Today’s New York Times carries a very interesting column by Steven M. Davidoff, a professor at the University of Connecticut School of Law, on the contrast between how publicly-held and privately-held companies treat requests for indemnification from errant executives.

Indemnification requires an employer to pay any damages awarded against an executive (and usually cover his legal fees as well) who has been found to have engaged in wrongdoing.  Prof. Davidoff points out that public companies almost always offer very broad indemnification rights to their executives, while private companies are much more reluctant to do so.  His thesis is that executives of public companies do not directly bear the cost of indemnifying their errant brethren- the shareholders do – so it is easy for them to use company funds to pay legal judgments.   Moreover, these executives do not want to deny indemnification to a predecessor when they themselves may need such consideration in the future.  By contrast, privately-held companies have no shareholders to bear the cost; therefore, its executives, who are also its owners,  will deny such requests in order to protect their own bottom line.   The result:  wrong-doers in public companies walk away whole, while those in private firms end up paying out of their own pocket.

What Prof. Davidoff does not mention is that in many states, including Minnesota, employers are required to indemnify their employees for employment-related damages, penalties or fines unless there is proof that the employee was guilty of “intentional misconduct, willful neglect of the duties of the employee’s position, or bad faith”.   Some Minnesota corporations have an even broader obligation, including having to advance legal fees to the employee while the matter is still pending. 

Prof. Davidoff is correct in urging companies to limit their willingness to absolve executive wrongdoers, but companies must also consider whether state law permits them to do so.

I thought this article by Joe Nocera from Saturday’s New York Times on the Mark Hurd/Hewlett Packard fiasco was really interesting.    As you will recall, Hurd was the CEO of HP before he was fired for fudging his expense reports in order to hide his relationship with Jodie Fisher, a former soft-core porn actress turned reality-show contestant turned corporate greeter.   (Nocera has more background on this here.)  The day after cashing the $12.2 million severance package from HP, he joined his buddy Larry Ellison at Oracle, an HP competitor.  Naturally, HP was forced to sue to try to prevent Hurd from accepting the post.  After identifying several of the HP board members (including a former CFO of Medtronic), Nocera suggests:  “You’d think that these guys would know how to negotiate an airtight exit deal with a departing CEO.  Apparently not.”

Why, you might ask, didn’t HP make Hurd sign a noncompetition agreement before paying him all that money to punish him for his unethical conduct?  Unfortunately for HP, California prohibits the use of noncompetition agreements.   That means HP’s only basis for keeping Hurd from joining its competitor is the “inevitable disclosure” doctrine:  HP must show that Hurd will inevitably  disclose its trade secrets in his new role at Oracle.  That’s probably true, but a risky legal strategy.  (Of course, it allows Nocera this gem:  “The central contention in the HP lawsuit – that Mr. Hurd will inevitably use his inside knowledge of HP’s hardware business to help his new employer – strikes me as quite plausible.  How can he not?  He’s spent the last five years eating, drinking and sleeping HP  (Well, except when he was eating and drinking with Ms. Fisher.)”)

Nocera’s article questions why the HP board didn’t do a better job of preventing this from happening.  “Most boards in California know how to keep [a departing CEO from joining a competitor], despite their inability to lock up an executive with a noncompete agreement.  Maybe those boards don’t hand the departing executive $12.2 million 30 days after the executive leaves.  Maybe they don’t allow options to vest immediately. There are other ways as well to create a situation where an executive loses something of value if he goes to a competitor before a certain amount of time has passed.”

Nocera is, of course, correct.  The HP board clearly dropped the ball.  First, it should never have rewarded Hurd with such a generous severance package.  Second, it should never have permitted him to go to a competitor.  Even in California, the only state (besides North Dakota) that does not permit the use of noncompetition agreements, a creative board of directors could have found a way to prevent its top guy from taking his knowledge across the street to one of its competitors.  I wonder how many shareholder suits have already been filed against HP?

One issue that makes employers very nervous is dealing with employees who have problems with alcohol.  A new decision by a federal district court judge in St. Paul will help to clarify an employer’s obligations.   

The plaintiff in the case, Buzzard v. Dakota, Minnesota and Eastern Railroad Company,  has a long history of chronic alcoholism, much of which he disclosed when hired in 2006.  Several months after beginning with the railroad, however, Buzzard relapsed and ended up in the hospital with alcohol poisoning.   After his release, he was referred to a substance abuse professional at Lutheran Social Services to “ensure treatment compliance”, and Buzzard agreed to an “EAP Agreement” that required him to take various treatment-related steps.  Significantly, the railroad played no role in these events.   

As a result of his signing the EAP Agreement, the railroad allowed Buzzard to return to work subject to the condition that it could conduct random drug and alcohol testing.  Buzzard also signed a return-to-work agreement, which implemented the EAP Agreement, and he understood that he would be subject to termination if he violated any of the conditions in the EAP Agreement. 

Three days after his return, Buzzard relapsed again. Although Buzzard’s use of alcohol had violated his EAP and return-to-work agreements, DM&E provided him with short-term disability benefits and did not terminate him.  Buzzard returned to in-patient treatment.  A month later, he was arrested for driving under the influence and sent to a detox facility.   Several weeks later, the railroad learned that Buzzard had had no contact with the EAP provider or the SAP.  It advised him that in order for him to return to work, it  needed written confirmation that he was attending counseling sessions.   Buzzard did not, however, contact his counselor.  Because his failure to do so violated the return-to-work agreement, DM&E terminated Buzzard’s employment.   Buzzard then sued, alleging disability discrimination. 

