Until about a week ago, few of us had ever heard of Sinclair Broadcast Group. That is, until this video went viral.
The video shows local news anchors in a bizarre montage reading precisely the same script about news outlets pushing "irresponsible" stories to push fake news without appropriate fact-checking. Predictably, this generated a response among more prominent news outlets, some of whom took their local broadcast colleagues to task for not standing up to a corporate mandate.
Earlier this week, Bloomberg News reported that there may be a reason why those local anchors did not stand up and quit their jobs. The cost of doing so appears to be fairly steep. Bloomberg News reported that Sinclair employees sign contracts with 6-month non-compete clauses and liquidated damages clauses that call for repayment of up to 40 percent of annual compensation for quitting outside of a notice period.
The Bloomberg News article cites one example where Sinclair attempted to enforce a liquidated damages clause against a Florida news anchor who quit in disgust over some Sinclair tactics. The amount sought was quite low, however. Still, for some seasoned on-air talent, a repayment clause could be enough to deter an employee from quitting on principle.
The non-compete issue is an interesting one as well, though. Many states, including Illinois, prohibit non-compete arrangements in the broadcast industry. Sinclair is trying to buy the Tribune Media group, which means it would own Chicago's revered WGN.
Its apparent use of non-competes would run into a problem with WGN's on-air talent under the Broadcast Industry Free Market Act. That statute prohibits the use of non-compete agreements for television, radio, and cable station talent. It does not apply to sales or management employees. And if Sinclair were to violate the Act, it would be liable for both damages and attorneys' fees.
A number of other states, including New York and Massachusetts, also bar broadcast industry non-competes. California does so too by virtue of its general law banning restrictive covenants in employment.
Monday, April 9, 2018
Tuesday, April 3, 2018
Trump and the Terrible, Horrible, No Good, Very Bad NDA
Leaks from the Oval Office are nothing new.
But the media attention on leaks from this Oval Office has generated considerable buzz for a couple of reasons. First, President Donald Trump is, to put it mildly, unconventional and just plain odd. So anything leaked is grist for the media mill and sure to generate giggles. Second, both Trump himself and his minions flip out at any perceived slight that ends up in the media, no matter how peripheral it is to a substantive policy issue. This is kind of like the Streisand Effect. If they just would move on to something that matters, few people would talk about the leak.
Normally, the remedy to dispense with a leaker in the executive branch is to dismiss the leaker. No surprise there. It happens. A lot. And let's be clear, leaking isn't a good thing. You don't have to like Trump to bash leaks. We can, and should agree, that they're bad regardless of political affiliation.
That, though, doesn't mean that we can just sanction whatever consequence comes of the leaks. And it certainly doesn't mean we can endorse punishment of people who've left and dished on the doings in the Oval Office.
On that score, Trump is doing something unprecedented. We know he is the first non-politician/non-military officer to run the Executive Branch. And we know that he loves confidentiality agreements from his time working in the private sector and just plain "working" in private.
So we really shouldn't be all that surprised that Trump has deployed a truly private-sector tool, the nondisclosure agreement (NDA), within the White House to stem leaks, no matter how trivial or silly they are in the grand scheme of things.
***
I commented a week ago or so on LinkedIn that Trump's NDA for staffers was obviously unenforceable. I stand by that wholeheartedly. The Trump trolls were out, flooding my comments and email with nonsensical, grammatically challenged screed on topics that have no relationship whatsoever to the point I was trying to make. I guess that, too, was predictable.
A few other would-be apologists, probably too lazy to do their own work, demanded that I provide points and authorities for my conclusions. Apparently, common sense and that thing called the First Amendment were insufficient pillars for my post. Though I hate to indulge laziness or plain ignorance, I think the point is worth discussing in more depth.
***
Let's revisit the basics of what apparently has occurred with the White House staff, much of which comes from an article in The Washington Post, a famous Trump target.
The Post obtained a preliminary draft of the NDA, which in all likelihood differs somewhat from the final version the White House demanded staffers to sign. What do we know about it? A few things:
But the media attention on leaks from this Oval Office has generated considerable buzz for a couple of reasons. First, President Donald Trump is, to put it mildly, unconventional and just plain odd. So anything leaked is grist for the media mill and sure to generate giggles. Second, both Trump himself and his minions flip out at any perceived slight that ends up in the media, no matter how peripheral it is to a substantive policy issue. This is kind of like the Streisand Effect. If they just would move on to something that matters, few people would talk about the leak.
Normally, the remedy to dispense with a leaker in the executive branch is to dismiss the leaker. No surprise there. It happens. A lot. And let's be clear, leaking isn't a good thing. You don't have to like Trump to bash leaks. We can, and should agree, that they're bad regardless of political affiliation.
That, though, doesn't mean that we can just sanction whatever consequence comes of the leaks. And it certainly doesn't mean we can endorse punishment of people who've left and dished on the doings in the Oval Office.
