Radio Shack’s Decline Highlights Use of Bankruptcy in Reorganizing a Business

Retail is a risky business, even during the best of economic times. But, in the present climate, even large, well-established retailers are struggling to survive. Consider the case of Radio Shack, the 94-year-old electronics retailer, which filed for bankruptcy on February 5th. As part of a court-supervised reorganization, Radio Shack is expected to close about half of its 4,000 stores—including several dozen outlets in Florida—and sell the remaining outlets to a willing buyer.

What Exactly Is Bankruptcy?

Although we are all familiar with the concept of “bankruptcy,” how does it actually work when dealing with a business like Radio Shack? You may be asking: is a corporate bankruptcy the same as a personal bankruptcy?

Unlike many legal matters affecting retailers at the state and local levels, bankruptcy is strictly a matter of federal law. Congress establishes a uniform law of bankruptcy. The present system has several different provisions or chapters—most notably, Chapters 7, 11 and 13.

Most business bankruptcies, like Radio Shack’s, fall under Chapter 11. Unlike a Chapter 7 bankruptcy, where the business must be closed and liquidated in its entirety, Chapter 11 allows a bankrupt company to seek a “reorganization” of its operations in an effort to remain open. When a company files for Chapter 11 protection, it submits a proposed reorganization plan to a federal bankruptcy judge.

For example, Radio Shack has already identified a potential buyer for several of its stores. This does not automatically mean the bankruptcy judge will approve this buyer. In a bankruptcy case, the court appoints a trustee to monitor and supervise the company. This includes soliciting offers from other potential buyers. Ultimately, it will be up to the judge to decide which is the best offer and act accordingly. Once a reorganization is approved, the company can exit bankruptcy.

Does a Business Bankruptcy Affect My Personal Assets?

The whole point of bankruptcy is to “wipe the slate clean” as it were. Once a business enters bankruptcy protection, creditors may no longer attempt to collect any debts owed by the business. The bankruptcy judge will determine how much, if any, the creditors get paid. Many unsecured debt holders and other parties, such as stockholders, will get little to nothing.

But what about a small retailer where there are just one or two owners? Do they stand to lose personal assets, such as their houses, if their business goes bankrupt? That depends on how the business is organized. If the owners incorporated their business, like Radio Shack, then the bankruptcy will not touch their personal assets. A corporation (or limited liability company) limits the liability of the owners to their investment in the business itself. But, if the business is a sole proprietorship or general partnership, as many small retailers are, then the bankruptcy court may use the owners’ personal assets to pay off creditors. In these situations, there is no legal distinction between the owners and the business.

If you are a small business owner contemplating bankruptcy, it is important you seek competent legal advice. Bankruptcy is not a simple matter, and it is not something you should attempt to do on your own. If you need to speak with an experienced Florida business attorney on this subject, contact John S. Sarrett today.

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Are Women’s Boots a Form of Intellectual Property?

You might think copyright is something you only have to worry about if you are in the publishing or media industry. But copyright can affect retail businesses as well. A recent decision by a federal appeals court illustrates the potential legal pitfalls of infringing copyrights in product design.

Olem Shoe Corp. v. Washington Shoe Corp.

Washington Shoe sells women’s boots. It claims copyrights on two specific designs, one a black boot with Zebra-type striping, and the other a black boot with white polka dots. Both copyrights were registered with the U.S. Copyright Office.

In late 2009, Washington Shoe sent a cease-and-desist letter to a competitor, Olem Shoe, claiming the latter was selling boots identical to the two Washington-copyrighted designs. Olem’s attorney replied, seeking additional information in support of Washington’s copyright claims. Dissatisfied with Washington’s response, Olem then filed a lawsuit in Miami federal court, asking a judge to declare it had not violated Washington’s copyrights. Washington counter-sued for copyright infringement.

The trial court agreed with Washington that Olem infringed its copyrights. The court went on to say the infringement was not “willful.” This is an important distinction in copyright law. A copyright holder can recover higher damage awards if it can prove the offender deliberately infringed the copyright.

