Notes from the chair
By J. Hagood Tighe
Fisher & Phillips, LLP, Columbia

First, I would like to thank everyone for participating in our Employment & Labor Law CLE in Columbia on May 21. We had 63 live participants, along with 15 participating by Webcast. No doubt, the good turn out is due to the hard work of our presenters, which included: Gene Matthews, Bill Foster, Rob Hoskins, Frank Shuler, Tina Burnside, Molly Hughes Cherry and me. Special thanks goes to all of them and to the Bar for assisting us in organizing this CLE.

We also held a cocktail reception following the CLE where we honored Professor Tom Haggard and Professor Dennis Nolan for their contributions to the Employment & Labor Law Section. Both were involved in the early stages of the Employment & Labor Law Section and have remained involved over the years as mentors to many of us. Click here to view pictures.

Please mark your calendars for the NC/SC Employment & Labor Law CLE to be held at the Grove Park Inn in Asheville, NC October 17-18. Through the efforts of David Rothstein, in coordination with our North Carolina counterparts, we expect to have an enlightening and educational program.

We are already planning CLEs for the 2009 Bar Convention scheduled for January 22-25 in Myrtle Beach as well as other employment and labor law CLEs for the spring of 2009. We will keep you updated as the details are confirmed.

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S.C. Court of Appeals holds non-solicitation agreement requires additional compensation
By Debbie Whittle Durban
Nelson Mullins Riley & Scarborough LLP, Columbia 

Prior to 2001, at-will employment was considered sufficient consideration for restrictive covenants in employment agreement. The S.C. Supreme Court decision in Poole v. Incentives Unlimited, Inc. changed that, however. 345 S.C. 378, 382 S.E.2d 207 (2001). In Poole, the Court held that when a restrictive covenant is entered into after the inception of employment, separate consideration, in addition to continued at-will employment, is necessary in order for the covenant to be enforceable. Restrictive covenants included in an initial contract of employment, however, remain enforceable without additional consideration. The restrictive covenant at issue in Poole was a covenant not to compete which Poole entered into three and a half years after she began employment. The decision in Poole, however, did not address whether continued at-will employment would be sufficient consideration for restrictive covenants other than non-competes. In Dove Data Products, Inc. v. DeVeaux, the S.C. Court of Appeals indicated how it interprets non-solicitation agreements. Unpublished Opinion No. 2008-UP-202 (S.C. Ct. App. filed March 24, 2008). According to Rule 239(d)(2), SCACR, non-published opinions have no precedential value and should not be cited or relied on as precedent.

In Dove, the employee signed an employment agreement six years after the start of his employment which contained, among other covenants, a covenant that, for two years after termination of employment, the employee would not

sell, solicit, or take orders for computer printer, facsimile machine, and copier supplies, including toner and ink products, from any person or entity who or which shall have been a customer or account of [employer] during any part of the two-year period immediately preceding the termination of his employment or who or which was actively solicited as a customer or account by [employer] during the two-year period immediately preceding the termination of his employment.

The employment agreement further indicated that continued employment was the consideration provided to the employer in return for entering the employment agreement.

Several years after entering the employment agreement, the employee resigned and formed a competing company. The employer filed a lawsuit against the former employee alleging, among other claims, breach of contract based on the non-solicitation provision of the employment agreement and requested the court grant a preliminary injunction. Although a preliminary injunction was issued, the trial court subsequently granted the former employee summary judgment on all claims and dissolved the preliminary injunction.

The employer appealed and argued that summary judgment on its breach of contract claim was improper because the trial court improperly applied the additional consideration requirement of a non-compete covenant to the non-solicitation provision in the employment agreement. On appeal, the employer argued that there is a distinction between non-compete and non-solicitation covenants and that no South Carolina court had applied the additional consideration requirement to a non-solicitation agreement.

The court noted that there is a distinction between non-compete covenants and non-solicitation covenants. Typically a non-compete covenant prohibits an employee from competing with an employer within a specific geographic location and must be “reasonably limited in its operation with respect to time and place.” A non-solicitation covenant often does not contain a limitation as to place and merely restricts contacts with existing customers rather than competition within a specific geographic area. South Carolina law has previously provided that a customer-based restriction can substitute for a limitation as to a “place” in a non-solicitation covenant. Wolf v. Colonial Live & Acc. Ins., 309 S.C. 100, 109, 420 S.E.2d 217, 222 (Ct. App. 1992) (“[p]rohibitions against contacting existing customers can be a valid substitute for a geographic limitation”). The court, however, did not find “any legal distinction in these standards dispositive to this matter” and found no reason to limit the additional consideration requirement solely to non-compete covenants.

Although the decision in Dove is unpublished and has no precedential value, two federal districts court have also applied the additional consideration requirement to non-solicitation covenants. In Rockford Mfg., LTD. v. Bennet, the defendants, all former employees, argued that their non-solicitation agreements were not enforceable because certain of them did not sign the agreements until a day after they started work. 296 F. Supp. 2d 681 (D.S.C. 2003). In granting a preliminary injunction, the court stated that this evidence alone did not convince the court that the plaintiffs did not have a strong probability of success on the merits. Four years later, the federal district court in Nucor Corp. v. Bell, took this reasoning a step further and held that because both the non-solicitation agreement and non-disclosure agreement at issue functioned as non-compete covenants, the promise of continued employment was not adequate consideration. 482 F. Supp. 2d 714 (D.S.C. 2007).

As these cases clearly indicate, employers in South Carolina who wish to have enforceable non-solicitation agreements, and perhaps even non-disclosure agreements, must provide additional consideration for these promises unless such agreements are entered into at the inception of employment.

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Federal court upholds automatic transfer of invention rights to employers in employment agreement
By Grainger Pierce
Nexsen Pruet, Charlotte

In today’s business climate, most employers recognize the need to protect their assets from unauthorized disclosure and use by employees. For that reason, confidentiality, non-compete and non-solicitation clauses commonly appear in employment agreements.