The Court dismissed Buzzard’s case at the summary judgment stage on several different grounds.  First, it found that Buzzard’s impairment did not meet the ADA’s definition of a disability because he failed to show that he was unable to perform a major life activity that the average person in the general population can perform.  Buzzard argued that the “limitations” he suffered during his relapses of alcoholism (which involved his diet and hygiene) showed that he was unable to perform major life activities.  The Court, however, rejected this argument, finding that there was no evidence that Buzzard’s relapses restrict his diet and hygiene habits so severely that his ability to care for himself was significantly below that of the average person.  It also quoted an earlier decision that “temporary afflictions,” including “the effects of . . . alcoholism-induced inebriation,” do not qualify as disabilities. 

Buzzard next argued that even if he did not actually have a disability, he could still recover because the railroad “regarded” him as being disabled by requiring him to participate in the EAP program. .   (This provision “is intended to combat the effects of archaic attitudes, erroneous perceptions, and myths that work to the disadvantage of persons with or regarded as having disabilities.”)    In support of this argument, Buzzard relied on a 1997 case called Miner v. Cargill Communications, which found that an employer’s insistence that an employee who had missed a day of work because of her drinking the night before choose between entering an alcohol treatment program and being fired showed that it “regarded” her as an alcoholic.    In Miner, however, the employee had never admitted to being an alcoholic, and had never voluntarily agreed to seek treatment for alcoholism. Here, of course, Buzzard had been diagnosed with alcoholism and had attended AA meetings.  Thus, DM&E’s referral of Buzzard to treatment was based on actual evidence that Buzzard was an alcoholic, not on stereotypes or myths. 

Finally, the Court dismissed Buzzard’s claim because there was no evidence that the railroad fired him because he is an alcoholic.   As the Court found, terminating an employee who violates a voluntary return-to-work agreement is not unlawful under the ADA.  Such agreements are not discriminatory, especially when they are supported by valuable consideration – i.e., that the employee will not be terminated.  Buzzard’s return-to-work agreement was supported by valuable consideration, because it guaranteed that he would keep his position at DM&E as long as he met the conditions of the agreement.

While still a difficult area of the law, this case provides some helpful insight into how to handle employees with alcohol problems.  First, employers must base all decisions on objective information, not stereotypes or assumptions.  Second, employers should never compel an employee to seek treatment, but should make EAP and other options available.  Third, employers should spell out any conditions for retaining employment in writing.  Fourth, the employer should be able to show the various ways in which it did try to accommodate the employee.   Finally, employers who are forced to terminate an employee after she violates a return-to-work agreement or similar conditions should feel confident that the termination is lawful.

One of the form letters provided by UHG makes the controversial claim that  ”government-run health care will result in millions of Americans not being able to keep their current coverage and will lead to unintended consequences of higher premiums and less choice.”

A few commentators have suggested that UHG crossed a line: “Writing to employees on where they stand is probably common historically and part of corporate culture,” said Judy Dugan, research director at Consumer Watchdog. “Going so far as to send out form letters is crossing a line in terms of putting political pressure on your employees.” UnitedHealth has emphasized that participation is voluntary.

From a legal point of view,  UHG is certainly free to ask its employees to support the company’s position on proposed legislation as  employees of private employers have no first amendment right of free speech at work.  In most states, in fact, UHG could even fire those employees who refused to do so.  (New York is one of the few states that protects employees who express political positions outside of work.)  I’m not sure, however, that UHG wants to run the risk of alienating those employees who oppose the company’s position and support a public option.

As reported in the Minneapolis Star-Tribune, there is a very interesting sideshow developing in the bankruptcy case of former auto mogul Denny Hecker: his attorneys are demanding that one of his creditors,  Chrysler Financial, return thousands of internal documents that Hecker alleges were stolen in 2008 by his former executive assistant, Cindy Bowser.  Chrysler Financial, owed nearly $400 million by Hecker, sued Hecker in July, alleging fraud and forgery over loan documents he submitted to obtain Hyundai vehicles.

Bowser apparently copied the emails and documents onto a flash drive while she was still employed by Hecker, and kept them after her employment ended.  She ultimately turned them over to Chrysler in response to a suboena that she received.  Hecker’s lawyer is arguing that Bowser had no right to the emails and likely violated the Stored Communications Act and the Computer Fraud and Abuse Act.

Hecker’s motion also requests that the court disqualify Chrysler Financial’s attorneys at Gray Plant Mooty Mooty & Bennett “based on their conduct in refusing to return stolen e-mail communications and documents” and failing to protect privileged information. Chrysler Financial received Bowser’s electronic documents last month as a result of a subpoena to Ms. Bowser.

Chrysler’s attorneys have argued that Bowser did not steal any documents because she was e-mailed directly on all correspondence to Hecker.  They also complained that Hecker’s attorney was immediately sent copies of Bowser’s e-mails, but  Hecker’s legal team never claimed that they were privileged.  They also sent a letter to one of Hecker’s former attorneys warning that unless he took steps in court to quash the trustee’s subpoena, Chrysler Financial would be forced to turn over the materials.

I obviously don’t have all the facts here, but at first glance it is hard for me to see what right Ms. Bowser had to remove and keep work-related documents after her employment ended.  On the other hand, it doesn’t look like the lawyers at Gray Plant did anything wrong.

Hat Tip: Seth Leventhal

My session will feature videos and audience participation.  Topics will include dealing with clients who lie, and collecting fees.  Since my clients never lie and always pay, I guess I’ll just have to make stuff up!  (Is that ethical?)