A jury ultimately awarded Washington about $28,000 in damages for Olem’s (non-willful) copyright infringement. Both sides appealed to the U.S. Eleventh Circuit Court of Appeals in Atlanta. In January 2015, a three-judge panel affirmed the trial court’s outcome.

With respect to copyright infringement, the Eleventh Circuit said Washington met its burden of proof. Although federal law does not require registration—a copyright is established the moment an original work is “fixed in a tangible medium”—the fact Washington did register its copyrights created a “rebuttable presumption” they were valid. Olem failed to overcome this presumption in the trial court. Furthermore, the appeals court said, the trial judge examined both companies’ boots and found them “strikingly similar,” which created a legal presumption that Olem copied Washington’s designs, which were widely known.

All that said, the appeals court agreed with the trial judge that Olem did not “willfully” infringe Washington’s copyrights. There was no evidence, the Eleventh Circuit said, “Olem actually knew it was infringing Washington Shoe’s copyrights.” Just because Olem produced boots with a similar design, that did not mean it deliberately stole Washington’s designs. Willful infringement, the appeals court said, requires some proof of “specific” knowledge, such as that Olem had access to actual samples of Washington’s boots.

Protecting Your Own Copyrights

But as this case demonstrates, even accidental or unintended copyright infringement is against the law. If you manufacture or sell goods that too closely mirror a competitor’s designs, you may find yourself in the same position was Olem Shoe. Conversely, if you operate a business that relies heavily on unique designs, it is important to register and protect any legally valid copyrights in your own work. As noted above, registering a copyright creates a legal presumption of validity, which makes it much easier to prove infringement later on. If you need advice on this or any other legal matter, contact Florida business attorney John S. Sarrett today.

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Adherence to the Uniform Commercial Code

All Florida retailers should be aware of the Uniform Commercial Code (UCC). The UCC is a model law adopted by the legislatures of all 50 states and is designed to harmonize the rules governing certain commercial transactions. Where applicable, the UCC displaces traditional state common law.

As adopted in Florida, Article II of the UCC only applies to “transactions in goods.” That is to say, it does not apply to the sale of services of any kind. Contracts for services are still governed by Florida common law.

Allied Shelving & Equipment, Inc. v. National Deli, LLC

Sometimes it can be tricky to determine whether a given contract falls under the UCC or common law. Here is a recent example from a Florida District Court of Appeal decision. In this case, a food manufacturer, National Deli, hired Allied Shelving to install a set of large warehouse shelves. The agreement went south, and each party sued the other for breach of contract.

A trial court ruled in favor of National Deli. The court applied common law, rather than the UCC, in interpreting the underlying contract. Allied appealed, arguing the UCC should have applied.

The Florida Third District Court of Appeal upheld the trial court’s decision. Judge Leslie B. Rothenberg, writing for a three-judge panel, said this contract was “primarily” one for services rather than goods. Therefore, the trial court was correct in applying common law instead of the UCC.

“Many contracts, commonly referred to ‘hybrids,’ involve transactions for both goods and services,” Judge Rothenberg said in her opinion. When dealing with a hybrid contract, a court must decide whether it is “predominantly” one for goods or services. For example, if you buy a couch and have it delivered to your house, that is predominantly a contract for a good (the couch) rather than a service (the delivery).

In this case, the trial court decided the services portion of the contract—the installation of the shelving—was the predominant factor over the goods sold. Unfortunately, the appeals court did not have a fully developed record, including the contract itself, and therefore Judge Rothenberg said she was in no position to second-guess the trial court’s finding on this issue.

Getting Help Understanding the Law

It is always important to understand what law applies to a given business contract. The UCC and common law treat contracts and business negotiations quite differently. For instance, a contract for goods under the UCC can be slightly modified without destroying the agreement. In contrast, any change to an offer constitutes a rejection and submission of a new offer. These distinctions can prove important if there is a subsequent breach of contract and litigation follows.

