In November 2022, the world of employment law saw notable employee compensation cases – ranging from the compensation of the world’s richest executive down to local fast food service employees – and more ugly workplace allegations coming out of the NFL. Read the latest in the updates below.
Tesla shareholder lawsuit examines Elon Musk’s unprecedented Tesla pay package
In 2018, EV automaker Tesla awarded Elon Musk a compensation package of stock options that helped secure his title as the world’s richest person. Today, the package is worth approximately $50.9 billion, and is now being challenged in a shareholder lawsuit filed in the Delaware Court of Chancery that alleges that it was the product of Musk’s exploiting his control of Tesla and its board of directors. The lawsuit alleges that the pay package was unjust enrichment, and that the board failed to meet its legal duty to act in the best interest of Tesla shareholders.
Among other things, the lawsuit alleges that Musk secured the compensation to fund his personal ambition to colonize Mars through another company of which Musk is CEO, SpaceX, and that the pay package was not needed to incentivize Musk as he was already the largest shareholder of Tesla. According to expert for the shareholder plaintiff, the Tesla board was not sufficiently independent from Musk, citing instances of personal friendship, vacationing together, and a lack of oversight of Musk notwithstanding Musk’s skirmishes with the SEC over issues such as tweeting about the financial condition of the company. By contrast, an expert witness testified on behalf of Tesla that the compensation package was reasonable, while the Tesla Board members testified that the compensation was necessary to keep Musk engaged, noting that Musk has ideas for many other companies he may want to pursue in time.
Although the trial took place this month, the court cautioned that it could be months before a ruling occurs. Regardless of the outcome, given the high profile of the case, it will likely create significant precedent in the field of executive compensation, and also serve as a reminder of the many complex components involved in establishing executive compensation packages.
Pennsylvania Wendy’s Franchise Owners Alleged to have Edited Timesheets to Short Their Employees Full Wages and Overtime Pay
The owners of approximately a dozen Wendy’s franchise locations in Pennsylvania have been sued in a federal class action lawsuit for allegedly incorrectly compensating their non-exempt (hourly wage) employees by improperly editing the employees’ time sheets to omit hours worked, including regular hours as well as hours in excess of 40 hours subject to overtime pay. If the allegations prove correct, the conduct would constitute a violation of both the federal Fair Labor Standards Act and the Pennsylvania Minimum Wage Act. Both laws require employers to properly track hours worked by nonexempt employees as well as to pay at least 1.5 times the employee’s regular rate of pay for all hours over 40 worked in a workweek. The proposed classes under the federal and state laws consist of individuals who worked for the Wendy’s franchisors as nonexempt employees in the past three years. The action serves as a reminder to employers that any practice that applies broadly to a class of employees must be carefully and lawfully vetted and administered, and that failure to do so can lead to widespread legal actions from many employees with significant legal exposure.
The case is Stump v. Harrisburg LIV Bacon LLC et al., case number 1:22-cv-01770, in the U.S. District Court for the Middle District of Pennsylvania.
Washington D.C. Attorney General sues the NFL and Washington Commanders for allegedly misleading the Public over Toxic Workplace
In an unusual twist following a year-long investigation into allegations that the NFL’s Washington Commanders franchise fostered a toxic workplace, the Washington D.C. Office of Attorney General is using the findings of the investigation to support a lawsuit against the NFL, its commissioner Roger Goodell, the Washington Commanders, and Washington team owner Daniel Snyder, alleging violations of the D.C. Consumer Protection Procedures Act. The D.C. law requires businesses selling goods or services to District residents to comply with consumer protection laws, including consumers’ right to accurate information about the products they purchase. The lawsuit claims that the league and the team have profited off their connection to Washington, D.C. for years by selling tickets and memorabilia to residents bolstered by lying about the team’s knowledge of the alleged environment of perpetual sexual harassment as well as the team’s willingness to comply with the league-led investigation. According to outgoing Attorney General Karl Racine, the lawsuit will pursue statutory fines of $5,000 for each false statement made by Goodell, Snyder, the Commanders or the NFL.
The lawsuit comes on the heels of $10 million fine implemented by Goodell in 2021 following the investigation’s findings that the team enabled a toxic workplace culture that included bullying and sexual harassment of female employees, particularly the team cheerleaders. The instances of inappropriate conduct highlighted in the investigation included “parading” the cheerleaders around for team executives, Snyder allegedly ordering the filming the cheerleaders during a photo shoot during breaks without their knowledge, and Snyder allegedly putting his hand on the thigh of a cheerleader during a dinner and trying to pull her into his limo afterwards.
Both the NFL and the Commanders have issued statements attacking the lawsuit. According to the Commanders, the “lawsuit repeats a lot of innuendo, half-truths and lies”, and the organization welcomes the “opportunity to defend the organization…and to establish, once and for all, what is fact and what is fiction”. The NFL pushed back, stating that the “investigation into workplace misconduct …was thoroughly and comprehensively conducted” and that “[f]ollowing the completion of the investigation, the NFL made public a summary of [the] findings and imposed a record-setting fine against the club and its ownership.”
The lawsuit represents a creative use of consumer protection laws. If successful, it could open the door to similar lawsuits against other large companies alleged to have mislead the public about allegations of misconduct in their workplace.
Jeff Burke is an attorney at MacElree Harvey, Ltd., working in the firm’s Employment and Litigation practice groups. Jeff counsels businesses and individuals on employment practices and policies, executive compensation, employee hiring and separation issues, non-competition and other restrictive covenants, wage and hour disputes, and other employment-related matters. Jeff represents businesses and individuals in employment litigation such as employment contract disputes, workforce classification audits, and discrimination claims based upon age, sex, race, religion, disability, sexual harassment, and hostile work environment. Jeff also practices in commercial litigation as well as counsels business on commercial contract matters.
