Smooth Transitions

Smooth Transitions

addressing the Legal issues arising from the departure of employees & Business breakups

Texas Supreme Court Says You Could Kick Someone Out of Courtroom in a Trade Secrets Riff

Posted in Trade Secrets, Uncategorized



Some time you are right, and some time you are wrong.  A few months ago I offered the opinion that it was unlikely the Texas Supreme Court would exclude a client representative from the courtroom during a trade secrets case when trade secrets were discussed.  I was wrong.  The Texas Supreme Court has said that you can.  There are a lot of procedural issues in this one with respect to what the judge should have done and we’ll save those for another day.

Here is the short of it.  Plaintiff and Defendant are competitors in the equipment and services business for the oil and gas industry.  Both have spent a lot of money developing mesh screens that filter solid matter from drilling fluid.  This allows them to reuse fluid and keep costs down.  Defendant hired one of Plaintiff’s former employees who had a non-compete.  Plaintiff sued Defendant to enforce non-compete.  During a preliminary injunction hearing the Plaintiff intended to introduce evidence about its trade secrets but wanted the Defendant’s corporate representative removed from the courtroom.  (That left the former employee, lawyers, and the Defendant’s experts.)  The trial judge said no and the appeal (mandamus in Texas) resulted.

Here is what the Texas Supreme Court said:

  1. Excluding the representative from the Courtroom was not a violation due process;
  2. The trial judge has to weigh/balance the degree of competitive harm the Plaintiff would suffer – it did not engage in this process; and
  3. Excluding the representative does not violate Texas “open-courts” provision, the Rule of excluing witnesses; Rule 76a of the Texas Rules of Civil Procedure which permits sealing of court records; and is not an offensive use of the privilege.

The Court went on to hold that it could not engage in the balancing process required of the trial court and remanded back to the trial court for that process.  We shall see how that turns out, but the trial judge is now in a position to exclude the witness if he so chooses.  So despite what I thought a corporate represenative could be excluded.  It wasn’t as if no one from the Defendants’ side would be left int he courtroom.  The former employee and experts were still in the courtroom. I wonder what would have happened if this was not the case?  Certainly that would be factored in the balancing process.

This was the first time the Texas Uniform Trade Secrets Act was discussed by the Texas Supreme Court, though not in great detail or substantively.  Obviously, the court takes seriously the notion of protecting trade secrets at the temporary injunction level.

Why Texas employers should care about the Defend Trade Secrets Act.

Posted in Trade Secrets



Last week President Obama signed the Defend Trade Secrets Act.  Finally some legislation both sides of the aisle could agree on and the President could sign.  After all, who doesn’t want to protect trade secrets?  So what does this mean for Texas employers faced with a departing employee?

  1.  Another arrow in the quiver.  In October 2013 the Texas Uniform Trade Secrets Act went into effect and we’ve discussed it here previously.  Now we have a federal statute (applicable to all states) that employers can use to protect their secret sauce.
  2. Federal Court – The law creates federal question jurisdiciton.  Put another way – the lawsuit can be filed in federal court not state court assuming the amount in controversy exceeeds $75,000.  Why does this matter?  Sometimes an employer may not want to be in state court.  The reasons can vary from the judge(s) involved, the location of the dispute, etc. So an employer now has a choice.
  3. Definition of Trade Secret – Similar to the TUTSA but there are some minor differences.
  4. Whistle Blower Protection – A whistle blower is afforded some protections if they disclose a trade secret to a government official.
  5. 3 year statute of limitations
  6. Seizures – The law allows a plaintiff to have the government seize its trade secrets from a defendant.  TUTSA has nothing like this.  We shall see how this play out.  This is extraordinary relief.

So, this is now the law of the land.  Stay tuned to see how it develops.

Utah Leads the Way on Non-Compete Legislation

Posted in Injunction, Non-Compete Agreements, Non-Solicitation Agreements, Uncategorized


I went to school in Utah and manage to ski up there every so often.  That’s a picture of my son and I in December.  Recently I ran accross an article  breaking down changes to Utah’s and Idaho’s non-compete laws.  The Utah statute really grabbed my attention.  The highlights: (1) non-competes can only last for a year after employment ends; (2) if the non-compete is determined to be unenforceable, the employer pays fees and costs (including arbitation fees); and (3) there is no attorneys’ fees provision if the agreement is a non-solicitation provision.