Similarly, many employers recognize the competitive advantage that can be gained—and profits that can be generated—by an invention or by the improvement of a particular process; such inventions or improvements are often created or discovered by employees from on-the-job resources or ideas. Employers often take action to protect their interest in employees’ future work-related inventions by including an “inventions clause” in their employment agreements.

Generally, inventions clauses provide that if an employee creates a work-related invention, the rights to that invention are assigned to the employer. Some clauses go a step further, providing that the assignment occurs automatically.

In DDB Technologies, LLC v. MLB Advanced Media, LP, the U.S. Court of Appeals for the Federal Circuit, which has jurisdiction over certain appeals involving patents, recently affirmed that such an inventions clause was enforceable. According to the court, an employee may agree that if he or she creates an invention, it is automatically assigned to the employer.

The underlying facts of the DDB Technologies case

Dr. David Barstow was employed by Schlumberger Technology Corp. as a computer scientist. Part of his work involved the development of computer software to control and monitor sensors in oil wells. While neither Barstow nor Schlumberger were parties to the lawsuit, aspects of their employment relationship were critical to the outcome of the DDB Technologies case.

To protect its interests, Schlumberger had Barstow sign an employment agreement containing an inventions clause. Among other things, Barstow assigned to Schlumberger his entire interest in all of his inventions that were (1) related to Schlumberger’s business, or (2) suggested by or a result of his work for the company.

While he was employed by Schlumberger, Barstow also worked on a number of personal projects. He and his brother were baseball fans, and they invented computerized methods for simulating and searching for information regarding live baseball games. Some evidence was presented that these inventions may have been related to Barstow’s work at Schlumberger.

The Barstow brothers applied for and obtained four patents for their inventions, one of which was issued while Barstow still worked for Schlumberger. After obtaining the patents, the Barstow brothers assigned their patent rights to DDB Technologies, LLC, a company they formed to develop and market their inventions.

The dispute

DDB alleged that another company, MLB Advanced Media (the interactive media and Internet company of Major League Baseball), was infringing on its patents through several baseball-related Internet services. A lawsuit was filed in federal court in Texas to enforce DDB’s claimed patent rights.

As the lawsuit progressed, MLB Advanced Media discovered that Barstow had signed an employment agreement with Schlumberger. In light of the inventions clause described above, MLB Advanced Media took the position that all of Barstow’s rights in the inventions had been automatically assigned to Schlumberger. Therefore, MLB Advanced Media reasoned, Barstow had no remaining interest to assign to DDB—because as soon as the inventions were created, they became Schlumberger’s property.

In an attempt to short-circuit DDB’s lawsuit, MLB Advanced Media purchased all of Schlumberger’s interest in Barstow’s inventions, along with a retroactive license to use them. MLB Advanced Media then claimed it was a rightful owner of the patents and filed a motion to dismiss the lawsuit.

The court’s ruling

The threshold issue considered by the court was whether an employee could agree that his or her future work-related inventions would be automatically assigned to an employer. In what is widely considered a victory for employers, the court held that such a prospective assignment is valid.

The court observed that state law would generally be applied to interpret the employment agreement. However, because the assignment portion of the invention clause was “intimately bound up” with standing to sue in federal court, it would be interpreted under federal law. This finding is noteworthy because the use of federal law expands the case’s precedential value beyond the borders of Texas.

As the court demonstrated, the enforceability of an inventions clause depends on its wording. If the clause mandates an automatic assignment of rights, then a transfer of the invention from employee to employer could occur by operation of law. On the other hand, if an inventions clause is only an agreement to assign invention rights at some point in the future, then the transfer would not be automatic. In that case, while the employer may have the right to acquire the invention, other steps would still need to be taken to actually transfer ownership.

Because Barstow’s employment agreement provided that he “‘agree[d] to and d[id] hereby grant and assign’ all rights in future inventions falling within the scope of the agreement to Schlumberger,” the court held that the assignment in question occurred automatically. As a result, Schlumberger did not have to take any action to accomplish transfer of its interest in the inventions.

After determining that Barstow’s employment agreement provided for the automatic assignment of inventions, the court went on to consider whether the inventions in question were work-related. The employment agreement provided that in order to be assigned to Schlumberger, the inventions must “relate in any way to the business or activities of [Schlumberger]” or be “suggested by or result from” Barstow’s job.

As the employment agreement did not define the terms “related to,” “suggested by,” or “result from” the court noted that Texas law would be applied to interpret them. The court then examined the conduct and knowledge of Barstow and Schlumberger and attempted to derive their subjective beliefs as to whether the inventions fell within the scope of the employment agreement. However, the evidence before the Court on this issue was incomplete, and the case was sent back to the trial court to allow the parties to gather additional information.

While the underlying case was not fully resolved, the court’s holding has important implications for all employers. According to the court, an employee may agree that his or her rights in future work-related inventions are automatically assigned to the employer. Consequently, an employer could have full rights to an employee’s invention, perhaps even when the employer had no knowledge that the invention existed. Because an employer’s ownership of the invention may vest by operation of law, this could obviate the need for an employer to take any further action to accomplish transfer of its interest and could bar an employee from raising defenses (such as laches or estoppel) based on a failure to take such action.

Practical considerations for employers

This case underscores the need for employers to consider including an inventions clause in employment agreements. Any employee working in any industry or business may develop a profitable work-related invention or improvement. Without an agreement in place, an invention created by an employee—on company time, with company resources or as the result of the employee’s job—could belong solely to the employee.

Implementing an inventions clause is only part of the solution. It is equally important that the clause be properly drafted. Employers who already use an inventions clause should have its terms reviewed by an attorney to ensure maximum benefit and protection.

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The future of electronic monitoring in the workplace: innovative assistance or potential infringement of rights?
By Charles L. Appleby IV
Collins and Lacy, PC, Columbia

Reality TV exploded on the scene because America couldn’t get enough of watching other people’s lives. We became fascinated by seeing how participants react if they are put in certain situations or asked to accomplish a particular task. But then watching wasn’t enough; we wanted to know what each person was thinking and feeling. So reality shows created 10-second confessionals where a participant would describe what he was thinking and feeling during the situation or task. The ultimate rush: Put a person in a confined area, tell him to accomplish a task and then watch it unfold knowing what he is thinking and feeling every step of the way. What if this could happen at work?

