Category: Business Law

Third Circuit Affirms Enforcement of Employer-Employee Arbitration Agreement

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On June 20, 2018, the United States Court of Appeals for the Third Circuit held than an arbitration agreement between an employer and employee was still enforceable regardless of whether the employee read the agreement. Ace Am. Ins. Co. v. Guerriero, 2018 WL 3057005 (3d Cir. 2018). In this case, the employee argued that the arbitration agreement was unenforceable because he never received the first two pages of his employer’s Employment Dispute Arbitration Policy. The Court ultimately found in favor of the employer and affirmed the lower court’s decision by finding that there was an agreement to arbitrate and that this dispute fell within the boundaries of that agreement.

Even considering the strong federal and state policies in favor of arbitration, the courts must find that there was a clear agreement between the parties with an intent to arbitrate. If there is an actual agreement to arbitrate, then the court will only find the agreement unenforceable if there is fraud or misconduct that would prevent mutual assent and failure to read the agreement is not a reason to find the agreement unenforceable. Here, the Third Circuit found that the agreement was enforceable because there was mutual assent and a lack of fraud that would excuse the employee from reading the agreement. The employee signed two separate documents showing his intent to arbitrate. Even if the employee’s assertion that he did not have the first two pages of the agreement was correct, the Court found this argument unpersuasive because the employee had access to the agreement through the employer’s website. The Court further stated that “even if there were any ambiguity or question over the scope of the Employment Dispute Arbitration Policy, we would apply the presumption in favor of arbitration.”

At the Law Offices of Sidkoff, Pincus & Green our experienced Philadelphia employment lawyers handle many types of legal matters, including arbitration agreements. If you are interested in having a consultation with one of our Philadelphia business lawyers, please call us at 215-574-0600 or contact us online.

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Pennsylvania Superior Court Upholds Non-Solicitation Agreement Despite Employees Change in Employment Status

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The Pennsylvania Superior court upheld non-solicitation agreements between an employer and employees after their employment agreements expired and the employees continued to work at-will. Metalico Pittsburgh, Inc. v. Newman, 160 A.3d 205 (Pa. Sup. Ct. 2017). Appellees Douglas Newman and Ray Medred (“Employees”) were employed by scrap metal company Metalico Pittsburgh, Inc. (“Employer”) from 2011 to 2015. The Employees signed a three-year employment agreement that included a non-solicitation agreement in part barring employment with any known affiliates or suppliers of the employer. After the three-year period, the Employees remained at the company at-will with some modifications to their jobs compared to the employment agreements. The Employees stayed with the Employer for one year before leaving to work for a competitor, and the Employer filed suit against the Employees and their new employer. The lower court found in favor of the Employees by finding that there was a lack of consideration for the non-solicitation considering there were material changes to the terms of the employment agreements when the Employees started working at-will.

The Superior Court reversed and held that there was adequate consideration and thus enforced the non-solicitation agreements in favor of the Employer. Under Pennsylvania law, there is adequate consideration when a restrictive covenant, such as a non-solicitation agreement, is signed at the beginning of an employment contract. Although the Employees argued that the non-solicitation agreement had expired when they changed to at-will status, this Court found that the explicit terms of the agreements contradicted this assertion. The non-solicitation agreements applied for the full term of the employment, regardless of whether it was under the contract or at-will. Moreover, the contract specifically stated that the non-solicitation provisions survived termination of the contract. The agreements also stated that consideration for the agreements was fulfilled by the payment of compensation and benefits to the Employees. Ultimately, the Superior Court found that the lower court erred and that the non-solicitation agreements were in effect when the Employees resigned and that the agreements were supported by consideration even though the employment agreements had expired, and the Employees were at-will.

For more information, call our employment lawyers in Philadelphia at the Law Office of Sidkoff, Pincus & Green at 215-574-0600 or submit an online inquiry.

