Labor Law

Raven Akram, Esquire

Employees not restricted from soliciting customers they did not deal with during their employment; employer did not have protectable interest in prospective customers. Whelan Security Co. v. Kennebrew, Sr., et al, No. 92291 (Mo. banc, August 14, 2012), McShane, M.B.

Whelan Security Company provides security guard services nationwide. Charles Kennebrew and W. Landon Morgan were former employees of  Whelan. Kennebrew was director of quality assurance for Whelan’s Dallas, Texas office; Morgan was manager of the Nashville, Tennessee branch. Both Mr. Kennebrew and Mr. Morgan signed employment contracts containing non-compete and employee non-solicitation provisions.

The restrictive covenants prohibited the former employees from soliciting Whelan’s existing or prospective customers for a period of two years. They were also prohibited from soliciting the company’s employees; Mr. Morgan for one year, Mr. Kennebrew for two years. Mr. Kennebrew was also prohibited from working for a competing business within a 50 mile radius of any location where he provided services for Whelan. 

Kennebrew resigned from the company and started his own security company. Morgan resigned from Whelan and joined Kennebrew’s company shortly thereafter. After Kennebrew’s company solicited one of Whelan’s customers, which terminated its relationship with Whelan, Whelan filed suit against Kennebrew and Morgan for violating the terms of their employment contracts. The trial court granted summary judgment in favor of Kennebrew and Morgan, finding that the employment agreements, as written, were overbroad, not reasonable as to time and space, and therefore, invalid. Whelan appealed.

Held:  Reversed and Remanded.
The law of non-compete agreements in Missouri seeks to balance the competing concerns between an employer and employee in the workforce. A non-compete agreement is reasonable only if it is not more restrictive than necessary to protect the legitimate interests of the employer. An employer has a legitimate interest in customer contacts to the extent it seeks to protect against the influence an employee acquires over his employer’s customers through personal contact. A customer is one who repeatedly has business dealings with a particular tradesman or business. An employee’s ability to influence the customers depends on the quality, frequency, and duration of an employee’s exposure to an employer’s customers. The Supreme Court found Whelan’s non-solicitation prohibitions were overbroad because they prohibited contact with any customer of Whelan, regardless of whether Kennebrew or Morgan knew it was Whelan’s customer or previously dealt with that customer. The Court modified the customer non-solicitation clause to eliminate the provision prohibiting Kennebrew and Morgan from soliciting existing Whelan customers, except those customers with whom Kennebrew and Morgan dealt with during their respective employment.   

The Court also found the non-solicitation clauses for prospective customers reached beyond what was necessary to protect Whelan’s legitimate interests in customer contacts. Courts enforce non-compete agreements to the extent they protect the employer from unfair competition, not from all competition by a former employee. Whelan’s non-solicitation clause broadly restricted all solicitation of Whelan’s prospective customers, regardless of how tenuous the relationship was between Whelan and the business or how detached the former employees were from Whelan’s solicitation of the prospective customer.  Accordingly, the Court found Whelan’s provision restricting solicitation of prospective customers overbroad and eliminated the prohibition from the agreement altogether.

With regard to the employee non-solicitation provisions, the Court found the clauses were enforceable. The plain language of Missouri Statute provides that an employee non-solicitation covenant is conclusively presumed reasonable when its duration is for a year or less following the employee’s employment. If the prohibition is over one year, its purpose must be to protect the employer’s interests in its confidential or trade secret information, relationships with customers or suppliers, the company’s goodwill, or company loyalty. Accordingly, the Court found the one year restriction in Morgan’s agreement per se reasonable and enforceable. The Court reversed and remanded the trial court’s ruling to determine the purpose of the employee non-solicitation clause in Kennebrew’s contract.

The Court also found that the restriction on Kennebrew from working within a 50 mile radius of any location where he provided services for Whelan to be enforceable. Considerable precedent in Missouri supports the reasonableness of a two-year non-compete agreement that is limited to 50 miles from where the services were rendered by the employee. Therefore, the clause was reasonable. The question on remand was whether or not Kennebrew provided services in Houston while employed in Whelan’s Dallas office.

Hearing impaired employee able to perform the essential functions of her job with self-accommodations, including the reliance on employer’s staff. Missouri Veterans Home, et. al v. Brown, No. 74289 (Mo. App. W.D., July 17, 2012), Martin, J.