We have all bought a product with “some assembly required” printed on the box. Unfortunately “some” always turned into “a lot,” and “assembly required” turned into “engineering degree required.” While assembling was never that difficult, it always ended up taking a lot of time because there was a piece missing, the instructions weren’t clear or we just lost our patience. It would be great if someone could detect our frustration and automatically provide help. What if this could happen at work?

If the patent for Microsoft’s new system is approved, both scenarios could happen at work. Whether Microsoft’s system is for you depends on your situation and point of view.

Microsoft’s patent —in-depth monitoring of employees

Microsoft’s patent application, described by a British newspaper as “Big Brother” software, is capable of monitoring workers’ production, efficiency and physical well-being in a way previously only imagined in movies. David Brown & Elizabeth Judge, Times Online, http://technology.timesonline.co.uk/ (last updated Jan. 16, 2008).

Wireless sensors monitor employee activities on everyday devices such as PDAs, laptops, desktop computers, smartphones and/or pocket PC phones. U.S. Patent Application No. 20070300174 (published Dec. 27, 2007), para. [0012]. The system then records all activities performed on the device in one or more logs, including time taken to complete the task and if there were any problems during completion. Id. Not surprised? Well you shouldn’t be; employers have been electronically monitoring the activities of employees for years. (See The Past and Future of Electronic Monitoring in the next newsletter.) However, this system brings a new twist to traditional electronic monitoring by monitoring heart rate, blood pressure and body temperature. U.S. Patent Application No. 20070300174 (published Dec. 27, 2007), para. [0045]. But wait, that’s not all, with this new system, employers can also monitor their employees’:

• galvanic skin response,
• EMG,
• brain signals,
• respiration rate,
• body movements,
• facial movements and
• facial expressions. Id.

Take a second to digest—it is a lot to handle. To put it in layman terms, the in-depth monitoring capabilities of this new system will allow your boss to track not only where you are and what you’re doing, but also what you’re thinking and how you’re feeling (including whether you are smiling or frowning while using your office Blackberry 300 miles away from the office). So the question now becomes, why would Microsoft propose employers delve this far into an employee’s privacy and why would employees agree to let them?

Microsoft’s patent—assistance from monitoring

Through the Microsoft system’s various means of monitoring employee activity, the system can provide assistance to an individual employee working on a task, a group of employees working together on a group project, or a supervisor who needs to delegate tasks. U.S. Patent Application No. 20070300174 (published Dec. 27, 2007), paras. [0010, 0014].

Assistance from the system is triggered either by the request of an employee or automatically when the system detects an implicit need for assistance (i.e., when the system’s monitoring devices detect increased heart rate or unpleasant facial expressions). U.S. Patent Application No. 20070300174 (published Dec. 27, 2007), para. [0045]. Assistance can include notifying another employee to assist or providing relevant resources such as Web site links, reference materials and other files. U.S. Patent Application No. 20070300174 (published Dec. 27, 2007), para. [0044]. When identifying an employee to assist, the system prioritizes employees according to variables such as experience with the task, availability (i.e., free time, schedule open, proximity or location), success/failure history with respect to the task, and cost of providing assistance (i.e., will not list at the top an employee who is working on a higher priority/higher paying matter). U.S. Patent Application No. 20070300174 (published Dec. 27, 2007), paras. [0040-0042]. In addition to providing assistance, the system allows groups of users to watch and monitor each other’s progress which can “enhance activity coordination and overall work experience.” U.S. Patent Application No. 20070300174 (published Dec. 27, 2007), para. [0050].

Overall, the system sounds pretty advanced right? Definitely. However, reality TV sounded pretty advanced at its inception too. Therefore, whether the system is right for you depends on your situation and your point of view, just like reality TV (i.e., you may enjoy it if you’re on the couch watching, but not if the cameras are following you everywhere you go or vice versa).

Microsoft’s patent—an angel or the devil in disguise?

In theory, this system could be angel sent from heaven. For employers, it will provide a means to ensure work is completed in the most efficient manner possible in terms of cost and productivity. For employees, the system guarantees a way to get the best assistance when a question or problem arises, whether from requesting it or the system sensing frustration.

However, this system could also be the devil sent to ensure the boss knows every possible thing about an employee’s life. In theory, your boss can keep track of how you’re feeling at all times, including if you’re smiling or frowning, and not just when you’re in the office, but whenever you’re using the office cell phone or laptop. So if you’re having a bad day or having a fight with your spouse in the middle of a project, the information is stored and may show up on your performance review. Even worse, your boss may come in your office and ask you about it. U.S. Patent Application No. 20070300174 (published Dec. 27, 2007), para. [0032] (“The monitoring component can monitor and collect activity data from one or more users on a continuous basis, when prompted, or when certain activities are detected … User data about the user who is engaged in such activity can be collected as well. This can include the user’s name, … current physiological and emotional state, and/or current projects.”); para. [0033] (“Data collected from the monitoring component can be stored in the data store as well. A display component can generate one or more reports automatically based on the collected and processed data.”); para. [0055] (“The monitoring system can also be employed to facilitate troubleshooting poor performance or for evaluating high ratings or unexpected trends in either direction on certain activities.”) The patent does not specifically state the results of physiological sensors are recorded for the purpose of performance review or other analysis, but from the language above, this is my presumption. I would encourage you to read the entire patent application before making your own decision.

While one person may view the system as one of the greatest advances in the workplace, another may view it as invasion of privacy. Although differing views always exist when new technology arrives, when a dispute arises, the view that matters is that of the court. So how would a South Carolina court view the Microsoft system and its physiological sensors?

