Smooth Transitions

Smooth Transitions

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

Recruiter not on the hook for placing a thief.

Posted in Placement Professionals

In a case from last week the Fifth Circuit found upheld a district court’s judgment ruling that a recruiting firm was not liable for placement of a medical group’s office manager who embezzeled $60,000.  The case provides an interesting analysis of a recruiter’s responsibility in terms of presenting a candidate who turns out to be a thief and the validity of a refund provision.  A brief summary of the facts:

  • the medical group needed a new office manager and the recruiter provided five resumes for review;
  • the medical group interveriew four of the five and asked for references for two including the thief;
  • the recruiter performed a background check on the thief that did not reveal any records from the national database;
  • the recruiter was paid $7,275 for the referral;
  • the thief worked for the medical group for six months until it was determined she was embezzling money;
  • the thief did not have an undergraduate degree and was not an RN;
  • the thief had a deferred adjudication in 2007; and
  • the recruiters guarantee provided for: (1) full refund if the placement left within 30 days of employment (regardless of reason); (2) a prorated refund or free placement if the placement was employed for 30-90 days; or (3) a replacement for half-price if the placement was employed from 90 days to 5 years.

The medical group sued the recruiter under the Texas Deceptive Trade Practices Act alleging the recruiter was the producing cause of its damages and wanted its placement fee back.  The district court held that the recruiter was not the producing cause and the Fifth Circuit agreed.  Specifically, the district court found:

  1. the medical group interviewed the the thief;
  2. the medical group made the decision to hire the thief;
  3. the medical group relied on the thief’s resume;
  4. the medical group relied on its interview of the theif and feedback from the former office manager; and
  5. the recruiter’s representation that the thief was an RN was not what caused the medical group to hire her.

In addition to its DTPA claim, the medical group claimed the recruiter’s refusal to refund the placement fee was unconsionable.  Again, the Fifth Circuit disagreed and affirmed, holding that it was not “unconscionable for [the recruiter] to follow its clear-cut express warranty rather than refunding the full fee and providing restitution.”  It’s unclear whether the medical group will take the recruiter up on a half-price placement.  After several years of litigation and an appeal to the Fifth Circuit I suspect the answer is no.

The takeaways for the recruiter: (1) make sure your engagement/guarantee agreement is enforceable and follow it; (2) be careful on what is represented to a client in terms of the background of a candidate; and (3) always make factual representations.  For the employer – don’t rely on a recruiter’s background check and conduct your own due diligence.

Thanks to our friends over at 600camp for pointing out this case and here is link to the opinion.

Sports Employment Law Issues Vol. 2

Posted in HR Issues

So much has been underway in the world of sports employment issues since our first installment I’m just going to focus on items related to the Dallas teams.  No, I’m not a Cowboys fan but they provide plenty of fodder that is magnified by our local and national media. So without further adieu:

  1. The signing of Greg Hardy:  Hardy, formerly with the Carolina Panthers, provides a ferocious pass rush.  Unfortunately, he has also beaten his girlfriend.  In short, Hardy was originally convicted, demanded a jury, and the conviction was thrown out after the girlfriend did not appear to testify.  Somehow the NFL conviced the prosecutors to let them look at pictures of the girlfiend (after it filed a lawsuit) and suspended him for 10 games next season.  Hardy signed with Dallas and has proceeded to: (1) abandon his Bentley during a flash flood episode; and (2) make an inapporptiate 9/11 – Twin Towers joke during the draft.  It’s hard to be fan of Hardy considered his past and current conduct.  The Cowboys have even taken some heat in the media over the issue.  Highly unlikely an average employer would make such a higher but neitther the Cowboys or NFL are average.  We’ll see what happens with Mr. Hardy next season.  The tweet under the name Kraken Kennedy:              The Tweet
  2. Josh Hamilton – Hamilton left the Rangers a few years ago after being MVP and propelling the Rangers to two World Series.  Hamilton was a can’t miss prospect with a serious drug addiction.  Over the years he has struggled to remain clean and has had some fairly publicized relapses.  Hamilton has gained the ire of Ranger fans by some anti-Ranger comments after his departure to the California Angels.  Hamilton has issues – they probably fall within the scope of the ADAAA or FMLA.  He’s with the Ranger’s AAA affiliate and should be back in the big leagues this month.
  3. Randy Gregory – Another Cowboy’s story here.  Gregory is a linebacker from Nebraska.  Before news of his positive marijuna test came out he was projected to be a top 10 pick.  Positive test means a slide in the draft to second round.  The Cowboys have a history of dealing with troubled players.  There’s no doubt there is somone on the payroll right now to make sure Gregory stays out of trouble – not many employers like that.  Of course, the Cowboys had a similar set up for wide-receiver Dez Bryant.