If you need advice on the UCC or any other aspects of business contracts, contact Naples business attorney John S. Sarrett today.

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The Importance of Enforcing Your Trademarks and Service Marks

For Florida retailers, trademarks and service marks are essential business assets. These marks help identify a business and establish its brand and reputation within the community. Once you properly establish and register a mark, you have the legal right to prevent others from using similar marks that might lead to customer confusion or “dilution” of your brand.

Carlo Bay Enterprises, Inc. v. Two Amigo Restaurant, Inc.

Here are two recent examples of how Florida businesses enforced their marks in court. In the first case, a Tampa nightclub sued a competing nightclub. The plaintiff owned and used the service mark “Club Prana.” The defendant used the name “Prana Restaurant & Lounge.” The defendant’s club operated in Sarasota, less than an hour away from the plaintiff’s business.

Club Prana sent Prana Restaurant & Lounge a cease-and-desist letter informing the latter of the former’s service marks. When there was no response, Club Prana filed a lawsuit in federal court. The defendant never appeared to contest the case. U.S. District Judge Virginia M. Hernandez Covington subsequently entered a default judgment for the plaintiff.

As Judge Covington explained, the defendant’s failure to appear did not, in and of itself, require default judgment in favor of the plaintiff. Club Prana still had to prove (1) it held a valid mark misappropriated by the defendant and (2) the defendant’s “unauthorized use” of the mark “was likely to cause confusion” among consumers.

Judge Covington was satisfied Club Prana made its case. The club had properly registered its service mark with the U.S. Patent and Trademark Office and the Florida Department of State. This creates a legal presumption in favor of Club Prana’s right to the mark. Club Prana also showed there was likely dilution of the mark, given both it and the defendant “cater to the same clientele, which could lead consumers to believe that Defendants’ establishment is related or affiliated to Carlo Bay’s business.” Accordingly, Judge Covington issued an injunction against the defendant, preventing it from using the “Prana” mark in the future, and awarding $30,000 in damages to the plaintiff.

Coolmath.com, LLC v. Evertap LLC

In the second case, the plaintiff was an educational software and website developer that markets under the registered mark of “COOLMATH.” Among COOLMATH’s products are math games targeted to children online. Another company later marketed similar online products under the name “Cool Math Games for Fun.”

Like the Club Prana case, COOLMATH responded first by sending a cease-and-desist letter then filing a federal lawsuit. Indeed, this case was also heard by Judge Covington and the defendant never appeared to contest the charges. And like the case above, Judge Covington found COOLMATH sufficiently proved it was the victim of trademark infringement under federal and state law. Judge Covington issued a judgment against the defendant and awarded the plaintiff $15,000 in damages.

One distinguishing factor in this case is COOLMATH also sought relief under the Anticybersquatting Consumer Protection Act, a federal law that protects the use of registered marks in web domains and Internet searches. As part of the relief awarded the plaintiff, Judge Covington said the defendant could not use “any domain name or metatag that includes in whole or in part the term ‘COOLMATH’ or any formative thereof in connection with a website that advertises, promotes, markets, displays, sells or offers for sale or otherwise refers to online math games, or any related goods or services.”

Protecting Your Reputation

These cases illustrate the importance of not only registering, but enforcing trademarks and service marks. As a Florida retailer, you have the right to protect any investment in your business’ name and reputation. If you need advice from an experienced Florida business attorney on how best to protect your intellectual property, contact Naples attorney John S. Sarrett today.

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U.S. Supreme Court Says Post-Shift Screenings Are Not “Work”

As an employer, do you have to pay employees for time spent performing non-work tasks? The United States Supreme Court recently addressed this question. The Court rejected a challenge from a group of hourly warehouse employees who argued federal law required the company to pay them for time spent undergoing mandatory security screenings. The justices unanimously agreed the law did not cover this situation.