On that score, Trump is doing something unprecedented. We know he is the first non-politician/non-military officer to run the Executive Branch. And we know that he loves confidentiality agreements from his time working in the private sector and just plain "working" in private.
So we really shouldn't be all that surprised that Trump has deployed a truly private-sector tool, the nondisclosure agreement (NDA), within the White House to stem leaks, no matter how trivial or silly they are in the grand scheme of things.
***
I commented a week ago or so on LinkedIn that Trump's NDA for staffers was obviously unenforceable. I stand by that wholeheartedly. The Trump trolls were out, flooding my comments and email with nonsensical, grammatically challenged screed on topics that have no relationship whatsoever to the point I was trying to make. I guess that, too, was predictable.
A few other would-be apologists, probably too lazy to do their own work, demanded that I provide points and authorities for my conclusions. Apparently, common sense and that thing called the First Amendment were insufficient pillars for my post. Though I hate to indulge laziness or plain ignorance, I think the point is worth discussing in more depth.
***
Let's revisit the basics of what apparently has occurred with the White House staff, much of which comes from an article in The Washington Post, a famous Trump target.
The Post obtained a preliminary draft of the NDA, which in all likelihood differs somewhat from the final version the White House demanded staffers to sign. What do we know about it? A few things:
- The scope of the NDA is not limited to "classified" information (more on this below). Instead, it captures "confidential information" defined as "nonpublic information I learn of or gain access to in the course of my official duties in the service of the United States Government on White House staff,” including “communications...with members of the press" and "with employees of federal, state, and local governments."
- The preliminary liquidated damages figure for a breach of the NDA was $10,000,000 per violation.
- An enforcement clause, which appears designed to create standing, states: “I understand that the United States Government or, upon completion of the term(s) of Mr. Donald J. Trump, an authorized representative of Mr. Trump, may seek any remedy available to enforce this Agreement including, but not limited to, application for a court order prohibiting disclosure of information in breach of this Agreement.”
- The non-disclosure restriction appears to last in perpetuity.
***
I want to leave aside the problems with each of the four numbered points above just for a second. We need to step back and understand an overriding principle at work. People who work for the government serve the public. The information they obtain, with some limited exceptions, belongs to the public. And of course, they have First Amendment rights that those employees in the private sector do not enjoy.
Courts haven't really confronted public-sector employee NDAs before, but they have developed some principles that apply to the White House's agreement. Two are crucial to understand the legal question Trump's newest NDA raises. First, restrictions on the speech of governmental employees must protect a substantial government interest unrelated to the suppression of free speech. And second, the restriction must be narrowly drawn to restrict no more speech than is necessary to protect the asserted substantial government interest.
***
I want to return to a preliminary point I made before.
Leaks are bad.
With Trump, I kind of like them in the way I like a beer when I get home. But speaking objectively for a second, we can assume the government can dismiss an employee who discloses information, either to confidential sources or brazenly with his or her name attached to the disclosure.
This is part of a balance that courts must strike in evaluating speech and restrictions on public-sector employees. We know from case law that not all regulation of speech is the same. The government can regulate what its employees say far beyond what it could regulate of the general public. No debate there.
Leaks are bad.
With Trump, I kind of like them in the way I like a beer when I get home. But speaking objectively for a second, we can assume the government can dismiss an employee who discloses information, either to confidential sources or brazenly with his or her name attached to the disclosure.
This is part of a balance that courts must strike in evaluating speech and restrictions on public-sector employees. We know from case law that not all regulation of speech is the same. The government can regulate what its employees say far beyond what it could regulate of the general public. No debate there.
This solves the question of whether Trump could fire, say, Kellyanne Conway, for spilling to a source at the Post. (Hypothetically, of course...). She would have no Section 1983 claim for violation of her First Amendment rights.
***
The problem with Trump's NDA, though, is well beyond that non-controversial point about existing leakers. Trump is trying to coerce perpetual silence from current and former staffers through agreements that do run afoul of the First Amendment.
In some states, non-disclosure agreements must contain a reasonable time limit and also be reasonable in scope. A perpetual NDA in these jurisdictions is likely void on its face.
***
Now let's look at the scope of information protected by the NDA. It captures nonpublic governmental information. There is no set of limiting factors that illustrate what this may be. But it goes well beyond classified or even confidential information.
Some case authority illustrates why this scope is patently unreasonable and an infringement on the First Amendment.
In some states, non-disclosure agreements must contain a reasonable time limit and also be reasonable in scope. A perpetual NDA in these jurisdictions is likely void on its face.
***
Now let's look at the scope of information protected by the NDA. It captures nonpublic governmental information. There is no set of limiting factors that illustrate what this may be. But it goes well beyond classified or even confidential information.