The law: common law—wrongful intrusion

The S.C. Supreme Court first recognized a right of privacy in Holloman v. Life Insurance Co. of Virginia, and “[a]lthough the Court has decided several ‘right to privacy’ cases since Holloman, the common law of privacy remains largely undeveloped in South Carolina.” Holloman v. Life Ins. Co. of Va., 192 S.C. 454, 7 S.E.2d 169 (1940); Snakenberg v. Hartford Cas. Ins. Co., 299 S.C. 164, 383 S.E.2d 2, 5 (Ct. App. 1989). The S.C. Supreme Court defined the distinct tort of invasion of privacy in Meetze v. The Associated Press, and the S.C. Court of Appeals interpreted the definition to mean that three separate and distinct causes of action can arise under the tort. Meetze v. Associated Press, 230 S.C. 330, 335, 95 S.E.2d 606 (1956); Rycroft v. Gaddy, 281 S.C. 119, 314 S.E.2d 39 (Ct. App. 1984); see also, Snakenberg v. Hartford Cas. Ins. Co., 299 S.C. 164, 383 S.E.2d 2 (Ct. App. 1989); Wright v. Sparrow, 298 S.C. 469, 381 S.E.2d 503 (Ct. App. 1989). A federal district court has also adopted this interpretation. See, e.g., Shorter v. Retail Credit Co., 251 F. Supp. 329 (D.S.C. 1966).

The three separate causes of action arising under the tort of invasion of privacy include: “(1) unwarranted appropriation or exploitation of [one’s] personality; (2) the publicizing of [one’s] private affairs with which the public has no legitimate concern; or (3) the wrongful intrusion into one’s private activities in such a manner as to outrage or cause mental suffering, shame or humiliation to a person of ordinary sensibilities.” Meetze v. Associated Press, 230 S.C. 330, 95 S.E.2d 606 (1956); see also Rycroft v. Gaddy, 281 S.C. 119, 314 S.E.2d 39 (Ct. App. 1984), Corder v. Champion Road Mach. Int’l. Corp., 283 S.C. 520, 324 S.E.2d 79 (Ct. App. 1984). While these three actions may seem similar, the opinion in Snakenberg v. The Hartford Casualty Co. noted there are “significant differences.” Snakenberg v. Hartford Cas. Ins. Co., 299 S.C. 164, 383 S.E.2d 2 (Ct. App. 1989) (“Wrongful appropriation of personality involves the intentional, unconsented use of the plaintiff’s name, likeness, or identity by the defendant for his own benefit … Wrongful publicizing of private affairs involves a public disclosure of private facts about the plaintiff. The gravamen of the tort is publicity as opposed to mere publication … Wrongful intrusion into private affairs, consists of the following elements, which must be pleaded and proved: (1) Intrustion … (2) Into that which is private … [which is] (3) Substantial and unreasonable … [and] (4) Intentional.”) Most South Carolina cases involving privacy in the employment setting involve either the second cause of action, publication of private affairs or the third cause of action, wrongful intrusion. Wrongful intrusion is the most applicable in regards to the proposed Microsoft software and our limited discussion.

A cause of action for wrongful intrusion requires a plaintiff to plead and prove the following four elements:

1. an intrusion;
2. into that which is private affairs;
3. which constitutes a substantial and legally cognizable injury;
4. which was intentional. Snakenberg v. Hartford Cas. Ins. Co., 299 S.C. 164, 383 S.E.2d 2 (Ct. App. 1989). Restatement §652B defines intrusion as follows: “One who intentionally intrudes physically or otherwise upon, the solitude or seclusion, of another or his private affairs or concerns, is subject to liability to the other for invasion of his privacy, in the invasion would be highly offensive to a reasonable person.” Comment A to § 652B provides: “The form of invasion covered by this section does not depend upon any publicity given to the person whose interest is invaded or to his affairs.”

The employee must first show the employer has engaged in conduct that resembles “watching, spying, prying, besetting, [or] overhearing.” Doe 2 v. Associated Press, 331 F.3d 417 (4th Cir. 2003) (quoting Snakenberg, 383 S.E.2d at 6). Second, the intrusion must have invaded an area “which one normally expects will be free from exposure.” Id. Third, the employer’s conduct must have been “of a nature that would cause mental injury to a person of ordinary feelings and intelligence in the same circumstances.” Snakenberg v. Hartford Cas. Ins. Co., 299 S.C. 164, 171, 383 S.E.2d 2, 6 (Ct. App. 1989). It is important to note that if the employee’s action is based on “intrusion” alone, with no evidence of public disclosure, “it is incumbent upon [plaintiff] to show a blatant and shocking disregard of [his/her] rights, and serious mental or physical injury or humiliation ... therefrom.” Roberts v. Dunbar Funeral Home, 288 S.C. 48, 339 S.E.2d 517, 520 (1986); see also, Craig v. Andrew Aaron & Associates, Inc., 947 F.Supp. 208 (D.S.C. 1996) (“both the tort of invasion of privacy when there is no public disclosure and the tort of outrage require a significant degree of injury as an element of the cause of action”). Finally, the employer’s act must have been done: (1) willingly; “and either (2) the [employer] desired the result of his conduct, whatever the likelihood of that result happening; or (3) the [employer] knew or ought to know the result would follow from his conduct, whatever his desire may be as to that result.” Snakenberg v. Hartford Cas. Ins. Co., 299 S.C. 164, 172, 383 S.E.2d 2, 6 (Ct. App. 1989).

The first element, intrusion, is decided on the facts and monitoring of an employee’s physiological state through wireless sensors that would seem to resemble “watching, spying, or prying.” In Meetze v. Associated Press, a newspaper article reporting a 12-year-old mother gave birth was not found actionable as tortuous invasion of privacy because it failed to meet the second element, intrusion into “private affairs.” Meetze, 230 S.C. at 333, 95 S.E.2d at 610. (The court stated as a another reason there was no wrongful invasion that, “It would be going pretty far to say that the article complained of was reasonably calculated to embarrass or humiliate the plaintiffs or cause mental distress. Although Mrs. Meetze was only eleven years old when she married, the marriage was not void.”). The legal requirement of a birth certificate, i.e., public record, stating the ages of both the mother and the father, was the S.C. Supreme Court’s main reason for finding there was no wrongful invasion. Id. In regard to the new Microsoft system, while an employee’s heart rate and blood pressure may not qualify as private affairs, “galvanic skin response, EMG, and brain signals” would potentially qualify and satisfy the second element. The fourth and final element, intrusion which was “intentional,” is satisfied since utilization of the Microsoft system is an act of volition by an individual or group of individuals in the company. Those employing the system know or should know the system requires employees to reveal private information in obtaining a baseline parameter and then records private information afterward. Snakenberg, 299 S.C. at 175, 383 S.E.2d at 8 (“If the videotaping was an act of volition and the resulting exposure of the girls was the expected or natural consequence of that act, intent has been proved. It is irrelevant whether Snakenberg ‘meant naughtily’ or had motives ‘pure as the naked heavens.’”). Proving the third element, an injury, is where debate will rise.