Integrity Staffing Solutions, Inc. v. Busk

The Fair Labor Standards Act (FLSA) sets nationwide standards for the minimum wage and workweek. Any Florida retailer involved in “interstate commerce”—which is just about every business these days—must comply with the FLSA’s requirements. This includes paying employees at least $7.25 ($7.93 in Florida) for each hour of “work” performed.

In 1947, Congress amended the FLSA by passing the “Portal-to-Portal Act,” which excluded certain activities from the definition of “work,” including the time employees spent commuting to their job, as well as any “activities which are preliminary or postliminary” to an employee’s “principal activity.” Employers do not have to employees for any activities falling within these exceptions.

The case before the Supreme Court involved the definition of “postliminary” or after-work activities. A staffing company in Nevada provided warehouse employees for the popular retailer Amazon.com. The staffing company required all employees to “to undergo a security screening before leaving the warehouse at the end of each day,” in order to detect and deter potential theft. Employees were not paid for the time spent waiting for or undergoing this screening.

Two employees sued the staffing company in 2010, arguing the screening constituted an employment activity requiring compensation under the FLSA. A federal judge in Nevada dismissed the complaint, only to be reversed by the Ninth U.S. Circuit Court of Appeals in San Francisco. The appeals court said the security screening could be defined as “necessary to the principal work performed and done for the benefit of the employer,” and therefore not subject to the normal exemption for postliminary activities stated in the Portal-to-Portal Act.

But the Supreme Court said the Ninth Circuit was wrong. Writing for a unanimous Court, Justice Clarence Thomas conclusively held, “The security screenings at issue here are noncompensable postliminary activities.” The fact that employees were required to undergo these screenings did not matter, Justice Thomas said. The FLSA and Portal-to-Portal Act only require an employer to pay for activities that are “integral and indispensable” to the employee’s principal duties. Here, the employees were principally charged with “retrieving products from warehouse shelves or packaging them for shipment.” The security screenings were unrelated to those duties. It did not matter, as the employees here alleged, that they spent upwards of 25 minutes per day waiting for the screenings. Justice Thomas said the screening was ultimately not an “intrinsic” part of their actual work.

The Supreme Court’s decision is good news for Florida retailers and other employers who rely on hourly workers. The Court reaffirmed a longstanding principle that “work” means the actual time spent working, not commuting or performing pre- and post-shift tasks. But cases like this demonstrate the constantly evolving nature of employment law. If you need advice on how to comply with the FLSA or applicable Florida labor laws, you should speak with an experienced Florida business attorney. Contact Naples attorney John S. Sarrett today if you have any questions.

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Understanding the Fiduciary Duties of Consignment Shops

Many Florida retailers sell goods on consignment. Florida law defines consignment as “accepting for sale…secondhand goods which, having once been used or transferred from the manufacturer to the dealer, are then received into the possession of a third party.” Under consignment, the owner of used goods transfers possession, but not title, to the third party, who typically receives a commission if and when the goods are sold.

Recently, a federal appeals court addressed the legal responsibilities a consignment shop owes to property owners. The case addressed the proper legal remedy for a property owner who believed the consignment shop was not dealing fairly with them.

Zaki Kulaibee Establishment v. McFliker

ANI is a Florida company that deals in used aircraft parts. Zaki is a Saudi Arabian company that owns a supply of aircraft parts acquired from the Royal Saudi Air Force. Zaki originally sold parts to ANI and later entered into a consignment relationship. In 2003, the two firms signed a consignment agreement, whereby ANI would earn commissions based on its sales of Zaki’s aircraft parts. Zaki provided more than five million individual parts under the consignment agreement.

Soon after signing the agreement, Zaki expressed concerns over the accuracy of ANI’s sales reports with respect to the consigned parts. Litigation ensued and continues to this day. Zaki’s key claims are that ANI underreported sales and collected improper charges for storage of the consigned parts.

Zaki has been unable to determine just how many consigned parts remain with ANI. ANI has refused to provide Zaki with a complete accounting of its inventory. Accordingly, Zaki asked a federal judge in Miami to order such an accounting as part of a breach of contract lawsuit against ANI.