Verna Brown was employed by the Missouri Veterans Home (MVH) as a full time registered nurse beginning in December 2003. Brown informed the director, at the time of her interview that she was hearing impaired. From the time of her hire until June of 2009, Brown performed her job without complaints, despite her hearing impairment. Brown’s immediate supervisor was aware that Brown developed self-accommodations, including having another nurse carry her walkie-talkie for her, asking other staff to speak to her face to face, asking other staff to confirm information communicated over the overhead page, and asking other nurses on duty to take telephone calls. Brown’s immediate supervisor did not believe the self-accommodations were a problem.

In June 2009, Brown’s immediate supervisor was replaced. Brown’s new supervisor expressed concerns regarding Brown’s hearing impairment when Brown allegedly did not respond to a patient’s fall alarm. Brown was placed on administrative leave with pay pending an investigation and doctor’s assessment regarding her ability to perform the essential functions of her job, with or without reasonable accommodations. The doctor’s assessment concluded that as long as reasonable accommodations were made, including an amplified stethoscope and text-based telephone, Brown should be able to continue to work safely as a nurse.

MVH informed Brown that they would make the doctor’s recommended accommodations and asked Brown to sign a document reflecting a list of performance expectations. Brown refused to sign the documents because she knew she could only perform her job duties with other accommodations, including her hearing aids and the continued assistance of staff, as had been her practice for years. As a result, MVH terminated Brown’s employment and sent Brown a dismissal letter, citing Brown’s inability to perform the essential functions of her job as a registered nurse.

Brown appealed her dismissal to the Personnel Advisory Board (PAB). The PAB agreed that the job functions identified in MVH’s dismissal letter were essential functions. However, the PAB determined the MVH failed to meet its burden to establish grounds for Brown’s dismissal and ordered Brown be reinstated with back pay. The MVH filed a petition for judicial review with the trial court. The trial court affirmed the PAB’s decision and the MVH appealed.  

Held:  Affirmed.
The State Personnel Law (Merit System) establishes a system of personnel administration for a variety of State departments, including the MVH. The Merit System provides that an appointing authority may dismiss a merit employee for cause. The Merit System regulations permit dismissal for cause when a merit employee has some permanent or chronic physical or mental ailment or defect that prevents the employee from properly performing her job duties. In making its determination, the PAB considered MVH’s written internal policies, which anticipate that disabled persons will be reasonably accommodated, that reasonable accommodations will be determined on a case-by-case basis, that all reasonable accommodations will be afforded unless to do so would result in an undue hardship, and that a reasonably accommodated employee who poses a significant risk to the health or safety of others will be subject to termination.

The court found the PAB’s decision was supported by substantial evidence. The PAB found that Brown’s inability to hear the fall alarms was not an issue because the use of falls alarms was being discontinued by MVH. Furthermore, the PAB found that it was not an unreasonable accommodation or undue hardship to have other staff designated as first responders when working with Brown. Similarly, the PAB found it was not an unreasonable accommodation for other staff to carry the walkie-talkie or translate messages for Brown, or to inform her of the contents of an overhead page. These had been the accommodations and practice for over five years with no adverse result, reflecting no direct threat to safety. Furthermore, with these accommodations, Brown could perform all the essential functions of her position. There was no evidence that Brown’s reliance on staff created a significant risk to health or safety.

The MVH argued that the use of other staff as a reasonable accommodation for a disability is contrary to the ADA because the ADA does not permit reliance on other staff to perform the essential functions of a job as a reasonable accommodation. The court did not opine on this point because this was not an ADA case.

Claimant ineligible for unemployment benefits although willing to work and obligated to repay benefits received. Crawford v. Division of Unemployment Security, No. 92208 (Mo. banc, July 31, 2012), Teitelman, C.J.

Arnaz Crawford was fired from his job in January 2009. Shortly thereafter, he was voluntarily admitted to a state mental facility for a week. In February 2009, Crawford applied for SSDI because his mental condition rendered him unable to work. The Social Security Administration denied the claim and Crawford appealed and requested a hearing.

While the SSDI appeal was pending, Crawford attempted to find a job unsuccessfully. On July 27, 2009, he applied for state unemployment benefits, which required a showing that he was unemployed but able to work. The Division of Employment Security awarded Crawford unemployment benefits and he received them until March 20, 2010.          