Mad Men Non-Competes

Posted in Non-Compete Agreements, Shareholder Disputes
Courtesy of AMC

Courtesy of AMC – The Showdown

The much acclaimed Mad Men AMC television series is coming to an end with only a few episodes left.  The partners and employees of the New York advertising firm Sterling Cooper have given us a number of employment, partnership, negotiating, and other lessons over the years.  Times have changed with the firm as we have followed its evolution from 1960 to the early 1970s.  The final and seventh season finds Sterling Cooper operating as a subsidiary of McCann Erickson, an advertising behemonth.  Previous to this the Sterling Cooper partners sold their interests to McCann and they are now all millionaires.  For the past few episdoes the Sterling Cooper folks have been operating with relative autonomy with offices in New York and Los Angeles.

So, it comes as a shock to Roger Sterling when he finds out that McCann has cancelled Sterling Cooper’s New York office lease and McCann will essentially absorb Sterling Cooper.  The partners have a few closed door meetings where it is revealed by Joan (the sole female partner) that they are all subject to a non-compete agreement, which was part of the terms of their buyout.  Of course buyout non-competes are relatively common.  An acquirer of a new company does not want to  compete with the folks it is acquiring after the deal closes.  Courts are generally more apt to enforce these types of agreements though in Texas, they still must satisfy the non-compete statute.   Regardless, the partners do not question the enforceability of the non-compete.  They assume it is enforceable and place no calls to counsel for guidance.  (That would probably take too long in the space of a 60 minute episode.)

Leave it to Don Draper to come up with a plan.  The Sterling Cooper partners will move to Los Angeles and operate and continue to operate a subsidiary of McCann.  They will continue to work for clients that McCann cannot represent and everyone will be happy.  The partners then go into overdrive as they attempt to secure the move of those clients and Don prepares to make the most imporant presentation of his life to McCann.

The next day the partners head over to McCann where their proposal is met dead on arrival.  McCann concedes the Sterling Cooper partners have won and awards them several high profile accounts to handle.  Don gets Coca-Cola.  Of course, Joann gets nothing.  Now we can spend the next few episodes seeing how the contour of this new relationship works.  We’ll see how the sexist McCann employees deal with Joann.

Courtesy of AMC - Celebratory drinks after the meeting.

Courtesy of AMC – Celebratory drinks after the meeting.

The Sterling Cooper partners give us a solid takeaway for non-compete disptues.  In many instances the non-compete an employee faces is enforceable.  But, that fact does not foreclose the possibility to negotiate or reach some agreement with the former employer.  A non-litigation solution in most instances is preferable to a lawsuit where the outcome is uncertain.

Non-Compete legislation – New Mexico limits medical non-competes.

Posted in Uncategorized


Though non-comepte legislation always seems to be in the news, signed legislation is rare.  Last week, however, the governor of New Mexico signed a non-compete bill that limits post-employment covenants in the medical profession.  Here is the New Mexico Medical Society’s take on the new law:

Governor Martinez signed SB325 which limits enforceability of contractual conditions involving certain healthcare practitioners who are under contract to health businesses. Declares a non-compete provision void, in a contract that restricts the right of a health care professional to provide health care services, upon the termination of the agreement (or extension) or the practitioner’s employment with a party seeking to enforce the agreement. Applies to agreements entered into on or after July 1, 2015.

Here is a link to the final bill that was signed.  A few takeaways from the law:

  1. It is not retroactive and only applies to agreements entered into after July 1, 2015;
  2. If the agreement is already in place and is extended or renewed (after July 1) it is unenforceable;
  3. It does not restrict an employer from making an employee pay back certain expenses like a loan, relocation expenses, etc. if they have worked for less than three years;
  4. Non-disclosures for confidential information/trade secrets are permitted;
  5. Non-soliciation provisions for patients/employees for a one year period or less are permitted; and
  6. Liquidated damage provisions are permitted as long as they are not unreasonable.

The last provision is interesting.  My guess is that a medical employer could tie liquidated damages to any violation of the non-solicitation provision which keeps a departing doctor from taking patients or employees for a year.

There is always a policy argument in favor of banning non-competes for doctors.  It doesn’t seem like medical care should fall within these types of restrictions.  But, states like Texas permit non-competes for MDs.  Here, there has to be a buy out provision that the MD can pay to get out of the agreement.  We’ll keep an eye out for any other post-employment covenant laws.



Another bad non-compete bites the dust.

Posted in Non-Compete Agreements


A few months ago we considered the Jimmy Johns non-compete that received national attention and was even the subject of a class-action lawsuit.  The short of it was the non-compete applied to the nice sandwich maker that filled your order and most folks didn’t think a non-compete for those folks made sense.

Up to bat next was a recent Amazon non-compete that applied to its hourly workers.  It provided in typical non-compete speak:

During employment and for 18 months after the Separation Date, Employee will not, directly or indirectly, whether on Employee’s own behalf or on behalf of any other entity (for example, as an employee, agent, partner, or consultant), engage in or support the development, manufacture, marketing, or sale of any product or service that competes or is intended to compete with any product or service sold, offered, or otherwise provided by Amazon (or intended to be sold, offered, or otherwise provided by Amazon in the future) that Employee worked on or supported, or about which Employee obtained or received Confidential Information.