In Shorter v. Retail Credit Company, the court found no invasion of privacy where an agent of a retail credit company politely conducted an inquiry at the plaintiff’s home. Shorter v. Retail Credit Co., 251 F. Supp. 329 (D.S.C. 1966). The U.S. District Court noted there was no public surveillance, no publication of fact that any investigation was taking place and no constant harassment or continued trespass on property. Id. The U.S. District Court also found no invasion of privacy in Craig v. Andrew Aaron & Associates, Inc., where the defendant insisted on calling plaintiffs’ home after being asked not to do so. Craig v. Andrew Aaron & Assocs., Inc., 947 F.Supp. 208 (D.S.C. 1996). The courts have held if a plaintiff’s action is based on “intrusion,” with no evidence of public disclosure, “it is incumbent upon [plaintiff] to show a blatant and shocking disregard of [his/her] rights, and serious mental or physical injury or humiliation ... therefrom.” Publication cannot come from employee. See, Satterfield v. Lockheed Missiles & Space Co., 617 F.Supp. 1359 (D.S.C. 1985) (court held employer was not liable to discharged employee for invasion of privacy where only evidence indicating that termination was publicized suggested that employee himself did the publicizing). Roberts v. Dunbar Funeral Home, 288 S.C. 48, 339 S.E.2d 517, 520 (1986); see also, Craig v. Andrew Aaron & Assocs., Inc., 947 F. Supp. 208 (D.S.C. 1996) (“both the tort of invasion of privacy when there is no public disclosure and the tort of outrage require a significant degree of injury as an element of the cause of action”). Although the plaintiff in Craig argued humiliation, the court found “the only suggested evidence of ‘humiliation’ [wa]s Mrs. Craig's testimony that she is embarrassed now because she has had to contact legal counsel to assist her in performing her job.” Based on these cases it would seem a cause of action for invasion of privacy with no evidence of public disclosure will fail in South Carolina courts if:

• the information was available through public record; or
• no public surveillance, constant harassment or continued trespass; or
• no serious humiliation or mental or physical injury.

While South Carolina courts have decided several ‘right to privacy’ cases since first recognizing the right to privacy in Holloman, “the common law of privacy remains largely undeveloped in South Carolina.” Snakenberg v. Hartford Cas. Ins. Co., 299 S.C. 164, 383 S.E.2d 2, 5 (Ct. App. 1989). Therefore, a court may find an injury where an employee is forced to reveal humiliating information, such as temporary illnesses or diseases (which have no relation to the employee’s job responsibilities), as part of the procedure to establish his or her baseline or “normal” parameter or where the employer confronts the employee due to odd readings from the sensors. In addition, there is a possibility of serious mental injury to an employee as the result of stress caused by constant surveillance. The Microsoft system can only detect frustration or stress accurately if there is a baseline or “normal” parameter for each user. As stated in the patent application, a baseline must be established “in view of the fact that different body types and sizes and personalities can display different physical, mental, and emotional responses to similar situations.”

While it is unclear how a South Carolina court would rule should a case arise as outlined above, due to the in-depth nature of the system’s monitoring, the likelihood of litigation seems more likely than not.

The law: statutory—Employee Polygraph Protection Act, etc.

The Federal Employee Polygraph Protection Act (EPPA) prohibits most private-sector employers from requesting their job applicants or current employees take any type of “lie detector test.” 29 U.S.C. § 2002(1) (2008). Unless operating in one of the few areas in which such testing remains allowed, such as national defense, security services or nuclear power, an employer may not:

• require an employee or job applicant to take a lie detector test (except in situations covered by the exceptions) or
• take any adverse action against an employee or applicant for refusing to submit to a required lie detector test. Id. §2006(a); Id. §2006.

An employer is permitted to request an employee undergo a lie detector test when “other evidence” (also referred to as “reasonable suspicion” or “reasonable cause”) provides management with reason to suspect the employee of some particular wrongdoing, like theft of money or property or a forbidden activity, such as using illegal substances on the job. Id. §2006(d). However, even when testing is allowed under “reasonable suspicion,” the lie detector operator may only ask questions the individual being examined has reviewed before the test. Id. §2007(b)(2). In addition, questioning is not permitted on:

• religious affiliations or beliefs;
• opinions or beliefs pertaining to racial matters;
• political affiliations or beliefs;
• any issue relating to sexual orientation or sexual behavior; or
• affiliations, beliefs, opinions or lawful activities concerning unions or labor organizations in general. Id. §2007(b)(1).

But why discuss the EPPA? The Microsoft system is not a lie detector test—is it?

Under the EPPA, a “lie detector,” for purpose of the act's restrictions, includes a “polygraph, deceptograph, voice stress analyzer, psychological stress evaluator, or any other similar device (whether mechanical or electrical) that is used, or the results of which are used, for the purpose of rendering a diagnostic opinion regarding the honesty or dishonesty of an individual.” Id. §2001(3), (4) (emphasis added). Microsoft’s new system has capabilities similar, if not identical to, those described above, as it can use “various physiological sensors” to monitor an employee and detect “stress or frustration.” U.S. Patent Application No. 20070300174 (published Dec. 27, 2007), para. [0062]. As stated previously, the Microsoft system can monitor an employee’s blood pressure, heart rate, respiration rate, body temperature, galvanic skin response, EMG, brain signals, movement, facial movements and facial expressions. U.S. Patent Application No. 20070300174 (published Dec. 27, 2007), para. [0062]. In addition, one of the suggested uses for the Microsoft system is to ensure employees are honest in their work. U.S. Patent Application No. 20070300174 (published Dec. 27, 2007), para. [0037], “activities may be performed successfully but not in accordance with company or government policies.” “For example, various physiological sensors can detect stress or frustration (e.g., elevated blood pressure, heart rate, or respiration rate.” Therefore, an employer in the private sector who utilizes the Microsoft system may run the risk of violating the EPPA. Employers found violating the EPPA are liable in private civil actions for “legal or equitable relief … including, but not limited to, employment, reinstatement, promotion, and the payment of lost wages and benefits.” 29 U.S.C. § 2005(c).

