Smooth Transitions

Smooth Transitions

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

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.

Some Good Non-Compete Stories

Posted in Non-Compete Agreements, Uncategorized

A little light reading for everyone:

  1. Here’s an analysis of a recent Nike/Adidas dispute.  Nope, not over signing the latest basketball phenom to a shoe contract.  Instead, a lawsuit against several Nike designers who bolted for Adidas.  Nice breakdown by Florida lawyer Jonathan Pollard.  The link.
  2. A quick blurb on a Kentucky court’s refusal to enforce a non-compete against car dealers.  The link.
  3. Another Jonathan Pollard discussion of a non-compete fight between two staffing agencies.  The link.
  4. A lawsuit against four former Gillette employees alleging trade secret misappropriation.  The link.
  5. Finally, state legislatures are in action so we have the requesite non-compete legislation.  The link.

We’re off to a busy year in 2015 and the non-compete/trade secret lawsuits aren’t going away.



So, is non-compete litigation on the rise?

Posted in Uncategorized



Determining whether non-compete litigation is on the rise or declining is a tough question to answer.  There is certainly anecdotal information – a lot of people have called me about enforcing a non-compete, but that’s not accurate.  A lawyer from Boston named Russell Beck puts together a nationwide chart every year that addresses this issue based on decisions from state and federal that involve non-compete and trade secret cases.noncompete-and-trade-secret-cases-survey-graph-201501171 Without getting into how his analysis works, his conclusion is that non-compete litigation has remained about the same the last few years and trade secret litigation has continued to increase.  Of course there is a mix between the two types of cases so there is some overlap.

Russell’s review is the closest thing I have seen to a real analysis of this issue.  We’ll never really know because a significant amount of cases are resolved without and opinion and could be decided at the temporary restraining or temporary injunction level or may just settle.  But Russell’s approach at least gives us some information in terms of trends.

So to answer the question, non-comepte litigation is not on the rise on a national basis.


Tatoos and Potential Employees

Posted in HR Issues
The pain tatoo.

The pain tatoo.

I read an interesting article in the Dallas Morning News about folks getting tatoos and bias against tatoos in the workplace. Some of the highlights:

  • a lot more younger people are getting tatoos and piercings;
  • some employers have outright bans on tatoos on the neck or face;
  • some of the older folks that run companies and hire people don’t like tatoos; and
  • by excluding potential employees based on tatoos, employers risk lawsuits and are excluding a large portion of applicant pools.

First, I haven’t run into any companies that exclude persons simply based on having a tatoo but I’m sure it’s something that might be considered or at least contribute to an interviewer’s impressions about a potential employee.  Second, employers have a lot of leeway in terms of hiring foks based on their appearance as long as it is not discriminatory.  For instance, I might make the decision not to hire you becasue you don’t dress appropriately or that hot pink dyed hair is not appropriate for the workplace.  Now if a tatoo is tied to religion we’re talking about an entirely different situation.

The article’s main point is that as social norms change so must workplace policies.  I don’t disagree with that, but we’re just not to a point where tatoos have reached total acceptance in the workplace, especially the more traditionally conservative occupations (doctors, lawyers, bankers, consultants etc.).  If a potential employee was really talented and qualified and had a tatoo that was on the wrist and not noticeable, it’s probably not a big deal.  Of course if it’s a tatoo with letters “pain” across the knuckles we have a different situation.

There are no hard and fast rules on tatoos and hypothetically an employee’s or applicant’s tatoo could invoke the protection of some state, federal, or local laws.  Of course this would be in very limited situations.  The point is it probably doesn’t make sense to have per say rules that exclude applicants becasue of a tatoo these days.

Recruiter Checklist for 2015

Posted in Placement Professionals


Here are a few thoughts for placement professionals to consider going into 2015:

  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 2015!

Respect for a Well Written Non-Compete

Posted in Non-Compete Agreements

I really enjoyed an article about Madison, Wisconsin based Epic Systems’s non-compete agreement and the comments of those former employees who were abiding by it.  There was some scuttlebutt about whether Epic was going to extend the term from 1 to 2 years.  Epic is big in the healthcare IT world and its ex-employees go on to consult for other companies on Epic software and make good money.

Based on the article it appears that most Epic employees respect the enforceability of the non-compete.  I would guess that some have tried to challenge it in the past and have been unsuccessful.  There is a signficant amount of time in the article devoted to Epic’s seriousness in protecting its intellectual property and the training it invests in its workers – hence the non-compete.  It’s not often you see an article focusing on the merits of a non-compete.  It seems like every story or article out there is about a non-compete that doesn’t make any sense.  Probably because a lot of them do not – see Jimmy John’s for example.

The point is a well-written, well-thought-out, and enforced non-compete agreements can go a long way to protecting a business. Too many times I see agreements that meet none of the cited criteria.  But when I am evaluating a well written agreement that I know the employer has a history of enforcing it goes a long way to informing my opinion on the enforceability of the agreement.  Most employeees and prospective employers don’t want to get into litigation over a non-compete.  If a business is going to use them, put the time and money necessary into preparing and if need be enforcing the agreement.  Once a company develops the reputation, like Epic, of enforcing an agreement it goes a long way towards thwarting a possible breach of the agreement.

Here is a link to the article I wrote for the Texas Lawyer earlier in the year providing non-comepte reccomendations.