On March 2, 2010, the Social Security Administration determined Crawford had been disabled and eligible for SSDI since January 29, 2009. It considered Crawford’s psychological evaluation rendered him not mentally capable of full-time competitive employment. Crawford notified the Division of Employment Security that the Social Security Administration determined that he was eligible for benefits. On March 31, 2010, a Division deputy determined that Crawford was unable to work from December 20, 2009 through March 20, 2010, and therefore was ineligible for unemployment compensation benefits. The deputy also determined that Crawford received $3,080 in unemployment compensation benefits that he was ineligible to receive.

The appeals tribunal affirmed the deputy’s decisions and the Labor and Industrial Relations Commission affirmed the decision of the appeals tribunal. The Commission recognized Crawford’s willingness to work but found that he was not able to work within the meaning of the employment security law and, therefore, was ineligible for unemployment benefits. Crawford appealed the Commission’s determination.      

Held:  Reversed in part and affirmed in part.
The Court rejected Crawford’s argument that it would be improper to allow a state to determine retroactively that he is ineligible for unemployment benefits after his SSDI benefits had already been reduced because of the receipt of those state unemployment benefits. The SSDI regulations provide that a person can receive federal disability benefits even if he is able to engage in part-time work. Therefore, some recipients of SSDI are entitled to unemployment benefits, while others are not. Nothing in the social security regulations prohibits the Division from finding retroactively that a recipient of SSDI benefits is ineligible for state unemployment benefits because they are not able to work. Further, Crawford had the option of appealing the SSDI decision to account for the fact that he was no longer eligible for unemployment benefits. The Court also found the Commission’s decision that Crawford was unable to work was supported by substantial and competent evidence. Crawford testified that he wanted to work but his physician told him he was “real sick.”  Crawford also testified that he would hear voices, talk to himself, and pace around.

The Court’s decision affirming the Commission’s denial of Crawford’s unemployment benefits disposed of Crawford’s argument that the Commission erred in affirming the determination that Crawford was overpaid benefits. The remaining issue was the method by which the Division could recover the overpaid benefits. The different collection methods depend on whether the overpayment was a result of misrepresentation by the claimant or an error or omission by the Division that is not attributable to the claimant. If the claimant misrepresented facts to the Division, the Division is authorized to require the claimant to repay the overpaid benefits by billing, income tax setoffs, and a number of other collection methods. In contrast, if the overpayment is a result of an error or omission, then the Division is authorized to use less aggressive means, namely, deduction from future unemployment benefits. The Court found that the statutes require a hierarchy of collection methods. The Division retroactively determined that Crawford had been overpaid and, thus, the overpayments could only be recovered by the deduction from future unemployment benefits.         

Verdict director must submit element of disability; “Net Amount of the Judgment” Includes Attorney Fees. Hervey v. Missouri Department of Corrections, No. 92145 (Mo. banc.), Youngs, J.D. (Draper, J. and Teitelman, C.J. dissenting.)

Deborah Hervey worked as a probation officer for the Missouri Department of Corrections for three separate periods from 1983 through 2007. When she started her third tenure in 2007, she notified the department she had been diagnosed with a mental disorder. At the end of her nine month probationary period, the department notified Ms. Hervey that she failed to successfully complete the probationary period and terminated her employment. Ms. Hervey brought suit against the department for disability discrimination and retaliation. At the trial, the department contested whether Ms. Hervey was legally disabled.

The trial court submitted Ms. Hervey’s proffered instruction, the verdict director for her claim for disability discrimination. The department offered an alternate verdict director that included a separately enumerated paragraph that required the jury to specifically find Ms. Hervey was disabled before it could find in her favor. The trial court refused the department’s alternate instruction.

The jury returned a verdict for Ms. Hervey on her disability discrimination claim and awarded her $127,056 in actual damages and $2.5 million in punitive damages. After trial, Ms. Hervey filed a motion for attorneys’ fees, expenses, costs, and equitable relief. The department filed a motion to reduce the punitive damages to the amount authorized in § 510.265 of the Missouri Statutes, which limits punitive damages to the greater of $500,000 or five times the “net amount” of the judgment awarded to the plaintiff against the defendant. The trial court sustained both motions, in part, and entered judgment for Ms. Hervey for $127,056 in actual damages, $36,288 in front pay and $97,382.50 in attorney fees. Additionally, the trial court awarded punitive damages in the amount of $1,303,632.50, or five times the sum of the actual damages, front pay and attorney fees awarded to Ms. Hervey. The department appealed claiming the trial court erred when it (1) did not explicitly require the jury to find Ms. Hervey suffered from a disability and (2) improperly included attorney fees in the amount of the net judgment used to calculate punitive damages.