It is important to note that requiring an employee to sign a consent form will not serve as a safeguard since employees may not waive their rights under the EPPA by contract. 29 C.F.R. § 801.23(a)(3)(xv) (2008) (A test subject may not waive any of the rights provided by the EPPA, even voluntarily or by contract, except as a part of a written settlement of a pending action or complaint that is agreed to and signed by all parties involved.) In addition, a job offer to a prospective employee may not be withheld because the applicant refuses to sign a consent form to allow this type of monitoring. 29 U.S.C. §2002(3)(A) (“… it shall be unlawful for an employer … to … deny employment … or threaten to take such action against …a prospective employee who refuses, declines, or fails to take or submit to any lie detector test.”)

Besides the EPPA, other statutes that may apply to Microsoft’s new system include the S.C. Constitution, Federal Electronic Communication Privacy Act of 1986 and the South Carolina Interception of Wire, Electronic or Oral Communications Act. S.C. Const. art. I, § 10 provides all South Carolina employees the right of privacy against unwarranted governmental intrusion; 18 U.S.C. §§ 2510-21 (2000); 18 U.S.C. §§ 2510-21 (2000). However, unlike the EPPA, both the ECPA and the South Carolina “wiretap” law provide exceptions when an employee consents to the interception of communications.

The questions employers ask to determine the baseline parameter for the Microsoft system may place an employer at risk of discrimination under the Genetic Information Nondiscrimination Act (GINA). H.R. 493, 110th Cong. (2008) (passed by the House on May 1, 2008 with a 414-1 vote and by the Senate a week earlier with a 95-0 vote).

Conclusion

It may seem hard to comprehend the use of devices that monitor employee’s facial movements and brain signals in everyday companies; 20 years ago employers could not fathom the use of personal computers in the workplace. While the patent for the Microsoft system may or may not be approved, the technology it proposes is here to stay because it offers an edge businesses and employers may want.

If a product can ensure a business runs more efficiently and thereby is more profitable, employers will want it. An employer has every right to the newest and best technology to help his or her business succeed; however, new technology is announced every day and often develops so quickly we do not see the potential problems until it is too late. While we need problems to sustain our careers as lawyers, it is also great to help our clients, whether employers or employees by telling them about new and potential products and how they can best utilize those products to avoid future problems and lawsuits.

The Microsoft system provides numerous advantages to the workforce. In addition, most of the monitoring devices employed by the system have already been in use and have not created any problems thus far. While in theory a system that detects frustration and automatically provides assistance is wonderful, employers should be aware that this type of monitoring may lead to future liability because of the extent it delves into the private lives of the everyday employee. Therefore, employers should seek out the system with open arms, but request removal of the physiological sensors in the monitoring device to avoid possible future litigation.

To see the complete Microsoft Patent application, visit the U.S. Patent and Trademark Office Web site and type the Microsoft patent application publication number, 20070300174, when prompted.

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Fourth Circuit bars “FLSA-based” state law claims, rules FLSA remedies are exclusive
By Grainger Pierce
Nexsen Pruet, Charlotte

The Fourth Circuit Court of Appeals, which has jurisdiction over North and South Carolina federal courts, recently held in Anderson v. Sara Lee Corporation that the remedies contained in the Fair Labor Standards Act (FLSA) are exclusive and preempt remedies that would otherwise be available under state law. As a result, employees of Sara Lee Corporation were barred from pursuing claims arising under North Carolina state law that were ultimately based on the FLSA.

The FLSA generally

The full breadth of the FLSA is beyond the scope of this article. Among other things, the act regulates the payment of overtime wages to non-exempt employees. Additionally, it delineates what constitutes compensable time for which employees must be paid.

The FLSA’s remedial scheme is comprehensive. In the context of overtime payment violations, the statute generally permits claims for unpaid wages, liquidated damages in an amount equal to the unpaid wages, attorney’s fees and costs. The recovery of up to two years of unpaid wages is allowed, with an additional year if the employer’s violation is deemed “willful.”

Factual background

Between 2000 and 2003, Sara Lee employed David C. Anderson and approximately 1,600 other individuals as production workers at the company’s bakery plant in Tarboro, NC. All were paid on an hourly basis.

Hourly production workers at the plant were divided into shifts and were required to comply with Sara Lee’s “Dress and Undress Rule.” The rule included a dress code, which mandated that production workers wear a uniform, earplugs, hairnet and safety shoes.

Under the “Dress and Undress Rule,” workers were not permitted to don their uniforms at home. Instead, they were required to perform a number of preliminary tasks after reporting to the plant, including: (1) passing through a security checkpoint; (2) waiting in line to pick up their uniforms; (3) waiting for a space in the locker room; (4) changing into their uniforms; and (5) sanitizing their hands and shoes. Sara Lee required that each worker perform all of these tasks prior to clocking in at the beginning of a shift.

A worker who clocked in late was subject to discipline, even if the tardiness was caused by delays in the uniform-donning process. As hundreds of individuals were assigned to a particular shift, workers claimed that there were often long lines to obtain and change into their uniforms. Consequently, workers alleged that they arrived at the plant as early as 45 minutes before their start times in order to avoid tardiness citations.

When their shifts ended, workers were required to return to the locker room, change back into their street clothes, store their safety shoes and deposit their soiled uniforms at the on-site laundry for cleaning.