Interesting.  This really puts the onus on the employer to make sure it is using enforceable non-compete agreements and to really consider whether it wants to sue to enforce the agreement.  Those really are two separate issues.  A good lawyer can assist with preparing a non-compete that satisfies the common law or non-compete statute.

Now deciding to enforce the ageement is another issue.  Companies that don’t enforce their non-compete agreements send a clear message to their employees – they can go elsewhere and don’t have to worry about being sued.  Of course there are other things to consider such as whether the departing employee has caused any damage and the cost of litigation.  All of these are things to consider in making the decision on whether to file a lawsuit.  In Utah, companies will have to consider paying the former employee’s fees if it is determined the non-compete is unenforceable.  That issue is usually not resolved until well down the line.  As we have discussed here time and again most non-compete cases are resolved at the temporary restraining order or temporary injucntion level.  In Texas, a court is unlikley to resolve whether an agreement is enforceable at this stage.  Regardless, there still is the threat of paying fees.

What the Utah legislature really seems to be saying is for companies to focus on using non-solicitation agreements not non-competes.  This is not a novel approach.  We’ve discussed the same concept here before.  Judges prefer non-solicits to non-competes because they’re not putting anyone out of work.  The Utah legislature has incentivized employers to adopt this approach through the use of the fee provision.  I doubt the new statute deters employers from making employees sign these type of agreements.  (An employee could sue to declare the non-compete unenforceable but that does not happen that often.) That said, I think employers will think twice about attempting to enforce a non-compete.  Maybe they make the employee sign a non-compete, non-solicit, and non-disclosure.  If the employee departs and violates the agreement the employer sues to enforce everything but the non-compete.  We’ll see how things turn out in Utah and if other states follows. This is a progressive middle ground approach to non-compete legislation.

US Women’s Soccer Team – The EEOC Complaint Process in Action

Posted in Uncategorized


It’s always interesting to see how the media covers employment cases.  Five members of the US Women’s soccer team filed a charge with EEOC against th US Soccer Federation asserting claims related to disparate pay as compared to men.  This follows a lawsuit filed last month by US Soccer against the US women’s soccer union over its efforts to seek better bargaining terms.  The NY Times provided a very detailed analysis of the alleged disparity between the US men’s team and the US women’s team.

The more interesting thing to me from an employer/employee perspective is the EEOC process.  A plaintiff, or in this case plaintiffs, first has to file his/her charge with EEOC before they can proceed with their lawsuit assuming they are asserting claims that relate to statutes the EEOC enforces.  The EEOC will then request a response from the party accused of the violation.  The party usually provides a written statement, documents, and even affidavits to support their position.  There may be some back and forth as the investigation continues and the EEOC offers a mediation process as well.  The EEOC can also interview employees and request review of additional documents such as employee files.  The caveat on employees interviews is the EEOC maintains it can interview non-management employees outside the presence of an attorney.  This should make any lawyer or business owner nervous.  The employer is permitted to sit in on management interviews.  The EEOC may also conduct a site visit.

Ultimately, and this can take a long time, the EEOC will make a finding as to whether a violation has occurred.  Regardless of the finding, the EEOC will provide the complaining party with a right to sue letter.  They then have 90 days to file a lawsuit.  In limited instances the EEOC can actually represent the complaining party in the lawsuit.  In most cases it is up for the employee to find an attorney.  Depending on the case, the employee’s attorney may be representing the employee through the EEOC charge process.

Anecdotally, the complaint process seems to be lasting longer.  That of course is based on my recent dealings with the EEOC.  Generally, an employee/employee’s lawyer that does not want to run through the complaint process can request a right to sue letter after the complaint has been pending for 180 days.  The employee then has 90 days to file suit.  We’ll see how quickly the EEOC gets to US Women’s complaint.  My guess is with the media attention it will be faster than normal.  We’ll keep you posted.