Held:  Reversed and remanded.
Ms. Hervey’s verdict director did not require the jury to explicitly find Ms. Hervey was legally disabled, which is an essential element of a disability discrimination claim under the Missouri Human Rights Act (MHRA). The verdict directing instruction must hypothesize the facts essential to the plaintiff’s claim. Accordingly, the verdict director in a discrimination case must instruct the jury to find all of the essential elements to find for the plaintiff. In many MHRA discrimination cases, it is not disputed that a plaintiff is a member of a protected class because the plaintiff’s status as a member of a protected class, e.g. race or sex, is self-evident. However, when a plaintiff’s status as a member of a protected class is disputed, the substantive law requires that the jury find, as an essential element to the plaintiff’s case, that the plaintiff is in fact a member of the protected class claimed. Whether Ms. Hervey was legally disabled at the time of discharge was an essential element of her MHRA claim. The verdict director in this case did not require the jury to find the disputed fact of Ms. Hervey’s status as legally disabled. Therefore, the verdict director was prejudicial error that required the trial court’s judgment to be reversed and the cause remanded.

Even though the reversal of the judgment included the reversal of the punitive damages award, the Court still addressed the department’s point with regard to the term “net amount of judgment” in § 510.265, as a matter of first impression. The legislature did not define “net amount of judgment;” therefore, the Court gave the words in the phrase their plain and ordinary meaning as typically found in the dictionary. “Net” is defined as “free from all charges or deductions.”  “Judgment” is defined as “a formal decision or determination given in a cause by a court of law or other tribunal” and “a court’s final determination of the rights and obligations of the parties in a case.”  The Court disagreed with the department’s argument that attorney fees should not be included in the “net amount of judgment” as attorney fees are not a part of the plaintiffs damages, because the terms “judgment” and “damages” are synonymous. If the legislature intended the calculation of punitive damages to be the amount of compensatory damages multiplied by five, it could have stated “amount of the compensatory damages” rather than using the language “net amount of the judgment.”  The relief available to a prevailing plaintiff in an MHRA discrimination case includes an award for attorney fees. Correspondingly, the judgment for attorney fees assigns a legal obligation to the defendant. Therefore, the trial court properly included attorney fees in its punitive damages calculation as part of the “net amount of judgment.” 

Brian Cavanaugh, Esquire

The trial court abused its discretion in granting plaintiff’s motion for additur for jury verdict in disability discrimination trial. Badahman v. Catering St. Louis, et al., No. 97516 (Mo. App. E.D., July 17, 2012), Gaertner, J.

Badahman won a jury trial alleging employment discrimination based on her disability, epilepsy. She asked the jury for $44,979.72 in lost wages. The jury returned a verdict for $11,250, the equivalent of three month’s salary at Catering St. Louis ("CSL"), and $2,000 in punitive damages.

Badahman filed a motion for additur, or in the alternative, for a new trial on the issue of damages. The trial court agreed that her evidence of $44,979.72 was uncontroverted and therefore the verdict was inadequate, against the weight of the evidence, and based on the jury’s honest error.

CSL appealed, arguing the trial court abused its discretion in granting additur.

Held: Reversed.
The additur statute gives a trial court discretion to increase a jury’s verdict if the court finds the verdict was less than fair and reasonable compensation for the plaintiff’s damages. The two possible outcomes to additur are a consensual increase in the amount of the verdict or a new trial. The purpose of additur is “to correct a jury’s honest mistake in fixing damages.”

The court of appeals noted that in general the assessment of damages lies within the purview of the jury and that additur is most often used in cases involving damages that are based on a simple mathematical calculation. However, when the amount of damages is disputed at trial and involves the determinations of weight and credibility, such decisions fall to the jury.

In this case, CSL disputed the amount of Badahman’s lost wages. It introduced evidence that she would have been terminated before trial anyway and urged the jury not to award her damages for the entire time from her termination until trial. The jury was free to infer facts from the evidence and to determine the proper amount of damages. Therefore, the trial court abused its discretion in substituting its own judgment regarding the weight and credibility of evidence for that of the jury. The verdict amount conformed to the jury instructions. Moreover, Badahman’s attorney in closing argument told the jury, “The amount is up to you….”  The court of appeals reversed and remanded the case for the trial court to reinstate the jury’s verdict of $11,250 in damages.