The District Court for the Middle District of Pennsylvania Holds Two-Year Statute of Limitations Applicable to Plaintiff’s FLSA Claim for Unpaid Overtime

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Plaintiff’s claims stemmed from unpaid overtime wages she allegedly was entitled to during her employment at Troy Construction (Troy) in 2013. Stone v. Troy Constr., LLC, No. 3:14cv306 2018 U.S. LEXIS 50232 (M.D. Pa. 2018). The critical question was whether a two-year or three-year statute of limitation would apply. The statute of limitations provides a set amount of time for the injured party to commence an action to recover damages for the alleged injury. The Fair Labor and Standards Act (FLSA) provides the plaintiff with two possible statute of limitations. The usual statute limitations for FLSA claims is two-years, but if the plaintiff sufficiently pleads a willful violation of the FLSA, the statute of limitation can be extended to three years. A plaintiff can sufficiently plead a willful violation if they provide facts and evidence to allow a factfinder to reasonably conclude that the employer “knew or showed reckless disregard for the matter of whether its conduct was prohibited by the statute.” The willful violation standard is not an easy standard to meet. Employers have found not to be acting willfully when they act reasonably in determining its legal obligation. For example, a court has found that an employer did not willfully violate the FLSA when, based on an incorrect interpretation of the FLSA, it instructed its employees not to fill out time cards for more than 40 hours.

In this matter, the Court determined that the plaintiff’s complaint did not offer facts to support her claim that Troy willfully violated the FLSA. Without sufficient facts to support her willful allegation, the two-year stature of limitations applied to Plaintiff’s claim. As the last cause of action that could give rise to a FLSA violation occurred outside of the two-year limitations period, the plaintiff’s FLSA claim was dismissed.

If you suspect that you have been wrongfully denied overtime pay, you may have a valid claim. Schedule a consultation with a Philadelphia overtime dispute lawyer at the Law Office of Sidkoff, Pincus & Green P.C. by calling 215-574-0600 to discuss your legal options or contact us online today.

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Third Circuit Affirms District Court Ruling Poor Performance is Not Severe Enough to Circumvent Right-to-Cure Provision in Employment Contract

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In Milton Reg’l Sewer Auth. v. Travelers Cas. & Sur. Co. of Am., 648 Fed.Appx. 215 (3rd Cir. 2016) the Third Circuit Court of Appeals found that Pennsylvania contract law requires a more severe breach before contracting parties may violate a right-to-cure provision in a contract. Appellant Milton Regional Sewer Authority (“Milton”), a municipal authority, entered into a contract with Appellee Travelers Casualty and Surety Company of America (“Travelers”), a construction company, for a public works project. The contract contained a right-to-cure provision that states “[Travelers’] services will not be terminated if [Travelers] begins within seven days of receipt of notice of intent to terminate to correct its failure to perform and proceeds diligently to cure such failure within no more than 30 days of receipt of said notice.” In other words, before Milton could terminate the contract, it was required to give Travelers 30 days to fix whatever problem had arisen.

After the contract was finalized, Travelers began working on the project. Milton quickly became unsatisfied with the work being done and proceeded to send a letter to Travelers ordering it to suspend work. Travelers offered to correct the work in their response but Milton rejected and terminated the contract without giving Travelers an opportunity to fix its allegedly defective work. Following the termination of the contract, Milton hired another construction company to complete the project. Milton filed a complaint for additional costs incurred as a result of the termination.

The Court of Appeals for the Third Circuit began their analysis by stating “Pennsylvania follows the general rule of contract law that ‘a material breach of a contract relieves the non-breaching party from any continuing duty of performance thereunder.’” Such a contract may only be terminated without providing an opportunity to cure when there is a material breach of the contract so serious it goes directly to the heart and essence of the contract, rendering the breach incurable. The breach must be so severe that requiring notice before termination would be a useless gesture. The Court said a “typical example of a breach that goes directly to the essence of a contract is fraud.” Milton in this case alleged various deficiencies in the work performed by Travelers which, taken together, amount to an allegation that Travelers performed poorly. The Court found that “unlike fraud, poor performance is not incurable” and Travelers was eager to cure its deficiencies if given the chance. Lastly, the Court points out that “Pennsylvania contract law, therefore, requires a more severe breach before contracting parties may violate right to cure provisions.” Thus, Milton’s conduct in terminating Travelers amounted to wrongful termination and an ineffective exercise of contract rights.

