Nasir and Matt discuss the pregnancy discrimination case against AutoZone that resulted in a $185 million verdict. They also answer, "Can I protect our trade secrets in a confidentiality agreement?"
NASIR: All right. Welcome to our podcast where we cover business in the news and answer some of your business legal questions that you, the listener, can send in to firstname.lastname@example.org. My name is Nasir Pasha and joining with me today is just me, actually. So, perfect.
MATT: Just you. All right, that’s fine. That’s less work I have to do.
NASIR: Oh, Matt’s here, too.
MATT: I’m Matt Staub. I’m here; ready to offer my input on stories and other things.
NASIR: Yeah. So, we do have to say goodbye to our audio producer. He’s gone on to bigger and better things. His name is Chris and he’s been replaced by another Matt – Matthew, I should say, right?
NASIR: And I actually offered him to replace you as a co-host.
NASIR: He refused. It would have been perfect, but I told him he would have had to change his last name, too. He refused.
MATT: Yeah, it wouldn’t have worked because I would have had to be the one who did the editing and producing, and I can’t do that. I can barely even record correctly half the time.
NASIR: All right. So, thanks again everyone for joining us, and let’s get to our first story.
MATT: Well, we have a local story – well, local for me, not local for you.
NASIR: Not in Houston.
MATT: Well, there’s probably AutoZones out there, right?
NASIR: Uh, I haven’t seen one. I don’t know if there’s pregnant people out there either so I don’t know if either of these things apply to us.
MATT: No one has cars. No one has kids. So, yeah…
So, this was in San Diego but this is a pretty huge case in terms of at least the payout. It was a lawsuit of a former – I believe she was a former manager.
NASIR: Some kind of manager, yeah.
MATT: So, she was pregnant and she was later demoted from her position as manager and, of course, terminated because that’s why we’re talking about it. So, she sued for discrimination for her being pregnant and – guess what – she got a huge award here; $172,000 worth of compensatory damages – so that’s pretty good – and then an astounding $185 million in punitive damages. Punitive damages are only for penalizing, you know, basically someone for screwing up and that’s a pretty excessive penalty. I would think this has to be one of the biggest single payouts for one individual in terms of discrimination lawsuit.
NASIR: No, I think you’re right. I did look. I think it definitely has broken records. But the problem is it is a verdict so I don’t believe this is a judgment, and this’ll happen often where a jury will decide some kind of million-dollar payout but then judge will reduce it, and punitive damages are often done that way. There’s some constitutional issues with having extreme judgments like that that have already been addressed previously. So, we should expect that to go down.
NASIR: Nonetheless, for a store, for AutoZone that has quite a number of stores – 4,000 stores – across the US, this is not a small issue.
MATT: Yeah, and I just don’t see how companies like this still continue to screw up. I mean…
NASIR: This is a huge screw-up. I mean, they have the vice-president of Western operations, so that’s probably close to the very, very top, right?
NASIR: And him pulling the district manager aside, saying, “What are we running here? A boutique? Get rid of these women.”
MATT: I didn’t see that. Gosh.
NASIR: Yeah, from a plaintiff's employer attorney, you can’t get any better than that as far as proving your claim against gender discrimination. And, by the way, pregnancy disability discrimination as well.
MATT: The actual promotion and then demotion happened about ten years ago. She got pregnant in ’05, demoted in ’06, and then she filed a lawsuit while she was still working there in 2008. And then, a month after she gave her deposition, she was fired. So, I guess they had nothing to lose at that point so we might as well just fire her because we’re already in trouble anyways.
NASIR: And that’s exactly why they got more in trouble because I believe one of the actual allegations was also retaliation.
NASIR: And so, you know, if your employee comes to you and says, “Hey, you’re doing this wrong,” and then you’re like, “Oh, okay, you’re fired” that may be a retaliation claim in most states.
She actually filed a lawsuit in 2008. A month after she gave her deposition in that case, she was fired. And the company claimed that she was terminated because of this $400 missing in the register. Now, in the San Diego trial that we’re referencing, they actually put up the investigator on the stand and testified that she never even suspected the plaintiff of wrongdoing and that the company was targeting her. So, again, more proof that, when you terminate somebody, the truth is always going to come out if it’s a legal reason, and even if she did steal the $400, if part of the reason is an illegal reason, then it’s still going to be a problem.
MATT: Yeah, and going back to what I said earlier, I just don’t see how companies continue to screw this up, especially in California where it’s pretty easy to terminate someone and not get in trouble for it. But, like, when you just make it this obvious and say the wrong things then, yeah, it’s going to come back and I guess the punitive damages calculation – which will definitely get reduced – but the company generates about $20 million a week in excess cash so $20 million a week for profit. So, she asked for eight weeks of that, and the jury awarded her nine weeks.
MATT: I don’t get why she’s entitled to all that.
MATT: But it is what it is.
NASIR: No, yeah, it’ll be reduced. They can’t set a cap on punitive damages, I believe, but I do recall in my case studies in the past that the kind of unwritten rule is, like, nine times the amount of actual damages.