In January 2003, the approximately 1,600 Sara Lee production workers filed a class action lawsuit against the company in North Carolina state court. They claimed that the time they spent complying with the “Dress and Undress Rule” before and after their shifts constituted compensable time for which they had not been paid.

Although the employees’ complaint alleged that Sara Lee violated the “applicable wage and hour law,” it did not include any direct FLSA claims. Instead, the complaint contained five North Carolina state law claims: (1) breach of contract; (2) negligence; (3) fraud; (4) conversion; and (5) purported violations of the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA).

After removing the case from state to federal court, Sara Lee sought to dismiss the employees’ state law claims. Following a partial dismissal by the trial court on other grounds, the matter was appealed to the Fourth Circuit Court of Appeals.

The Fourth Circuit’s opinion

Writing for a unanimous panel, Judge Robert King ruled that the employees’ state law claims should be dismissed. Noting that the FLSA provides “an unusually elaborate enforcement scheme,” the court held that the Act preempted remedies under state law for alleged FLSA violations.

The concept of preemption arises from the “Supremacy Clause” of the U.S. Constitution, which provides that federal law is “the supreme Law of the Land.” As a result, state law that conflicts with the “full purposes and objectives” of a federal statute may be trumped.

The court examined preemption in the context of the FLSA and noted that Congress intended for the FLSA’s enforcement scheme to be the exclusive remedy for violations of the statute’s rules. Consequently, states are not authorized to create alternative remedies for FLSA violations. Note, however, that states are permitted to increase the minimum wage and decrease the maximum workweek provided for in the FLSA.

In this case, the court noted that although the employees did not specifically allege claims under the FLSA, their success ultimately depended upon establishing a violation of the statute. After determining that the FLSA applied, the court then held that the employees’ five state law claims conflicted with the FLSA on two basic levels.

First, the employees sought damages that were potentially greater than those authorized by the FLSA. These included claims for treble (triple) damages under the UDTPA and punitive damages, either of which could have exceeded the liquidated damages allowed under the FLSA.

Second, the employees’ state law claims could have extended the applicable limitation period, which would have the practical effect of increasing Sara Lee’s liability beyond the time frame contemplated by Congress. All of the state law claims were governed by a three-year statute of limitation. Conversely, unless the employees could show that Sara Lee willfully violated the FLSA, they were limited to a two-year look-back period under the federal statute.

Based on the above conflicts, the court determined that the employees’ state law claims were an obstacle to the accomplishment of the FLSA’s objectives and were therefore preempted. The case was sent back to the trial court with instructions to dismiss the employees’ state law claims. However, the employees retained the ability to assert any FLSA claims that were still viable.

Implications for employers

Although the court’s decision potentially limits the amount of damages for which an employer could be liable, it does not alter an employer’s substantive duties under the FLSA. Our December 2005 Employment Law Update describes the U.S. Supreme Court’s latest decision on when time spent putting on and taking off protective clothing is compensable. This case reemphasizes that all employers should take affirmative steps to identify and address FLSA issues in their workplaces.

The best way for an employer to limit its potential liability under the FLSA remains preemptive compliance with the statute. Employers’ efforts should include the development and implementation of a comprehensive compliance plan, which may include the following: (1) developing a written “safe harbor” policy; (2) creating and/or updating written job descriptions; (3) evaluating the exemption status of certain employees; (4) auditing payroll practices; (5) educating supervisory and human resources personnel concerning the maintenance of exemption status; and (6) conducting periodic follow-ups to assess the timeliness of the plan and the effectiveness of ongoing compliance efforts.

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Department of Homeland Security attempts to revive regulation on no-match letters
By C. Frederick W. Manning II
Fisher & Phillips LLP, Columbia

On March 21, 2008, the Department of Homeland Security released a Supplemental Proposed Rulemaking for the no-match rule previously published in August 2007 (the 2007 Final Rule). The public had until late April to submit comments on the supplemental regulation. Preliminary reports indicate the majority of comments are critical of the regulation. The 2007 Final Rule proposed amendments to section 274A of the Immigration and Nationality Act by establishing safe harbor procedures for employers who receive Social Security Administration “no-match” letters.

What is a no-match letter?

Every year, the Social Security Administration (SSA) analyzes W-2 tax return data to determine if the name and number shown on the W-2 return match Social Security Administration records. SSA will send out a mismatch or “no-match” letter to an employer if that employer has submitted more than 10 W-2s with mismatches and this amounts to more than one-half of one percent of all the W-2s submitted by the employer. The proposed regulation gives an employer who receives a no-match letter a period of time to cure the deficiency. If the safe harbor procedures are followed, the employer will not be charged with constructive knowledge that the employee who is the subject of the no-match letter lacks authorization to work in the United States.

A recap of the 2007 Final Rule

The no-match rule issued in 2007 provides an employer who receives a no-match letter 30 days to examine its own records to see if the reported deficiency can be cured. If the error lies in the employer’s records, the employer is to notify SSA of the correct information. If the error cannot be resolved by reference to the employer’s records, the employer must notify the employee who is the subject of the no-match letter of the date the employer received the no-match letter and provide the employee 90 days from the date of the letter to cure the problem. The supplemental rule clarifies that the employer should notify the employee within five business days after the employer has completed its internal records review.

There are many causes for a no-match to occur in the SSA database. For example, a clerical error or name change can create a mismatch between the employer’s W-2 reporting and the records on file with the SSA. Of course, as mentioned above, DHS also takes the position that another potential cause for the generation of a no-match letter results from the submission of information for an alien who is not authorized to work in the United States and who may be using a false Social Security number or a Social Security number assigned to someone else. Therefore, at the end of the 90-day period for curing the discrepancy, the employer has three days in which to complete a new I-9 Form for the employee. The employee cannot present a document that is in dispute and must present a document that contains a photograph. The employer must retain the new I-9 Form with any prior I-9 Form completed by the employee.

If these safe harbor procedures are followed, the employer will not be charged with constructive knowledge that the employee lacks authorization to work.