At the Law Offices of Sidkoff, Pincus & Green P.C. our experienced Pennsylvania and New Jersey attorneys handle many types of legal matters, including contract law. If you are interested in having a consultation with one of our attorneys, please call us at 215-574-0600 or contact us online.

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Third Circuit Upholds FTC Cybersecurity Standards

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The Third Circuit recently clarified the requirements for an “unfair practices” claim under §45 (a) of the Federal Trade Commission Act. FTC v. Wyndam Worldwide Corp., 799 F.3d 236 (3d Circ. 2015). In this case, the FTC brought claims of unfair and deceptive practices against Wyndham Worldwide Corporation (Wyndam) following data breaches of Wyndam’s computer systems. Wyndam is a hospitality company that franchises and manages hotels and timeshares through subsidiaries. In 2008 and 2009, Wyndam’s systems were hacked resulting in the theft of hundreds of thousands of consumers’ personal and financial information and over $10.6 million dollars in fraudulent charges. The FTC filed suit alleging that its failure to protect consumers’ information and deception regarding its privacy policy amounted to unfair practices. The District Court denied Wyndam’s motion to dismiss, and the Third Circuit ruled that the FTC had the authority to regulate cybersecurity under the unfairness prong of § 45 (a).

Under § 45 (a), the Federal Trade Commission (FTC) cannot declare an act to be an unfair practice unless it meets the following requirements: (1) It must be substantial; (2) it must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and (3) it must be an injury that consumers themselves could not reasonably have avoided. While the statute lists these requirements, it does not answer whether these are the only requirements for finding unfair practices. Wyndam argued that the necessary conditions for unfair practices go beyond the listed elements based on the plain meaning of the word “unfair.” Wyndam further argued that practices are only “unfair” if they display unethical behavior, or are marked by injustice, partiality, or deception. The Court rejected this argument because it is unnecessary to read the plain meaning of “unfair” into the statute. Applying this rationale to this case, the Court stated that “a company does not act equitably when it publishes a privacy policy to attract customers who are concerned about data privacy, fails to make good on that promise by investing in adequate resources in cybersecurity, exposes its unsuspecting customers to substantial financial injury, and retains the profits of their business.”

However, Wyndam argued that even if cybersecurity would be covered by § 45 (a) as it was originally enacted that recent congressional provisions alter this meaning to exclude cybersecurity. The Court rejected this argument based on the FTC’s history of regulatory authority over cybersecurity issues. The Court found that while the FTC had not previously required companies to adopt fair information practice policies that earlier policy was not inconsistent with the FTC currently bringing unfairness actions against companies causing harm to consumers through inadequate cyber security practices. Furthermore, the Court also rejected Wyndam’s claims that it did not have fair notice of the FTC cybersecurity standards. The Court affirmed the District Court’s decision finding that Wyndam’s proposed requirements in addition to those listed in the statute were not persuasive.

For more information, call our business lawyers in Philadelphia at the Law Offices of Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

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Employee Fails to Prove That Union Acted Arbitrarily or in Bad Faith When Refusing to Arbitrate His Termination

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Recently, the United States District Court for the Eastern District of Pennsylvania ruled in favor of an employer’s motion for summary judgment denying Plaintiff’s hybrid claim for breach of contract/unfair representation. Smokowicz v, Graphic Packaging Int’l, Inc., 2018 U.S. Dist. LEXIS 94099 (E.D. Pa. 2018). Plaintiff Micheal D. Smokowicz (“Smokowicz”) brought claims for breach of contract against his former employer, Graphic Packaging International, Inc. (“Graphic”) for their alleged violation of § 301 of the Labor Management Relations Act; and a claim against his union for failure to provide fair representation under 29 U.S. C. § 159(a).  In order for a plaintiff to succeed on a § 301/fair representation claim, the plaintiff must prove both breach of contract and the union’s failure to provide fair representation. The Court determined that Smokowicz failed to prove that the Union breached its duty of fair representation; and thus, the Court was not required to rule on the employer’s alleged breach.