NASIR: Nine to eleven, if that sounds familiar to you, I don’t know.
NASIR: And so, the actual damages, of course, is basically the money that they would have made if they were to be still employed and to the extent that they were, and that’s obviously not close to what was awarded.
MATT: Yeah, and it’s been eight years, and the actual payout was $172,000. I mean, she probably wasn’t – I don’t know, maybe she was making over $100,000 a year but that’s not that crazy of an amount in terms of the actual damages because there was emotional damages added into that as well. It’s probably more than her lost wages but it’s not that ridiculous given how far back it goes.
NASIR: One last note of the jury, people maybe outside of California are thinking, “Okay, another California case that has gone haywire,” but San Diego and San Diego juries are not particularly similar to the rest of California and you won’t find these types of cases as much – very high jury awards against employers like this in other parts of the state. So, this is still unusual in this case and, granted these are very limited circumstances, I think AutoZone was caught red-handed. Very rarely do you have so much evidence against the company.
MATT: Should I tell people that I was on this jury? Am I allowed to tell them that?
NASIR: No, you don’t have to disclose that, I don’t think.
MATT: I was the… what’s that called?
MATT: Yeah, and so I missed a decimal in there. I said that she should get $1.85 million and I guess I screwed that up. Oops!
NASIR: I like how you didn’t even know what your title was until now.
MATT: I knew of it.
MATT: All right.
NASIR: What have we got next? We have our question of the day.
MATT: “Can I protect our trade secrets in a confidentiality agreement?” Pretty short questions. Off to a good start!
NASIR: Can you or may you?
MATT: Uh, they asked, “Can I?”
NASIR: I think “can you.” Yes, you can.
MATT: We’re not the grammar police here.
NASIR: Actually, in order for it to be a trade secret, you have to have some kind of agreement. Whether you call it a confidentiality agreement or not, that’s one of the criterias of having any kind of trade secret – protection of the employee or whoever else you’re dealing with that they will keep the trade secrets secret. That’s a primary necessity.
MATT: I think trade secrets are tricky. They’re trickier than people realize. It’s not like there’s forms of intellectual property where you have a copyright on something. Someone can research that and look it up, trade secrets are pretty different than a copyright trademark patent. But the one thing to keep in mind is the information that you’re trying to keep confidential actually has to be confidential information. So, I can’t go have someone sign a confidentiality agreement of something that I’ve posted online that anyone in the public can go see. That’s not confidential anymore.
I know there was a recent case – I think it was in Illinois here – where that was basically the ruling. It was dealing with a metal case for a tablet and I guess they had some trade secrets on it and someone signed a confidentiality agreement but it wasn’t upheld because the information actually wasn’t confidential. So, I guess that’s one of the things to look out for if you’re trying to protect your trade secrets. I mean, it’s not even really a trade secret at that point if you’re just opening it up to the public. You’re not doing a good job with it.
NASIR: Exactly. I know some kind of design for metal case of electronic tablets or phones or something like that. But, you know, we’ve talked about trade secrets in the past, and I think I’ve even used this analogy in the past, but the best way to describe it is how Coke protects its recipe. They do it under a patent. They don’t do it in any trademark even though they have those kind of things. But the recipe is kept secret through a trade secret and protected through that. But the problem is, if Coke published their recipe online, then how could it be a trade secret, right? So, it’s the same kind of concept and, obviously, some things do get leaked and so forth. And so, that’s where trade secret misappropriation comes in. But, in order to get that kind of protection, you still have to maintain some kind of efforts to make it confidential. So, if it is something like – I don’t know – you have to password-protect it whatever the trade secret is, or limit it to who has access to it within your organization and have some efforts to make it actually confidential.
MATT: Or you can just reverse-engineer. People do that with Coke and other things like that. I had a book that I got as a gift one time that was, like, all the secret recipes or how to create all these famous things from restaurants, famous food and drink like Coke and there was a Wendy’s Frosty and stuff like that.
NASIR: I think that is totally prohibited. You should go to jail and it’s wrong.
MATT: I didn’t write the book.
NASIR: No, but that’s a good example of people who reverse engineer all the time. This is getting side-tracked by that’s why, also, even in your terms of service for your online applications, you actually have in there that you agree not to reverse engineer this and the problem is, for example, with Coke, unless you, by contract, every time you purchase a Coke, they have you agree that you’re not going to reverse engineer this, there’s really no way for them to prevent you from doing so.
MATT: I think they’ll be fine. Even the people that copy it, I don’t think they have the same distribution channels and connections that Coca-Cola has. So, I’m sure they’ll probably be okay.
NASIR: Maybe someday someone will try to copy Coke – some kind of other alternative Coca-Cola cola drink.
MATT: Like Pepsi?
NASIR: Yeah. Well, Pepsi is much different. They’re in a totally different category.
NASIR: All right, guys. Well, thanks for joining us. That was our first episode with Matthew. Let’s see if he screws it up.
MATT: Welcome aboard.
NASIR: Welcome aboard.
MATT: Keep it sound and keep it smart.