Some case authority illustrates why this scope is patently unreasonable and an infringement on the First Amendment.
The most apt line of cases involves CIA pre-publication clearance contracts. Put simply, these are agreements that CIA agents sign and that allow the CIA to censor or screen classified material before an agent seeks to publish material about CIA activities in articles or books. Regulations define "classified" material as information about military plans, foreign governments, or the (now familiar) intelligence "sources and methods."
Pre-publication agreements, and the government's efforts to censor classified material, have been upheld as a reasonable means to protect a substantial governmental interest. But the key to upholding these agreements is the presence of a particular, ascertainable standard that limits governmental discretion to censor in the first instance.
If the standards were too flimsy, then the censorship scheme would fall apart and violate the First Amendment.
***
When viewing the pre-publication clearance agreement line of cases against the current NDA, it's pretty obvious Trump's White House has gone way too far. The NDA, it appears, prohibits the disclosure of confidential information, not classified materials, along the lines of what a business may try to enforce in the private sector. No reasonable lawyer could claim that "nonpublic information" learned in a governmental job is akin to classified materials like foreign intelligence sources.
The NDA fails to satisfy the "narrowly drawn" test, for it captures random chatter in the White House among staffers. It would prohibit the disclosure of an ex-staffer's impressions of Trump's response to a phone call with a foreign dignitary. And it would also bar a former employee from telling the media that Trump ignored a warning not to say something on a phone call with Vladimir Putin. Even if all of this is "nonpublic" information, it is the ultimately information the public has a right to and should be able to see.
No substantial governmental interest would support such a sweeping NDA.
No substantial governmental interest would support such a sweeping NDA.
***
The NDA of course suffers other problems, too. The liquidated damages clause is an unenforceable penalty designed to coerce compliance with the terms rather than predict likely loss. Indeed, it's not clear what financial harm could inure to the federal government if one ex-staffer published a book outlining the dysfunction within the Cabinet.
Any party enforcing a liquidated damages clause must show that the selected amount was reasonable at the time of contracting and contains some relation to damages likely to result. The enforcing party then also must show actual damages would be uncertain and difficult to prove. In some cases, NDA liquidated damages clauses have been upheld as reasonable. From what I've seen, the amount selected still has some evidentiary basis that enables a court to find it was a sound predictor of harm.
Any party enforcing a liquidated damages clause must show that the selected amount was reasonable at the time of contracting and contains some relation to damages likely to result. The enforcing party then also must show actual damages would be uncertain and difficult to prove. In some cases, NDA liquidated damages clauses have been upheld as reasonable. From what I've seen, the amount selected still has some evidentiary basis that enables a court to find it was a sound predictor of harm.
Of course, I have not found any case that upholds a liquidated damages amount approaching what Trump seeks in the NDA. But aside from the fact that it's unprecedented, there's a much bigger question at play. Who exactly is damaged? Trump is not a private citizen anymore. He holds an office as part of the public trust. If a staffer revealed damaging information about Trump's conduct in the White House, then this damages Trump only in one sense: the way the public perceives him. And it's not in a sense that is remediable the way Trump thinks.
Put another way, if the public learns accurate information that affects their perception of the President, then the disclosure actually confers a benefit on the federal government. It damages nothing about the institution itself.
Note again the distinction with the CIA pre-publication clearance agreement cases. Disclosure of nuclear strategies or intelligence sources can objectively damage the country regardless of who is in power. But disclosure of the President's behavior in the White House does not suggest the same kind of damage.
Put another way, if the public learns accurate information that affects their perception of the President, then the disclosure actually confers a benefit on the federal government. It damages nothing about the institution itself.
Note again the distinction with the CIA pre-publication clearance agreement cases. Disclosure of nuclear strategies or intelligence sources can objectively damage the country regardless of who is in power. But disclosure of the President's behavior in the White House does not suggest the same kind of damage.
***
This gets to a final problem. Who exactly would enforce this NDA? The draft seems to give either the government or Trump the option. But again, this makes little sense. Trump personally does not have standing to sue an ex-employee for disclosing "nonpublic" information about his tenure in the White House. If a staffer leaks classified material, then that is a crime. But the idea of an enforcement action by Trump against someone he perceives as a disloyal leaker is not only unprecedented, but it completely ignores his status as a public servant.
***
My advice to ex-Administration employees remains the same. Speak freely as long as you don't dish classified information. And by all means, do not worry about what you signed.
Monday, April 2, 2018
The Supreme Court of Illinois Is Not Interested in the Non-Compete Consideration Rule
For the third time, the Supreme Court of Illinois has declined to hear a petition for leave to appeal that confronts the question of continued employment as consideration for a non-compete agreement.