In this present matter, Smokowicz was involved in multiple incidents leading up his termination. Before Smokowicz’s termination, Graphic attempted to terminate him for violating the company’s anti-harassment and violence policy. In lieu of terminating Smokowicz, his union was able to negotiate a Last Chance Agreement which allowed for Smokowicz to return to his previous position under the condition that any future violation of the standard of conduct will be cause for termination. Three years following the Last Chance Agreement Smokowicz was terminated for mislabeling packages. In an attempt to resolve the issue, Smokowicz’s union attended numerous meetings with the Human Resources Department and supervisors at Graphic with the goal of allowing Smokowicz to return to work. After days of negotiating and pleading with Graphic, the Union informed Smokowicz that it believed that it could not prevail in arbitration and that it would not proceed any further with a grievance.

The Court ruled that in order for a claim that a union breached its duty of fair representation, the plaintiff must present evidence demonstrating that the union’s conduct was arbitrary, discriminatory, or in bad faith. Previous precedents have defined “arbitrary conduct” as being irrational and being without a rational basis or explanation. Further, mere ineptitude or negligence is not sufficient to establish conduct is “arbitrary.”  Under this standard, even if a more experienced representative would have used a different strategy or achieved a different result, the plaintiff cannot successfully claim that the union acted arbitrary.

The standard for bad faith is much more ambiguous, and findings of bad faith “require more than unsupported allegations.” The Third Circuit has held that a plaintiff must show that “the union and its representatives harbored animosity towards the employee; and . . . that animosity manifested itself as a material factor in the union’s handling of the employee’s grievance.” The plaintiff, when claiming bad faith, must present evidence in the record to support such allegations of animus and that the union’s animus towards the plaintiff manifested itself in the handling of the plaintiff’s employment grievance.

Even when viewing the facts in the most favorable light to Smokowicz, the Court determined that he was unable to demonstrate that the Union’s conduct was without a “rational basis or explanation,” or that the Union manifested any animosity towards Smokowicz. The Union had already successfully negotiated Smokowicz’s previous termination, and although it did not pursue a formal grievance regarding his second termination; the Union did not act in bad faith or breach its duty to provide fair representation.

At the Law Offices of Sidkoff, Pincus & Green our experienced Philadelphia employment lawyers handle many types of legal matters, including contract law. If you are interested in having a consultation with one of our Philadelphia business lawyers, please call us at 215-574-0600 or contact us online.

District Court Approves AT&T and Time Warner Merger

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On June 12, 2018 the District Court for the District of Columbia released the much anticipated opinion in the AT&T and Time Warner merger case. United States v. AT&T Inc., et al., No. 17-2511 RJL (D.D.C. 2018). Justice Richard Leon approved the historic “marriage” in a 172 page opinion that was rife with exclamatory statements, much to the Government’s chagrin.

In this case, the Government sought to enjoin the merger based on Section 7 of the Clayton Act, 15 U.S.C. § 18. Section 7 prohibits “acquisitions, including mergers, ‘where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition.’” The Government claimed, in essence, that permitting AT&T to acquire Time Warner would likely substantially lessen competition in the video programming and distribution market nationwide by enabling AT&T to raise its rivals’ video programming costs or drive them to use DirecTV.

Defendants’ viewed the proposed merger as an essential response to Netflix, Hulu and Amazon, who are threatening the amount of traditional video subscribers Defendants’ could retain, and the value of television advertisements. By acquiring Time Warner, AT&T executives testified that the company will gain access to high-quality content and an extensive advertising inventory. In addition, Defendants claimed that the merger will increase not only innovation but competition in this marketplace for years to come by allowing AT&T to more efficiently pursue what it sees as the future of video programming and distribution: increased delivery of content via mobile devices.

