August 2011

in a significant employment law case, the Fourth Circuit ruled last Friday that an employer may decline employment to a prospective employees due to her having made FLSA charges against a previous employer. The case, decided 2-1 over a strong dissent from Judge King, is Dellinger v. Science Applications International Corp.

Dellinger had sued her then current employer for a Fair Labor Standards Act violation, and applied to the Plaintiff, Science, during the lawsuit proceedings for a new position.  Science offered Dellinger a job, and requested that she inform it of any civil actions to which she was a party as a condition of her security clearance. Upon learning of the FLSA charges, Science withdrew its offer.  Dellinger sued, alleging that Science had taken its action in retaliation to her FLSA charge.

Her case was dismissed by the district court, and the Fourth Circuit affirmed.

The FLSA prohibits retaliation "against any employee" who has sued to enforce the Act.  The Act defines an "employee" as "any individual employed by an employer."  Judge Niemeyer, after wading through other provisions of the FLSA, held that "Dellinger could only sue Science Applications if she could show that she was an employee and that Science Applications was her employer."  According to the majority, no court has extended FLSA’s anti-retaliation protections to prospective employees.

Dellinger argued that a ruling against her would give prospective employers the license to discriminate against prospective employees for having made FLSA claims in the past.  Judge Niemeyer said that he was "sympathetic" to this argument, but that:

The notion. . . that any person who once in the past sued an employer could then sue any prospective employer claiming that she was denied employment because of her past litigation would clearly broaden the scope of the FLSA beyond its explicit purpose of fixing minimum wages and maximum hours between employees and employers. We are, of course, not free to broaden the scope of a statute whose scope is defined in plain terms, even when "morally unacceptable retaliatory conduct" may be involved. Ball v. Memphis Bar-B-Q Co., 228 F.3d 360, 364 (4th Cir. 2000). 

Op. at p.9.

The holding was "that the FLSA gives an employee the right to sue only his or her current or former employer and that a prospective employee cannot sue a prospective employer for retaliation."




Continue Reading Fourth Circuit Authorizes Retaliation By Prospective Employers Against FLSA Claimants

This week, Judge Jolly permitted a 50% shareholder to pursue derivative and individual claims against her co-shareholder. He found that the plaintiff had satisfied the demand requirement of G.S. sec. 55-7-42, and that she fit an exception to the general rule that a shareholder cannot pursue an individual cause of action for the diminution or destruction of the value of her stock.

The decision came in LeCann v. Cobham, a long running bitter dispute between dentists who operated a number of entities providing dental care.  LeCann said that Cobham had diverted funds from a practice in which they shared ownership to another dental practice operated solely by Cobham.

G.S. sec 55-7-42 says that a shareholder "may not commence a derivative proceeding" without having made a written demand "upon the corporation to take suitable action."  In discussing the adequacy of LeCann’s demand, Judge Jolly quoted Russell Robinson, who says that no specific form of demand is required by the statute:

except to require that it be in writing; but to serve its purpose it should set forth the facts of share ownership and  describe the redress demanded with enough particularity to allow the corporation either to correct the problem, if any, without a lawsuit or to bring its own direct action.


There is no appellate North Carolina authority evaluating the sufficiency of a demand. The form of the LeCann written "demand" was several emails from LeCann to Cobham telling her to quit taking corporate funds for her own benefit  and to return what had been taken.  You can read one of the emails here. The Court said that these demands were "clear and particular enough to put Defendant Cobham reasonably on notice as to the substance of Plaintiff’s objections." 

Now, why did LeCann have the right to sue Cobham on an individual basis, especially in light of the NC Supreme Court’s opinion in Barger v. McCoy Hillard & Parks, 346 N.C. 650 (1997), where it held:

that shareholders cannot pursue individual causes of action against third parties for wrongs or injuries to the corporation that result in the diminution or destruction of the value of their stock.

Id. at 658.  Those types of claims affect all shareholders equally, and belong to the corporation.

LeCann said that she could pursue her claims on an individual because Cobham owed her a "special duty," a recognized exception to the Barger rule, as she was the only other shareholder in the companies.  Judge Jolly remarked that Cobham had asserted herself in her Answer that LeCann owed her a "duty of care, good faith, loyalty, fair dealing, full disclosure, [and] avoidance of self dealing."  He said given that each party claimed the other party owed her a fiduciary duty of care, that there was a genuine issue of material fact precluding a dismissal of LeCann’s claims.  He also equated the co-equal shareholders to partners, who certainly owe a fiduciary duty to one another.