My Attorneys’ Fees Please (Texas Trade Secrets)

Posted in Trade Secrets, Trial and Pre-Trial Procedure, Uncategorized


Inevitably whenever I talk with a client there is always the discussion about attorneys’ fees and how to get the other side to pay them.  The unfortunate reality is there are very limited circumstances where attorneys’ fees are recoverable.  The US has the “American Rule” which generally means that each party pays their fees.  There are exceptions.  For instance, a contract can provide that if there is a dispute related to a contract, the prevailing party can recover their reasonable and necessary attorneys’ fees.  Statutes can also provide for recovery of fees such as the the Texas Deceptive Trade Practices Act.

In 2013, the Texas Legislature adopted the Texas Uniform Trade Secrets Act.  It provides for the recovery of attorneys’ fees to a prevailing party if: (1) a claim of misappropriation is made in bad faith; (2) a motion to terminate an injunction is made or resisted in bad faith; or (3) willful or malicious misapporpriation exits.  This was a departure from the common law that did not provide for fee recovery.  In a recent case my client succesfully argued that it was entitled to its fees (as a Defendant) because the Plaintiff brought the case in bad faith.  Here is a link – Stream Awarded Legal Fees in Litigation with Solavei _ Business Wire

Unfortunately, the statute does not define what bad faith is.  Courts from other jurisdictions have not been consistent on the issue either.  We argued that bad faith (based on on other cases) equates to an ulterior motive.  The argument went that the Plaintiff brought the case to damage the client’s business, not to litigate or resolve a bona fide trade secret dispute.  This is hard to prove.  There will be very limited circumstances where a defendant will be able to prove “bad faith”.    In terms of the mechanics for prevailing under the statute, we were a “prevailing party” by way of summary judgment.  The same can be acheived by prevailing at trial.  We then proceeded with an evidentiary hearing on bad faith.

So the good news is there is a mechanism, even for defendants, to recover fees under the trade secret act.  The bad news is it will be hard to prove.  We’ll keep you posted as more cases come out that address what constitutes “bad faith” under the statute.



2016 Arbitration Clause Thoughts

Posted in Uncategorized


I spent most of last week in a construction arbitration.  It got me to thinking about drafting arbitration clauses, be it in the employment or any context.  A few years ago I wrote an article on what I would consider in preparing an agreement.  The suggestions included:

  1. A requirement that the case be disposed of within a certain time period. (i.e. 6 months from filing);
  2. A limitation on the num the number of witnesses that can be called, the amount of time each side has to put on their case, basically anything that would set parameters on how long the hearing will take;
  3. Statute of Limitations – is a provision necessary that spells out how long a party has to bring a claim;
  4. A provision that either adopts and references the Texas arbitration statute or Federal Arbitration Act;
  5. A provision that specifically states there is no appeal;Can witnesses appear by phone or some form of video, or can affidavits be submitted in lieu of live testimony?;
  6. A provision that requires some form of mediation before an arbitration can be filed (another way to try and short circuit the process); and
  7. If the provision dispenses with using AAA or some other group, specific details about arbitrator selection and the process of the hearing.

Some more items to add to the list:

  1. A fee provision that provides for attorneys’ fees, expert fees, arbitration fees, other arbitration costs, and maybe anticipated fees to confirm an arbitration award;
  2. A provision that permits the depositions of corporate representatives; and
  3. A provision that is broad enough to encompass any potential dispute between the parties.

As I said several years ago. you can overlawyer any provision with too much information but in Texas parties are free to contract as they see fit and that goes for arbitration provisions too.

Employers – EEOC Charges Up for 2015

Posted in Hiring and Firing, HR Issues


Filing a charge of discrimination with the EEOC is not difficult for a motivated former employee.  A lawyer is not necessary and there is enough instruction from the EEOC and the world wide web to give someone pretty detailed guidance on what to do.  Once the complaint is filed the EEOC (or similar state agency) will request a response from the employer which means time, costs, and even attorneys’ fees.  The EEOC’s 2015 numbers show a rise in complaints by 5% to around 89,000 charges.  The details are here.  Here is how the charges break down:

  • Retaliation: 39,757 (44.5% of all charges filed)
  • Race: 31,027 (34.7%)
  • Disability: 26,968 (30.2%)
  • Sex: 26,396 (29.5%)
  • Age: 20,144 (22.5%)
  • National Origin: 9,438 (10.6%)
  • Religion: 3,502 (3.9%)
  • Color: 2,833 (3.2%)
  • Equal Pay Act: 973 (1.1%)
  • Genetic Information Non-Discrimination Act: 257 (0.3%)


RG3 and the Employee Departure

Posted in Hiring and Firing, HR Issues


A few weeks ago Washington Quarterback Robert Griffin III left the Washington lockeroom for what all believe was the last time.  RG3, a Heisman winner at Baylor, will likely be cut.  It was only a couple of seasons ago that Washington fans believed he was their football saivor as he led them to a division win and playoffs.  Injuries, bad press, and the rise of quarterback Kirk Cousins put an end to that dream.  At the beginning of the season RG3 was benched in favor of Cousins and never set foot on the field this season.

So on his way out in what was obviously an orchestrated move, RG3 left the print out above on his locker for all to see and report on.  He did not talk to the press.

Which brings up employee departures, more specifically terminations.  Over the last couple of weeks I’ve assisted a few clients with depatures.  Yes, there is the legality behind the decision to let someone go, but there is also the mechanics behind how to do it.  My thoughts:

  1. Dignity – Employers have to be mindful that this is a traumatic event for someone.  It’s not fun and no one likes the process unless they are a psychopath.  Be mindful of the employees’ feelings.
  2. Timing – There is no one size fits all solution for this but letting folks go later in the day usually works better.  It usually doesn’t make sense to keep them working.
  3. Make sure the employee’s access to email and the office end immediately.  Forward their email to someone in the company if necesssary.  Also, make sure remote access is cut-off.
  4. Conduct an exit interview if that is part of the employer’s process.
  5. Collect all keys, access cards, phones, etc.
  6. Remind the employee of any post-employment covenants or obligations they have.
  7. If the departuer is going to be contentious, have security there.  No joke, this can be an issue.

These are just a few thoughts.  I am sure there are others.

You want to exclude my client from the courtroom?

Posted in Injunction, Recent Cases, Trade Secrets, Trial and Pre-Trial Procedure, Uncategorized

Imagine you are int he courtroom with your lawyer in a trade secret lawsuit.  Your company is accused of stealing trade secrets from a competitor.  Then imagine the Judge tells you you have to leave the courtroom because the other side does not want yout to hear what its trade secrets are.  This issue (though a little more complicated) is pending before the Texas Supreme Court.  The Plaintiff sued the departing employee and his new employer for stealing trade secrets and sought an injunction.  During the injunction hearing, the Plaintiff asked to exclude the corporate representative from the courtroom because they were about to talk about trade secrets.  The Judge said he wasn’t going to do that and now the parties are in front of the Texas Supreme Court.  It seems counterinuitive that a judge would exclude a party that is accused of stealing trade secrets from hearing what the trade secrets are.  The Plaintiff asserts the party can adequately defend itself with experts/lawyers and it shouldn’t have to share trade secrets with a competitor that doesn’t know what they are.  We’ll continue to monitor the case and let you know what the Texas Supreme Court decides.

Here is a link to the article I am quoted in from Law 360: Texas Trade Secrets Law Gets 1st Test In Schlumberger Fight – Law360

Recruiter Checklist for 2016

Posted in Placement Professionals

Here are a few thoughts for placement professionals to consider going into 2016:

  1. Be familiar with the Texas Occupations Code and all it requires and its implications.  Here is a link.  There are number of little nuggets there that should be considered.
  2. How do your contracts look?  I’ve written at length over the years over basic contract terms that should be considered including arbitration, venue, choice of law, and jury trial waivers.  Though no one is looking for a dispute – be prepared.
  3. What does your guarantee provision look like (if one is included)?  Make sure it is clearly written.
  4. If you handle searches on behalf of candidates, consider the same contract items. Are your compensation terms clear?
  5. How does your website look? Is it up to date and accurate in its representations?
  6. Does your business have the appropriate business entity?  Is it in good standing with the Texas Comptroller?

Good luck in 2016!