After two years of pre-trial discovery, however, ANI still failed to produce an accounting. The case proceeded to trial, where a jury awarded Zaki over $312,000 in damages on its breach of contract claim. The trial judge rejected Zaki’s request to order an accounting, leading Zaki to appeal.

In a decision issued on November 18th of this year, the U.S. 11th Circuit Court of Appeals agreed with Zaki it was entitled to an accounting. Applying Florida law, the appeals court said there was a “fiduciary relationship” between ANI and Zaki, and that as the receiver of consigned goods, ANI had a legal “obligation to render a true and accurate account” of Zaki’s property.

Here, the trial court failed to order an accounting, and said Zaki should rely on discovery instead. But the 11th Circuit explained discovery was inadequate for this situation. Indeed, ANI managed to “manipulate” the discovery process for two years in order to avoid an accounting. The trial judge should have simply ordered the accounting and been done with it, according to the appeals court.

Enforcing Contract Duties

As the 11th Circuit’s decision made plain, a contract for consignment of goods creates a fiduciary relationship under Florida law. Like any business relationship, it is essential for both parties to understand and abide by the terms of their agreements. If you need advice on consignment or any other aspect of Florida law in this area, contact Naples attorney John S. Sarrett today.

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Junk Faxes May Prove Costly for Florida Dental Practice

Marketing is an essential activity for any small business. But it is important to make sure your efforts to promote the business do not land you in legal hot water. Many marketing activities are regulated by Florida and the federal government, and it is your duty to ensure you (and your employees) follow the law.

Palm Beach Golf-Center Boca, Inc. v. John G. Sarris, D.D.S., P.A.

Even a seemingly harmless act like sending a fax can lead to big legal headaches. One Florida dentist is learning that lesson now. The dentist hired a marketing manager to promote his practice. The marketing manager, in turn, paid an outside company $420 to send advertisements via fax machine to more than 7,000 businesses.

One of those potential customers was a golf equipment store in Palm Beach. They were not happy with the fax—so much so they file a federal class action against the dentist on behalf of everyone who received the unsolicited advertisements. A federal judge dismissed the lawsuit last year, but recently a three-judge panel of the U.S. 11th Circuit Court of Appeals in Atlanta said the case could proceed.

You might wonder how anyone could make a federal case out of a one-page fax. The answer lies in the Telephone Consumer Protection Act of 1991, a federal law which actually prohibits the sending of unsolicited commercial faxes. Anyone who receives such a fax may sue and recover $500 in damages from the sender.

As the 11th Circuit explained, the law is designed to prevent the “occupation of the recipient’s telephone line and fax machine.” This may sound quaint in the age of e-mail and the Internet, but the law remains valid. As long as the plaintiffs can prove the defendant send the unsolicited faxes, they are entitled to damages, even if the plaintiffs actually suffered no measurable loss to their own businesses.

The 11th Circuit also allowed the plaintiffs in this case to proceed with a separate claim based on “conversion,” a principle of Florida common law. Conversion occurs whenever someone wrongfully exercises control over the property of another. Here, the plaintiffs allege the defendant basically took possession of their fax machines—albeit for a minute or less—and “converted” their ink and toner to produce the unsolicited advertisement.

On this issue, the appeals court was divided. The majority said what happened here could constitute conversion. One judge disagreed. He argued that an unsolicited fax no more “converts” a recipient’s fax machine than an telemarketing call converts a phone line, or spam converts an Internet connection. Still, it should be noted the majority only said the plaintiffs could pursue a conversion claim against the dental practice—it did not rule on the merits of the argument.

Do Not Make a Costly Mistake

The lesson here is be careful how you market your business. It may seem like a bargain to send out 7,000 faxes for less than $500—but not if you end up with a $3.5 million bill for violating federal law. Marketing, like all aspects of your business, carry legal obligations. If you need the advice of an experienced South Florida business attorney on the laws regarding marketing, or any other subject, contact John S. Sarrett today.