The Court concluded that the Government had failed to meet its burden to establish that the proposed transaction is likely to lessen competitions substantially. Lacking any modern judicial precedent regarding vertical merger challenges (the Antitrust division hasn’t tried a case in four decades) Justice Leon found that evidence indicating defendants recognition that it could possibly act in accordance with the Government’s theories of harm is a far cry from evidence that the merged company is likely to do so. The Court found the Government’s expert, Professor Shapiro, unpersuasive. Specifically, the Court chastised Shapiro’s “bargaining model” saying that it “lacks both reliability and factual credibility and thus fails to generate probative predictions of future harm associated [with the merger].” In its concluding paragraphs, the Court announced that “the defendants have won” but goes on to warn the government of the irreparable harm that could result in an appeal of this decision – a $500 million breakup fee AT&T would owe Time Warner if the merger did not go through by June 21, 2018. Justice Leon notes that he “hope[s] and trust[s] that the Government will [exercise] good judgement, wisdom and courage to avoid such a manifest injustice but in his own words; “[T]he process is not quite over yet!”

For more information, call our business lawyers in Philadelphia at 215-574-0600 or contact us online.The legal team at Sidkoff, Pincus & Green represents clients in Pennsylvania and New Jersey.

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Supreme Court Overturns Physical Presence Rule and Requires Out-of-State Retailers to Collect and Remit Sales Tax

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In a 5-4 decision, the Supreme Court in South Dakota v. Wayfair, Inc. overturned a longstanding precedent requiring businesses to maintain a physical presence in the state before being required to collect and remit sales tax. Under the physical presence requirement, only out-of-state retailers with an actual physical presence in the state were required to collect sales tax. This precedent allowed for retailers that solely participated in shipping goods into the state, upon the request of a consumer via a catalog or online, to bypass the sales tax requirement.  The physical presence doctrine has been the subject of heavy criticism since its inception in 1992, and due to the recent technological advancements in the past twenty years, these complaints have become even more glaring. Due to the rise of the online retail market, it is estimated that the physical presence doctrine has cost states an estimated $8 – $33 billion every year.

In an attempt to mitigate the effects of the physical presence requirement and secure critical funding for essential public services, South Dakota enacted a law requiring out-of-state retailers who deliver more than $100,000 of goods or services in the state or engage in 200 or more separate transactions for delivery to the state to collect and remit sales tax.  The South Dakota Legislature found that due to the State’s inability to collect sales tax and the dramatic revenue loss associated with such regulation, the State has been unable to support its basic services effectively and has declared an emergency.

Justice Kennedy was unsympathetic to the corporate respondents and their request to remain exempt. Kennedy referred to the precedent as “artificial, not just at its edges, but in its entirety.” Furthermore, Kennedy was adamant that the physical presence requirement was inherently flawed and as technology became more and more advanced, the physical presence requirement became “further removed from economic reality.” Kennedy stated that Wayfair, Inc. was requesting the Court to “retain a rule that allows their customers to escape payment of sales taxes. . .” Kennedy further labeled Wayfair’s marketing slogan “one of the best things about buying through Wayfair is that we do not have to charge sales tax” as simply a “subtle offer to assist in tax evasion.” Additionally, while Wayfair specializes in helping their customers build their “dream home” Kennedy reminded them that it is the very state taxes that Wayfair objects to paying that “fund the police and fire departments that protect the home containing their customers’ furniture.”

For more information, contact the Philadelphia business lawyers at the Law Office of Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

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Eastern District of PA Upholds Employment Claim Release in Severance Agreement

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On May 9, 2018 the Eastern District of Pennsylvania granted summary judgment against an employee who brought race and age discrimination claims against her former employer after she signed a release of claims in her severance agreement. Warren v. Mastery Charter Sch., No. CV 17-4782, 2018 WL 2129505, at *1 (E.D. Pa. May 9, 2018). Plaintiff was a social worker in her forties with a master’s degree who worked for Mastery Charter Schools from 2011 through 2016. Her contracts with her employer were year to year and were typically renewed at the end of each year. In spite of consistently positive performance reviews over her first several years working for her employer, at the end of the 2016 school year Mastery chose not to renew Plaintiff’s contract based on allegations of poor performance and communication issues. The day before Plaintiff’s final day of work, Mastery offered her a severance agreement which also contained a release and waiver of any and all employment claims for her to review. The agreement offered significant benefits—including four weeks of additional pay—that it would otherwise not have been available to Plaintiff. Further Plaintiff was offered twenty one days to review and consider the offer, as well as the opportunity to revoke the agreement within seven days if she so chose. The agreement suggested in three different locations that Plaintiff consult with an attorney about the terms and frequently used bold lettering to indicate that the agreement should be carefully read.