Amazon made the right move and dropped the non-compete for its hourly workers.  In many instances there are stituations where non-compete or other post-employment covenants makes sense and designed to protect the employer’s interests.  There are other situations where agreements don’t make sense the employee signs it because he or she has no other option and wants to work.  The problem is a bad non-competes undermine the perception of non-competes accross the board.  The media never picks up stories about “good” non-competes, it only reports on “bad” non-competes.

A non-compete in Texas has to be reasonable in time and scope and ancillary to an otherwise enforceable agreement.  Neither the Jimmy Johns’ nor Amazon hourly worker non-compete would seem to pass the test and do you actually think either company was actually going to enforce these agreements against a warehouse worker or sandwich maker?  The answer is no.  In retrospect both companies are probably considering why they ever included such a provision in their agreements in the first place.


The Army weighs in on tatoos.

Posted in HR Issues

A few months ago we discussed tatoos in the work place and general acceptance of tatoos in society.  The Army has weighed in on the tatoo discussion relaxing its tatoo policies indicating that policies limiting the number and size of tatoos will be a thing of the past.  Basically, tatoos are okay as long as they can’t be seen when the solider is wearing the Army Service Uniform.  A solider still can’t have derogatory tatoos or tatoos on the neck.

Like other employers, the Army has to adapt to changes in society and tatoos are no exception.

The pain tatoo.

The pain tatoo.


Never Ending And Always Dangerous: The Independent Contractor/Employee Debate

Posted in HR Issues

Marco Rubio Speech On Innovation At Uber's DC Offices


It’s been a long week and you and your friends decide to go out on the town Friday night.  Instead of driving, you make the decision to use Uber (the driving service) to get from point A to point B and to ultimately get home safely.  Good decision, but did you know those drivers are independent contractors?  Or are they?  A current class action lawsuit in California addresses that very issue.

My friend Jon Hyman recently wrote an article about two class action lawsuits dealing with the alleged misclassification of employees as independent contractors. One of the cases involves the drivers for Uber (popular here in Dallas) and in both cases the judges denied summary judgment.  The IRS provides fairly detailed guidance on how to classify but it requires a case by case analysis – there are no hard and fast rules.  Of course the IRS is concerened with unpaid employment taxes and even offers an amnesty program.  Some factors to consider:

  1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Your friendly neighborhood class action lawyer is going to assert claims for violations of the labor code, other unfair practices, and attorneys’ fees.  The Uber lawsuit has a nice website and the original complaint has the plaintiffs seeking reimbursement for expenses Uber should have paid for along with other violations of the California labor code. According to their lawyers, Uber should pay drivers for overtime, unemployment insurance, workers compensation and, possibly drivers’ expenses, including gas and vehicle wear and tear. There is a good article about the case here.

Obviously employers want to stay out of the cross-hairs of class action lawyers.  Making the correct decision from the outset on employment classification is critical as the Uber case demonstrates.  The question that pops into my mind is whether Uber’s business model works if it is forced to classify its drivers of employees?  If it is wrong, not only will Uber have to pay its drivers, but the IRS would be knocking on the Uber door as well.



Texas Non-Competes – The More Things Change…

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

It’s been 3 and a half  years since the Marsh opinion that redefined what could constitute consideration for a Texas non-compete and courts have bee relatively quiet on non-competes since then.   That’s not surprising from the Texas Supreme Court as Marsh was the third of a trilogy of opinions dealing with the subject.  Appellate courts have continued to address the enforceability of non-competes from time to time but there have not been any cutting edge opinions.

Frankly, I thought we would see cases where employers were using signing bonuses, stock options (like Marsh), or other financial incentives to support non-competes.  Those types of things may be happening out in the field but have not made their way to appellate courts, yet.  Employers should definitively be considering them.  From an anecdotal standpoint (my view from the courthouse and discussions with employers/employees) it appears that folks in Texas are more resigned to the fact that the non-compete that was signed at the outset of employment is enforceable but the new employer or former employee is willing to take the risk of breaking it.

My high level thoughts on non-competes haven’t changed and were most recently covered in a Texas Lawyer article last summer that you can read here.  Some highpoints:

  1. The Texas non-compete statute has not changed in years – follow it;
  2. Make sure the non-compete is reasonable in time and what it covers;
  3. Remember that at some point the former employee is going to be able to compete;
  4. If the employer is going to put in the time to draft a non-compete then enforce it;
  5. Think about items such as jury trial waivers, forum provisions, choice-of-law provisions, and even arbitration;
  6. Courts like to enforce non-solicits over non-competes because they are “fairer” – you’re not putting the employee out of business, but they can’t contact your customers; and
  7. If you are an employee remember you can never “unsign” a non-compete.

We’ll continue to monitor the non-compete front here in Texas.