More Than Cosmetic: Third Circuit Reverses Dismissal of CEPA Claim Against L’Oréal

By Erica Hughes

On July 25, 2017, the Third Circuit held that terminating an employee for refusing to violate Rules of Professional Conduct can serve as a basis for a claim under the New Jersey Conscientious Employee Protection Act (“CEPA”).[1]  Steven Trzaska, a former attorney at L’Oréal USA, Inc., sued the company pursuant to the CEPA, alleging that he was wrongfully terminated for refusing to file frivolous or bad-faith patent applications.[2]  The CEPA, which is meant to protect employees from retaliatory actions by employers, precludes retaliatory action against employees who object to or refuse to do something that:

(1) is in violation of a law, or a rule or regulation promulgated pursuant to law. . . (2) is fraudulent or criminal. . . [or] (3) is incompatible with a clear mandate of public policy concerning the public health, safety or welfare or protection of the environment.[3]

 

Trzaska, a patent attorney, must abide by the Rules of Professional Conduct established by the United States Patent and Trademark Office (“USPTO”)[4]. He is also bound to the rules of the Supreme Court of Pennsylvania, where he was admitted to practice law.[5]  Both forbid attorneys from “filing frivolous or bad-faith patent applications or from knowingly making false statements before a tribunal.”[6] Faced with both a patent application quota established by the company and a deficit in patentable products, Trzaska told his superiors that he and his team were unwilling to file patents they did not believe were patentable.[7]  L’Oréal offered Trzaska two severance packages a few weeks later.[8]  Severance packages are not mandated by the Fair Labor Standards Act – which establishes minimum wage, overtime pay, recordkeeping, and youth employment[9] – and granting severance pay is at the employer’s discretion.[10]  After rejecting both, Trzaska was fired.[11]

The District Court of New Jersey dismissed Trzaska’s claim because, in its view, a CEPA claim could not be based on Rules of Professional Conduct.[12]  The Third Circuit however, held that instructing an employee to disregard the Rules of Professional Conduct did in fact trigger CEPA protection.[13]  First, the court reasoned that a well-functioning patent system, which is in the public’s interest, cannot exist without adherence to the rule of good-faith, non-frivolous patent applications.[14]  Second, it held that Rules of Professional Conduct could be the basis of a CEPA violation because disregarding ethical standards that regulate a profession goes against public policy.[15]  Despite the fact these Rules of Professional Conduct do not regulate L’Oréal’s business practices, the instruction to violate these rules goes against public policy and can therefore fall under the CEPA.[16]  Thus, the court held that Trzaska’s claim could serve as the basis for a CEPA claim.[17]

By reversing the District Court’s decision, the Third Circuit added a new layer in everyday business conduct: instructing an employee to violate their Rules of Professional Conduct is grounds for a CEPA claim, even though a business itself is not governed by these rules.[18]  The District Court of New Jersey determined that because Rules of Professional Conduct do not govern L’Oréal’s business practices and do not forbid the adoption of patent quotas.[19]  By allowing Trzaska’s claim to serve as a basis for CEPA claim, however, L’Oréal’s business decision to enforce its patent quota is implicated by the Rules of Professional Conduct that govern their employees.[20]  The Rules of Professional Conduct, under this holding, can now govern business practices in that, if the business practice violates the rules, the employer cannot fire an employee for refusing to comply.[21]  Now to an employer, a business practice that might lead to a violation of Rules of Professional Conduct could lead to a CEPA claim that is, as aptly stated by the Third Circuit, much more than skin-deep.[22]

 

[1]  Trzaska v. L’Oréal USA, Inc., 865 F.3d 155, 155 (3d Cir. 2017).

[2] Id. at 159.

[3] N.J. Stat. Ann. § 34:19-3(c) (2017).

[4] See Patents, Trademarks, and Copyrights, 37 c.f.r. § 11.301 (2017) (outlining USTPO Rules of Profession Conduct and stating that a practitioner shall not bring a proceeding or issue unless there is a basis in law and is not frivolous).

[5] Trzaska, 865 F.3d at 155; See Pa. Rules of Professional Conduct, R. 3.1 (2017) (“A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law.”).

[6] Id. at 157-58.

[7] Id. at 158.

[8] Trzaska, 865 F.3d at 158; See generally Severance Package, Merriam-Webster.com, https://www.merriam-webster.com/dictionary/severance%20package (last visited Aug. 9, 2017) (defining “severance package” as money and other benefits given when employment is ended).

[9] See Wage and Hour Division: Compliance Assistance – Wages and the Fiar Labor Standards Act (FLSA), u.s. dep’t of lab.,  https://www.dol.gov/whd/flsa/ (last visited Aug. 9, 2017) (providing an overview of the Fair Labor Standards Act, which affects employees in the private sector and in Federal, State, and local governments).

[10] See Severance Pay,  u.s. dep’t of lab., https://www.dol.gov/general/topic/wages/severancepay (last visited Aug. 9, 2017) (explaining that severance pay is often granted upon termination of employment but is not required under the Fair Labor Standards Act).

[11] Trzaska, 865 F.3d at 158.

[12] Id. at 159.

[13] Id. at 160.

[14] Id. (citing Medtronic, Inc. v. Mirowski Family Ventures, LLC, 134 S. Ct. 843, 851 (2014); Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 343 (1971)).

[15] Id.

[16] Id. at 161.

[17] Id.

[18] Id.

[19] Trzaska v. L’Oréal USA, Inc., No: 2:15-cv-02713-SDW-SCM, 2015 WL 6687661, at *1, 4 (D. N.J. 2015).

[20] See Trzaska, 865 F.3d at 155.

[21] Id.

[22] Id. at 155.

Leave a Reply

Your email address will not be published. Required fields are marked *