Where the Law Is Breaking New Ground in Business

Where the Law Is Breaking New Ground in Business

STANFORD, CA--Just like employees, employers face hazards in the workplace. Many of these are legal risks. If ignored, they can lead to a manager's worst nightmare--lawsuits and payment of damages, ill will, government fines, even a prison term or company collapse. Understanding the latest legal developments and being prepared can make all the difference.

Some of the areas where courts of law continue to break new ground involve noncompete agreements, sexual harassment, disability discrimination, and the laws of cyberspace. Constance Bagley, Stanford Business School's senior lecturer in law and management, warns that there is so much going on in the courts that managers can't afford to sit back and relax just because the company handbook on sexual harassment is hot off the press. In a recent conversation, Bagley highlighted some new turns in the law.

Noncompete agreements and trade secrets Written promises not to compete for a time after an employee leaves a company are important in any industry. If an employee didn't sign a noncompete agreement upon hiring, then he or she should be asked to do so at the next promotion, says Bagley. At that time, it's a good idea to give the employee a bonus to compensate for the added responsibility.

Some states, including California, limit the enforceability of noncompete agreements. But employers can still invoke other laws involving "inevitable disclosure" or trade secrets to protect their intellectual property from vaporizing when an engineer with new designs or a salesperson with a killer contact list leaves the firm for a competitor. Not long ago, PepsiCo successfully used these laws in a case involving an executive who was privy to the strategy for its AllSport drink. He left to join Quaker Oats, which owns Gatorade. In court, PepsiCo prevented the executive, who had signed a confidentiality agreement promising never to disclose PepsiCo information to outsiders, from working at Quaker Oats for six months--until his marketing ideas for AllSport became stale. PepsiCo argued that the nature of the job he'd been doing made it inevitable that he would transfer some of the knowledge he had about PepsiCo or that Quaker Oats would be able to anticipate PepsiCo's moves in the sports-d

Sexual harassment If you don't have a sexual harassment policy, you'd better get one. The law is still evolving, and recent decisions make it all the more essential that a company has appropriate policies and procedures. In 1998, Faragher v. City of Boca Raton was the first case in which the U.S. Supreme Court clarified the extent of an employer's liability for a "hostile environment" and articulated what defense might be available to a company in a sexual harassment suit. Until then, the Court had ruled only on quid pro quo cases in which a supervisor threatens ("Sleep with me or you're fired") and then carries out the threat. In those cases, the employer is liable regardless of what he knew. But what if a supervisor makes a threat and the employee ignores it and still gets a promotion? Is the employer responsible even if she didn't know what was going on?

Although Boca Raton lost the case brought by lifeguard Beth Ann Faragher, who claimed hostile environment because her supervisor was inappropriately patting her thigh and slapping her buttocks, the ruling said that if the harasser has not taken tangible job-related action against an employee, then the company can defend itself by proving it tried to prevent and correct harassing behavior. The employer must also show that the complaining employee failed to take reasonable advantage of those opportunities.

"This is a major change," says Bagley. "What it's saying to companies is that you need to take care of this, but you now have some hope of getting off the hook if you have procedures in place and take reasonable care." In short, if the city of Boca Raton had had appropriate procedures in place, they would have provided a defense. All employers should have written policies and channels through which employees can bypass a supervisor to report harassment.

Mental disabilities Another unfolding area of business law is "reasonable accommodation for disabilities," especially mental ones. As flatter organizations become more high pressure and everyone has more decision-making responsibility, what constitutes reasonable accommodation for someone who has a nervous condition that makes it difficult to work in a stressful job? In a 1998 case (Gaul v. Lucent Techs., Inc.), a U.S. Court of Appeals ruled that an employee asking for a transfer because of mental impairments was unreasonable because the transfer would impose extraordinary administrative costs on the employer.

Cyberlaw The Internet has triggered intriguing problems and some ingenious legal solutions. Take, for example, spam--the unsolicited advertising junk email that plagues computer users. Clever attorneys have applied conventional "laws of trespass to personal property" to get bulk emailers to cease and desist. In 1997 online service provider CompuServe sued prominent Internet junk mailer Cyber Promotions. The court determined that the mass mailings were clogging CompuServe's servers and generating ill will among its customers, thus diminishing the capacity of its equipment and harming its reputation.

The millennium bug, also known as the Y2K problem, is the pending software crisis that may occur if computers fail to recognize the year 2000 date when it arrives. Bagley reports that attorneys are already exploring the possibility of suing corporate directors for breach of fiduciary duty if a crisis materializes. Litigation would be based on directors' failure to monitor and act on the problem. For protection, directors may wish to investigate whether their companies can handle Y2K by inviting presentations from corporate officers or outside consultants. That should head off breach of duty claims.

Another Internet-related liability involves intelligent computer programs and so-called click-wrap agreements. For example, when you download software from the Internet, you are asked to agree to certain terms by clicking a box. If you click the box, that means you have agreed. The courts have enforced such agreements, at least when humans are doing the clicking. But increasingly, people are sending "bots," automated search-and-retrieve programs, onto the Web. Some even act as personal shoppers. The bot may have to go through some clicks to get the requested information. Is the person who set the bot loose bound by those agreements? The jury's still out on this one, but the onus is likely to be on the mortals.

Finally, there's the domain name, a new form of intellectual property created by the Internet. These addresses allow customers to find organizations, such as Ford Motor Co. (ford.com) or Stanford University (stanford. edu) on the Net. The courts have already ruled that domain names can infringe on a company's rights if they dilute a famous trademark. In 1998 the courts granted Panavision International's request for a judgment against a domain name pirate, or "cybersquatter," who registered the trademarked name "Panavision" in an attempt to then force the company to pay $13,000 to gain rights to the domain name.

The list of what employers need to know about the law could easily fill a 1,000-page book, which is just what Bagley has done in the updated Managers and the Legal Environment: Strategies for the 21st Century (West Publishing, 1999), one of her several books and many papers on business law.

For More Information, Contact: Barbara Buell at [email protected] or 650 723-1771