Implementation of the 2007 Final Rule was enjoined by a federal court in California in October 2007. The federal court gave DHS until March 2008 to address certain areas of concern identified by the court. Specifically, the federal court questioned whether DHS had provided a reasoned analysis to justify its new approach that a no-match letter may be sufficient, by itself, to put an employer on notice that it may be employing an illegal alien. The court also questioned whether DHS had exceeded its authority in interpreting portions of the Immigration Reform and Control Act of 1986 and whether the proposed regulation violated the Regulatory Flexibility Act by not conducting an impact analysis pursuant to that Act. The supplemental rule seeks to address those issues which will then allow DHS to have the court dissolve the injunction prohibiting implementation of the regulation.

Why did DHS change its position?

In the explanation for the supplemental regulation addressing no-match letters, DHS cited several public and private studies identifying the scope and breadth of problem with undocumented immigrants in the workforce. One estimate provides that approximately 7.2 million illegal aliens are in the U.S. workforce. Additionally, DHS quoted a private study that had concluded that most workers with unmatched Social Security numbers are undocumented immigrants. Therefore, DHS concluded: “Based on the rulemaking record and the Department’s law enforcement expertise, DHS finds that there is a clear connection between social security no-match letters and the lack of work authorization by some employees whose SSNs are listed in those letters.” From this conclusion, DHS believes that some employers fail to respond to no-match letters because they have “consciously made the illegal employment of unauthorized aliens a key part of their business model” or because those employers view the risk of an immigration enforcement action less costly than complying with the immigration laws.

For other employers, DHS has concluded that many are unsure what their obligations are under the current immigration law when they receive a no-match letter. Because of the desire to provide additional guidance to these “law-abiding employers,” DHS justifies the 2007 Final Rule in the new supplemental proposed rulemaking as a means to assist reasonable employers in taking steps to respond to SSA no-match letters and offer a “safe harbor” from Immigration Customs Enforcement’s use of the no-match letters in any future enforcement action to show that the employer had knowingly employed unauthorized aliens.

Does DHS have authority to amend the immigration laws?

In responding to the federal court’s concern that DHS had exceeded its authority in proposing the no-match regulation, DHS outlined its authority to investigate and pursue sanctions against employers who knowingly hire or continue to employ unauthorized aliens. As part of this authority, DHS argues that it must be able to “decide the probative value of the available evidence” and the circumstances under which DHS will consider an employer to have knowledge that it has hired or continued to employ an unauthorized alien. Under the prior regulations, an employer who received a no-match letter could defend against an inference that it had constructive knowledge of the employee’s illegal status by showing that it had concluded, after exercising reasonable care in response to the no-match letter, that the employee was in fact authorized to work. In the 2007 Final Rule, as supplemented by the new proposed rule, DHS limits its law enforcement discretion by committing not to use an employer’s receipt of and response to a no-match letter as evidence of constructive knowledge for those employers who follow the procedures outlined in the rule. Nevertheless, because the federal court was concerned that DHS had exceeded its jurisdiction, DHS has rescinded the statements in the preamble of the 2007 Final Rule describing employers’ obligations under anti-discrimination law or discussing the potential for anti-discrimination liability faced by employers that follow the safe harbor procedures. Specifically, DHS is rescinding the statement in 2007 Final Rule that states “employers who follow the safe harbor procedures … will not be found to have engaged in unlawful discrimination.”

Regulatory Flexibility Analysis—barely

One of the major concerns expressed in the comments to the 2007 Final Rule was the potential economic impact on the economy and on small business entities. The federal court had concluded that the safe harbor in the proposed rule amounted to a mandate that effectively created compliance obligations for employers that received no-match letters. The court further reasoned that small businesses would incur significant costs associated with complying with the safe harbor rule.

Therefore, in the supplemental rule, DHS has attempted to address concerns over the potential economic impact of the Final Rule. For example, DHS has provided a summary of the average cost per employer that it estimates will be incurred by businesses that receive a no-match letter and choose to adopt the safe harbor procedures. Such costs include the labor costs for human resources personnel, certain training costs, legal services and lost productivity. Expressly excluded from the costs related to the new rule are those associated with the termination and replacement of unauthorized workers. Not surprisingly, DHS concludes that the new safe harbor rules will not impose any mandate on employers or force them to incur compliance costs that violate the Regulatory Flexibility Act.

Conclusion

Whether the Supplemental Proposed Rulemaking adequately answers the concerns raised by the federal court is yet to be determined. In the event the court dissolves the existing injunction, the practical impact upon employers will not begin until the next round of no-match letters go out—typically in the spring of 2009. In the meantime, businesses will be wise to begin informing appropriate personnel of the proposed changes and begin implementing procedures to handle eventual no-match letters.

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Get Published

If you are interested in submitting an article for the next issue of the section newsletter, please forward your submission(s) to:

Molly Hughes Cherry
Nexsen Pruet, LLC
205 King St., Ste. 400
Charleston, SC 29401
(843) 720-1724
Fax: (843) 414-8209
mcherry@nexsenpruet.com

In addition to your proposed article, please include your name, your firm name and your e-mail address so this information can be included in the newsletter. This newsletter is published quarterly.

Submission Deadlines:
July 14, 2008
October 13, 2008

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Disclaimer

This is a newsletter for the South Carolina Bar’s Employment and Labor Law Section. The South Carolina Bar and the Section council members reserve the right to refuse to publish any submission which is not consistent with their goals and standards. Articles that are published reflect only the opinions of their authors; they do not represent or reflect any positions held by the South Carolina Bar or the Section officers and council members. It is the policy of this newsletter that on all submissions of original articles, the authors assign their copyright in the work to the South Carolina Bar. Publisher may reprint, or authorize other entities to reprint, the material as deemed appropriate. The publisher has the right to authorize the reproduction, adaptation, public distribution and public display of the article as a contribution to this newsletter in electronic media, computerized retrieval systems and similar forms; such authorization includes use of the article anywhere in the world by means of public display, conversion to machine readable form and reproduction and distribution of copies. The South Carolina Bar is not required to secure the consent of the author before exercising the above named rights. In addition, the Bar has no duty or responsibility to negotiate, collect or distribute any royalties in connection therewith.

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