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Do I Need to Collect Sales Tax on Delivery Fees?

All Florida retailers need to be aware of their legal duty to collect state and local sales tax. The State of Florida imposes a general sales tax rate of six-percent. Individual counties within the state may assess their own discretionary sales surtax. These surtax rates vary between 0.5 percent and 1.5 percent, depending on the county.

If you deliver products to a customer, that can affect the assessment of the local surtax. Even if your physical store is located in a county that does not assess a surtax, if you deliver a tangible good to a customer in another county that does assess a surtax, you must collect that tax as part of your general sales tax obligation. Similarly, if your customer resides in a county that charges a different surtax than the county where your business is located, you would still collect the surtax for the county where the customer resides.

Delivery of good also raises its own subset of sales tax issues. If you include the cost of delivery as part of a sale—that is, you do not separately state a delivery charge on your invoice—then you must collect the applicable sales tax on the full price charged to the customer. And even if you do state a separate delivery fee, you must still collect sales tax on that amount if the delivery is a required part of the sale. However, if the customer has the option to decline delivery and pick up a purchase themselves, you would not assess sales tax. The optional delivery is considered a non-taxable service under Florida law.

Here is what this means in practice. Let us say you run a small business that primarily sells goods over the Internet. You take orders online, and ship any purchases to customers. Since the customer cannot decline delivery—as you lack a physical store for the customer to physically pick up his or her purchase—you must assess sales tax on any delivery charges, whether or not you separately state such charges on your invoice. On the other hand, let us say you maintain a physical location, and customers have the choice of coming to your store to pick up their purchases. If the customer instead chooses to have you ship their purchase, you do not collect sales tax on any delivery charge, provided it is clearly identified as such on your invoice.

Taxation of delivery fees can be a confusing subject even for large retailers. The well-known national pizza chain Papa John’s is currently embroiled in litigation here in Florida over their allegedly illegal collection of sales taxes on their delivery fees. A group of plaintiffs filed a class action against Papa John’s, claiming its stores included an optional  three-dollar delivery fee in calculating applicable Florida sales tax. Papa John’s argued Florida law was unclear on this issue, but in a July 23 decision denying the company’s motion to dismiss, a federal judge said just the contrary. As explained above, when a company offers the option of delivery and separately states a delivery fee, it is not subject to tax.

When it comes to sales tax questions, no Florida retailer should need to guess what the law does or does not require. An experienced Florida business attorney can help you navigate the myriad state and county rules on this subject and help you avoid unnecessary litigation. Contact Naples attorney John S. Sarrett today if you have any questions.

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Why “Patented” Is Not a Word to Use Casually in Retail Marketing

Many Florida retailers use puffery in their advertising to highlight the unique qualities of their products. Much of this is perfectly legal and harmless, but retailers must always stay aware of legal restrictions on certain words, phrases, and terms. One such word is “patented.” While your business may sell a distinct or one-of-a-kind product, you cannot advertise it as “patented” unless you actually apply for (and receive) a patent from the U.S. Patent and Trademark Office. It is, in fact, a federal crime—punishable by a fine of $500 per incident—to misuse the terms “patent” or “patented”

The Strange Case of “Brooklyn” Bagels

One Florida-based retail franchise managed to run afoul of this seemingly simple federal law. The company in question franchised bagel shops. Invoking a widely believed legend that bagels produced in Brooklyn are superior due to the chemical composition of the local water supply, the company’s advertising promoted its “patented 14-stage water treatment process” that replicated both the New York City borough’s water and bagels.

In fact, while the company maintained a proprietary water system, it did not hold any patents for them. Nevertheless, in 2010 the company attempted to sue a number of competitors who also claimed the ability to produce Brooklyn-style water. One of these competitors responded with a lawsuit of their own, claiming the company’s misuse of “patented” in their marketing violated federal law.