Plaintiff alleged that her deteriorating relationship with Mastery had caused her significant stress, depression, and anxiety. Plaintiff alleged that her growing emotional distress caused her to fear if she did not accept the agreement that Mastery would seek to interfere and prevent her future employment elsewhere. Plaintiff signed the agreement on the twenty first day, claiming she felt she had no choice but to sign. Plaintiff then filed a complaint against Mastery for employment discrimination based on age and race on October 25, 2017.

The Court relied on the rule that an employee may release employment discrimination claims against an employer so long as the release is made “knowingly and willfully.” Coventry v. U.S. Steel Corp., 856 F.2d 514, 522 (3d Cir. 1988). The Court relied on precedent to establish that although the Plaintiff may have been undergoing stress it did not negate her knowing and willful agreement to the release and waiver. Further the Court found that the agreement itself was written in a manner calculated to be understood and was sufficiently clear for the Plaintiff to understand what she was agreeing to in signing the release. The Court held that the presence of some legal jargon and long sentences was not sufficient basis to claim the release was not in a manner calculated to be understood. The Court therefore granted summary judgment in favor of Mastery and upheld the validity of the release.

For more information, call our Philadelphia employment lawyers at the Law Offices of Sidkoff, Pincus & Green at 215-574-0600 or submit an online inquiry.

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Third Circuit Affirms Denial of Injunction Blocking Transgender Bathroom Policy

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The Third Circuit Court of Appeals affirmed the denial of a preliminary injunction that would prohibit a school district from continuing its practice of allowing transgender students to use the bathroom and locker rooms of the sex by which they identify. Doe by & through Doe v. Boyertown Area Sch. Dist., No. 17-3113, 2018 WL 2355999, at *1 (3d Cir. May 24, 2018). The claim was brought by parents of several cisgender students who claimed that such policy of the Boyertown Area School District violated their Fourteenth Amendment right to privacy, their right to access to educational opportunities, programs, and benefits, and their Pennsylvania common law right to privacy preventing intrusion while using bathrooms and locker rooms. Doe by & through Doe v. Boyertown Area Sch. Dist., 276 F. Supp. 3d 324 (E.D. Pa. 2017), aff’d, No. 17-3113, 2018 WL 2355999 (3d Cir. May 24, 2018). The policy had been implemented since the beginning of the 2016-17 academic year, the plaintiffs sought the school district return to the prior policy requiring students to use any private facilities associated with their biological sex assigned at birth.

After reviewing the testimony of the students whose parents brought the complaint, testimony from a transgender student at the Boyertown Area Senior High School, and testimony from Dr. Scott Leibowitz, an expert in gender dysphoria and gender identity issues in children and adolescents, the trial court denied the motion for preliminary injunction. The court concluded that the plaintiff students “did not have a constitutional right not to share restrooms or locker rooms with transgender students whose sex assigned at birth is different than theirs.” Much of the emphasis by the court was predicated on the fact that the plaintiffs, if they were uncomfortable sharing private facilities under the policy, could have used private stalls or an alternative facility like the nurse’s office.

The plaintiffs failed to meet the “particularly heavy burden” of showing they were entitled to the preliminary injunction as they did not seek a return to the status quo but a change in a policy that stood for a year.  Further the plaintiffs had not sufficiently shown that they were likely to suffer “irreparable injury” if the injunction was not issued as the policy had been around for almost a year when they filed their complaint. The Third Circuit affirmed the denial of the preliminary injunction “for the reasons that the Court explained in its exceptionally well reasoned Opinion”. Doe by & through Doe v. Boyertown Area Sch. Dist., No. 17-3113, 2018 WL 2355999, at *1 (3d Cir. May 24, 2018).

For more information, call our employment lawyers in Philadelphia at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.