For at least the past few years, practitioners have operated under the assumption, perhaps wrongly, that Illinois courts established a bright-line two-year rule under which continued employment may serve as consideration for an employee restrictive covenant agreement. This is the so-called Fifield rule, stemming from a 2013 First District Appellate Court case that appeared to set forth a bright line. The Supreme Court declined to hear an appeal in Fifield, so the lack of interest in follow-on cases is not surprising.
This past week, the Court declined a petition for leave to appeal in the case of Automated Industrial Machinery, Inc. v. Christofilis, 2017 IL App (2d) 160301-U. This was my case, and I represented Tom Christofilis at trial and on appeal. Early on in the litigation, the circuit court had granted our motion to dismiss a breach of contract claim given that Christofilis' former employer, AIM, had required him to sign an afterthought non-compete that lasted only for 5 months before he resigned. The court noted that it was not relying at all on Fifield, rightly stating that not a single case in Illinois endorsed consideration of just 5 months' continued employment.
Illinois' consideration rule has come under criticism from some, who apparently are dissatisfied that courts have tread a middle ground between the absolutist positions. Those positions state either that continued employment is not valid contract consideration for a non-compete, or that it is. Very few states require some sort of meaningful period of employment, and Illinois' "substantial period of time" rule is perhaps the most well-developed line of cases that forges a pragmatic path.
Though I say the cases are well-developed, they could certainly be clearer. I think Fifield is misunderstood because sometimes easy cases make for bad law. In retrospect, the two-year pronouncement was both unnecessary to the case's disposition and simply a product of loose opinion writing. I hate to say that and don't mean to indict the appellate court, but it's simply true.
In the bigger picture, the notion of continued employment as adequate consideration at all for a restraint of trade is just weird. It is ephemeral and in many cases illusory. It fails to account for the adhesive nature of the arrangement and the fact that the employee receives nothing at all comparable to what he or she is giving up. As lawyers, we're stuck with this silly, non-sensical paradigm of analyzing contract consideration that makes very little sense to clients and seems directly at odds with the disfavored nature of non-competes in the first instance.
Legislating this issue will prove difficult. But there's another way. If a court ever took a fresh look (and based on Fifield and Christofilis, I don't see that as imminent), it may want to ask just why continued employment is a permissible form of consideration in the first instance. Or how it comports with the adequacy rule that requires some decent fit between the restraint and the benefit conferred on the party restrained. Inertia is not often a good reason for justifying a legal rule, even if lawyers and judges assume that it is.
For at least the past few years, practitioners have operated under the assumption, perhaps wrongly, that Illinois courts established a bright-line two-year rule under which continued employment may serve as consideration for an employee restrictive covenant agreement. This is the so-called Fifield rule, stemming from a 2013 First District Appellate Court case that appeared to set forth a bright line. The Supreme Court declined to hear an appeal in Fifield, so the lack of interest in follow-on cases is not surprising.
This past week, the Court declined a petition for leave to appeal in the case of Automated Industrial Machinery, Inc. v. Christofilis, 2017 IL App (2d) 160301-U. This was my case, and I represented Tom Christofilis at trial and on appeal. Early on in the litigation, the circuit court had granted our motion to dismiss a breach of contract claim given that Christofilis' former employer, AIM, had required him to sign an afterthought non-compete that lasted only for 5 months before he resigned. The court noted that it was not relying at all on Fifield, rightly stating that not a single case in Illinois endorsed consideration of just 5 months' continued employment.
Illinois' consideration rule has come under criticism from some, who apparently are dissatisfied that courts have tread a middle ground between the absolutist positions. Those positions state either that continued employment is not valid contract consideration for a non-compete, or that it is. Very few states require some sort of meaningful period of employment, and Illinois' "substantial period of time" rule is perhaps the most well-developed line of cases that forges a pragmatic path.
Though I say the cases are well-developed, they could certainly be clearer. I think Fifield is misunderstood because sometimes easy cases make for bad law. In retrospect, the two-year pronouncement was both unnecessary to the case's disposition and simply a product of loose opinion writing. I hate to say that and don't mean to indict the appellate court, but it's simply true.
In the bigger picture, the notion of continued employment as adequate consideration at all for a restraint of trade is just weird. It is ephemeral and in many cases illusory. It fails to account for the adhesive nature of the arrangement and the fact that the employee receives nothing at all comparable to what he or she is giving up. As lawyers, we're stuck with this silly, non-sensical paradigm of analyzing contract consideration that makes very little sense to clients and seems directly at odds with the disfavored nature of non-competes in the first instance.
Legislating this issue will prove difficult. But there's another way. If a court ever took a fresh look (and based on Fifield and Christofilis, I don't see that as imminent), it may want to ask just why continued employment is a permissible form of consideration in the first instance. Or how it comports with the adequacy rule that requires some decent fit between the restraint and the benefit conferred on the party restrained. Inertia is not often a good reason for justifying a legal rule, even if lawyers and judges assume that it is.
Subscribe to:
Posts (Atom)