Prior to 2011, any individual could sue a company for misuse of the word “patented.” Congress authorized what are known as qui tam or “whistleblower” lawsuits. This allowed any person to, in effect, act as the federal government for purposes of pursuing a false patent marking claim. Congress abolished qui tam jurisdiction for patent cases in 2011, however, meaning only the U.S. Department of Justice may now pursue such claims. In any event, the “whistleblower” in this case obtained a settlement against the bagel franchiser barring any future misuse of the word “patented.” The company also paid the qui tam plaintiff and the federal government $5,000 each.

But that did not end the company’s litigation related to its so-called “patented” water system. In 2012, one of the company’s franchisees sued, arguing it had been misled by the false “patent” claims into signing a franchise agreement that did not prove as lucrative as promised. Although the franchisee’s claims fell under Florida state law, a federal judge in Miami put a stop to the case, holding the qui tam plaintiff’s settlement barred any further litigation arising from the “patent” issue. On September 30 of this year, a divided panel of the U.S. Eleventh Circuit Court of Appeals affirmed the trial judge’s decision.

Avoiding False Advertising Charges

There is nothing wrong with aggressively promoting your business’s products. But you should always take care to ensure your well-intended boasting does not violate federal or Florida laws governing false or misleading advertising. If you need the advice of an experienced South Florida business lawyer, contact John S. Sarrett in Naples today.

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Supreme Court May Address Religious Discrimination by Retailers

Many Florida retailers require employees to abide by a dress code. But such dress codes may conflict with federal law, which protects the religious rights of employees. An employer may not refuse a “reasonable accommodation” of an employee’s religious belief requiring certain dress or grooming, such as a Muslim headscarf or a Jewish yarmulke.

But what happens when an employer is not fully aware of an employee’s religious needs? That is a question the U.S. Supreme Court will consider later this month, as it decides whether to hear an appeal from a popular national retailer accused of religious discrimination by the Obama administration.

EEOC v. Abercrombie & Fitch Stores, Inc.

A Muslim woman applied for a job as a sales associate at an Abercrombie & Fitch retail store in Oklahoma. She wore a traditional Muslim headscarf. During her job interview, the store’s assistant manager explained the sales associate position required employees to model Abercrombie & Fitch merchandise and abide by a company “Look Policy,” which banned the wearing of hats or other head coverings.

The assistant manager conducted her interview according to a company-provided script. She did not ask the applicant about her religious beliefs or practices. The manager later confirmed with her superiors that the Look Policy prohibited the wearing of a headscarf. Accordingly, the applicant was not offered a job.

The applicant then complained to the Equal Employment Opportunity Commission (EEOC), the federal agency charged with enforcing federal civil rights laws. The EEOC sued Abercrombie & Fitch for illegal religious discrimination, and a district court judge awarded the rejected applicant $20,000 in damages. The Tenth U.S. Circuit Court of Appeals in Denver later reversed this award, and the EEOC is now asking the Supreme Court to review the case.

The legal question here is whether Abercrombie & Fitch received sufficient notice of the applicant’s religion to avoid a discrimination complaint. The retailer argued the applicant never told the interviewer she had a religious need to wear a headscarf at work. The EEOC argued that was irrelevant; the interviewer admitted she knew the applicant was Muslim, so it was unnecessary for the applicant to actually disclose her beliefs.

In its own filing with the Supreme Court, Abercrombie & Fitch argued existing law did not support the EEOC’s position. To the contrary, an employee (or prospective employee) is ordinarily required to inform an employer about any conflict between his or her beliefs and company policy. That is especially true when dealing with an article of clothing, like a headscarf, which “is sometimes (but not always) associated with a particular religion.”

Protecting Your Business

The Tenth Circuit sided with Abercrombie & Fitch, so its position will prevail unless the Supreme Court accepts the case and rules for the EEOC. This case should sound a warning to all employers that the EEOC is vigorously pursuing religious discrimination claims. If your company maintains a dress code or any other policy that might potentially conflict with your employees’ religious beliefs, you should consult with an experienced Florida small business attorney who can help you avoid a federal lawsuit. Contact Naples attorney John S. Sarrett today if you have any questions.

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