knives was compensable time, as dull knives are dangerous and wastes product. The Department of Labor (DOL) has issued regulations exempting checking in and out from work and waiting in line to do so. The situation presented in this case fell into that category, and was therefore found not to be compensable time.

Justice  Sotomayor, with whom Justice Kagan joined, wrote a concurring opinion which summarized the Court’s findings:

“The Court reaches two critical conclusions. First, the Court confirms that compensable ” ‘principal’ ” activities ” ‘includ[e] . . . those closely related activities which are indispensable to [a principal activity’s] performance,’ ” ante, at 6 (quoting 29 CFR §790.8(c)(2013)), and holds that the required security screenings here were not “integral and indispensable” to another principal activity the employees were employed to perform, ante, at 7. I agree. As both Department of Labor regulations and our precedent make clear, an activity is “indispensable” to another, principal activity only when an employee could not dispense with it without impairing his ability to perform the principal activity safely and effectively. Thus, although a battery plant worker might, for example, perform his principal activities without donning proper protective gear, he could not do so safely, see Steiner v. Mitchell, 350 U. S. 247, 250-253 (1956); likewise, a butcher might be able to cut meat without having sharpened his knives, but he could not do so effectively, see Mitchell v. King Packing Co., 350 U. S. 260, 262-263 (1956); accord, 29 CFR §790.8(c). Here, by contrast, the security screenings were not “integral and indispensable” to the employees’ other principal activities in this sense. The screenings may, as the Ninth Circuit observed below, have been in some way related to the work that the employees performed in the warehouse, see 713 F. 3d 525, 531 (2013), but the employees could skip the screenings altogether without the safety or effectiveness of their principal activities being substantially impaired, see ante, at 7.

Second, the Court holds also that the screenings were not themselves ” ‘principal . . . activities’ ” the employees were ” ’employed to perform.’ ” Ibid. (quoting 29 U. S. C. §254(a)(1)). On this point, I understand the Court’s analysis to turn on its conclusion that undergoing security screenings was not itself work of consequence that the employees performed for their employer. See ante, at 7. Again, I agree. As the statute’s use of the words “preliminary” and “postliminary” suggests, §254(a)(2), and as our precedents make clear, the Portal-to-Portal Act of 1947 is primarily concerned with defining the beginning and end of the workday. See IBP, Inc. v. Alvarez, 546 U. S. 21, 34-37 (2005). It distinguishes between activities that are essentially part of the ingress and egress process, on the one hand, and activities that constitute the actual “work of consequence performed for an employer,” on the other hand. 29 CFR §790.8(a); see also ibid. (clarifying that a principal activity need not predominate over other activities, and that an employee could be employed to perform multiple principal activities). The security screenings at issue here fall on the “preliminary . . . or postliminary” side of this line. 29 U. S. C. §254(a)(2). The searches were part of the process by which the employees egressed their place of work, akin to checking in and out and waiting in line to do so–activities that Congress clearly deemed to be preliminary or postlimininary. See S. Rep. No. 48, 80th Cong., 1st Sess., 47 (1947); 29 CFR §790.7(g). Indeed, as the Court observes, the Department of Labor reached the very same conclusion regarding similar security screenings shortly after the Portal-to-Portal Act was adopted, see ante, at 7-8, and we owe deference to that determination, see Christensen v. Harris County, 529 U. S. 576, 587 (2000).”

There remain many issues still undefined in the workplace regarding whether a particular activity is exempt or not. The courts and DOL will continue to refine the parameters of exempt and non-exempt time as specific situations occur. 

Should you have wage and hour questions or other workplace issues, please contact the Gilbert Law Group at 631. 630.0100.

Pregnancy Discrimination Takes Center Stage at Supreme Court

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The Supreme Court will decide whether UPS violated the Pregnancy Discrimination Act (PDA) when it refused to provide a temporary light duty assignment to Peggy Young when she was pregnant 7 years ago before giving birth to her daughter, Triniti. The assignment would have allowed Young to work but avoid lifting heavy packages, as her physician had ordered. The issue is whether UPS violated the law by its policy of providing temporary light duty only to employees who had on-the-job injuries, were disabled under the Americans with Disabilities Act, or lost their federal driver certification.

It is well-settled that drawing a distinction between pregnant and nonpregnant employees in the workplace is generally unlawful, unless there is a legitimate business reason to justify the distinction. In 1978, Congress passed the PDA in response to the Supreme Court ruling that workplace rules that excluded pregnant workers from disability benefits and insurance coverage were not sex discrimination under Title VII of the Civil Rights Act of 1964. In this case UPS argues that unless Young can show that it intentionally discriminated against her, she has no case. Young contends that UPS “told me basically to go home and come back when I was no longer pregnant.” Young is now 42 and it has taken 7 years to get before the Court.

The Obama administration and 120 Democrats in Congress have submitted a brief supporting Young’s position. Moreover, the EEOC has updated guidance to employers to clarify that they should accommodate workers like Young. Likewise, UPS has since changed its policy so that pregnant employees are eligible for the light duty assignment.

Nonetheless, the Court’s decision is expected to have far-reaching impact in workforces across the nation as 75% of women entering the workforce today will become pregnant at least once while employed, and many will be forced to work throughout their pregnancies, or face possible termination during their pregnancies or upon their return. Stay tuned for the decision.

For workplace issues, such as pregnancy, sex discrimination, light duty or leave policies, contact the Gilbert Law Group at 631.630.0100.