May 2025

Fifth Circuit holds six-month delay in ADA accommodation request was unreasonable

The Fifth Circuit Court of Appeals in Strife v. Aldine Independent School District partially reversed the lower court’s dismissal of an employee’s claims under the federal Americans with Disabilities Act (“ADA”) and state law.  The appellate court said the claim should not have been dismissed because a factfinder could conclude an employer’s six-month delay in approving the employee’s request to bring a service dog to work was unreasonable and constituted an unjustifiable failure to accommodate her disabilities.

Under the ADA, employers have an obligation to grant reasonable accommodations to employees with disabilities.  This requires employers and employees to engage in an “interactive process” in “good faith,” considering both the requested accommodation and reasonable counterproposals.  While the ADA does not require employers to conclude the interactive process within a particular timeframe, the court cited dicta that delaying the interactive process under certain circumstances could create liability, “otherwise, an employer could circumvent the ADA’s protections by forcing an aggrieved employee to endure an endless interactive process.” 

Strife involved a six-month delay in completing the interactive process.  The Fifth Circuit Court did not hold that the delay alone constituted a failure to accommodate, but noted the employee plausibly alleged other facts suggesting a lack of good faith on the employer’s part.  Namely, (1) the employer insisted on an independent medical examination even though the employee had submitted supporting documentation, and (2) the employer did not offer any accommodations until after the employee sued and just before a court-scheduled injunction hearing, which could undermine its claim that it was still evaluating whether alternative accommodations were available. 

S&K Take: This case highlights the importance of timely, good-faith evaluations of accommodation requests and underscores the potential liability for employers who delay or mishandle the interactive process.  

Second Circuit affirms $1.1 million defamation award against brokerage firm

In KEY Inv. Servs. LLC v. Oliver, the Second Circuit Court of Appeals affirmed a Financial Industry Regulatory Authority (“FINRA”) arbitration panel’s award of over $1.1 million to a former financial advisor who claimed his former employer defamed and harmed his reputation when it inaccurately described the circumstances of his termination in his Form U-5.  The award comprised $623,000 in compensatory damages, $294,800 in attorneys’ fees, and $100,000 for the employer’s violation of FINRA Regulatory Notice 10-39 (“Notice 10-39”), which requires firms to submit “timely, complete and accurate information” on Form U-5s.  The panel also recommended expungement of the Form U-5, citing “the defamatory nature of the information.”

The employer sought to vacate the award, arguing the panel had exceeded its authority and manifestly disregarded the law.  In particular, the employer asserted that the employee had not pleaded a separate claim under Notice 10-39.  A Second Circuit panel disagreed, concluding that the employer’s alleged violation of Notice 10-39 was “inextricably tied up with the merits of the underlying dispute” and, therefore, there was at least a “barely colorable justification” for the award.  The court also found persuasive that the FINRA panel’s damages award aligned with the lost compensation calculated by the employee’s expert, indicating that the panel did not dispense “its own brand of industrial justice,” but instead “grounded its award in the evidentiary record.”

The court also dismissed the employer’s challenges to the attorneys’ fees award, holding that the FINRA panel properly relied on Connecticut law permitting attorneys’ fees as a form of limited punitive damages in defamation cases.  This was so even though the FINRA panel did not expressly find “actual malice” by the employer, which the court inferred the FINRA panel must have found as a basis for awarding attorneys’ fees and overcoming the qualified privilege that normally shields U-5 filings from defamation claims.

S&K Take: This case highlights the difficulty in appealing a FINRA arbitration award and the significant deference which a court will afford arbitration panels.  Even where, as here, a panel fails to provide detailed factual findings or legal conclusions, courts can uphold the decision if there is at least one plausible reading which “yields a legally correct justification for the outcome.”

Tenth Circuit permits employer to cancel $29m of former executive’s unvested shares for breaching non-compete

In Lawson v. Spirit Aerosystems the Tenth Circuit Court of Appeals upheld a provision conditioning a former CEO’s post-retirement stock vesting on compliance with a restriction on competition.  The district court had characterized the covenant as a condition precedent to the receipt of future benefits, not a traditional non-compete, and upheld it without evaluating whether the covenant was “reasonable.”  The Tenth Circuit agreed, distinguishing the clause from penalty-based non-competes:

Whereas [a penalty-for-competition] covenant [ ] restrain[s] competition by subjecting the party in breach to a penalty, the [c]ovenant before us does no such thing. It merely provides a monetary incentive in the form of future benefits for not competing: the worker has a choice between competing and thereby forgoing the future benefits or not competing and receiving those benefits. Viewed another way, it merely discourages competition by conditioning the receipt of future benefits on compliance. This is a distinction with a substantial difference: a penalty-for-competition covenant affirmatively punishes a former employee for competing, whereas the covenant before us gives the employee a choice between competing or enjoying future benefits.

(Emphasis in original.)

The appellate court also found the reasonableness standard inapplicable because the CEO was a sophisticated party, the terms of the non-compete condition were negotiated with counsel, the non-compete would not prevent the CEO from making a living, and Kansas’ “high regard” for freedom of contract “militate[d]” against expanding the reasonableness standard to non-competition conditions precedent.  Finally, the court found relevant that the employer did not seek injunctive relief to enforce the non-compete or to recover amounts already paid.  Rather, the employer sought only to terminate future vesting following the breach.

S&K Take: This holding reminds of the Seventh Circuit’s decision in LKQ Corporation v. Rutledge, which upheld under Delaware law a forfeiture-for-competition provision in restricted stock unit agreements without reviewing whether the restriction was “reasonable.”  LKQ was arguably a closer call, because there, unlike here, the employer sought to claw back a financial benefit already paid from an individual who was not a highly compensated executive.  These decisions are important as traditional non-competes face increased scrutiny by courts and legislatures.