Smooth Transitions

Smooth Transitions

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

Recruiter Tips

Posted in Uncategorized

This week, I have the privilege of speaking to the Executive Search Owners Association. Over the years I have had the privilege of representing placement professionals in a number of circumstances. Some tips:

  1. Make sure your engagement agreements/contracts make sense and are enforceable;
  2. Remember that non-competes and non-solicitation agreements in Texas can be enforceable;
  3. Screen your candidates to determine if they have entered into a non-compete or non-solicit;
  4. Remember that if someone you placed is sued it is likely that their new employer will be as well;
  5. Protect your candidate and client information – that information can be a trade secret;
  6. Make sure you are in compliance with the Texas Occupations Code;
  7. A little money spent on an attorney up front can save a lot of money down the road;
  8. Be factual when you talk about a potential employer;
  9. Don’t give legal advice; and
  10. If you sign an agreement prepare to have to comply with it.

Below are some resources and previous writings placement professionals might find of use:

Proof that Employment Laws are Still Necessary in Texas

Posted in HR Issues, Uncategorized

 

Caught this story here in Dallas where a now defunct medical lab had “gropening day” every other Friday.  Here is a link to the story.  Basically employees were free to grope one another every other Friday – no joke.  It’s hard to believe something like this occurs in 2017.  Unfortunately it does.  A former female employee sued the lab after she was subjected to ongoing harassment at the lab and quit after six month.  Here is a link to her interview.  Apparently her story has been substantiated by a former supervisor at the lab who says the story is not embellished.

Unfortunately, or fortunately depending on your perspective, the lab is out of business so a civil suit recovery may be difficult.  Stories like these are a reminder that we still have a long way to go when it comes to workplace harassment.

2017 Arbitration Thoughts

Posted in Arbitration, Drafting, Hiring and Firing, HR Issues, Texas, Trade Secrets

Over the years we’ve been building a list to consider when putting together an arbitration provision.

  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 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;
  6. Can witnesses appear by phone or some form of video, or can affidavits be submitted in lieu of live testimony?;
  7. A provision that requires some form of mediation before an arbitration can be filed (another way to try and short circuit the process);
  8. If the provision dispenses with using AAA or some other group, specific details about arbitrator selection and the process of the hearing.
  9. A fee provision that provides for attorneys’ fees, expert fees, arbitration fees, other arbitration costs, and maybe anticipated fees to confirm an arbitration award;A provision that permits the depositions of corporate representatives; and
  10. A provision that is broad enough to encompass any potential dispute between the parties.

For 2017:

11. Specify the number of arbitrators to consider the dispute;

12. Make sure there is a choice of law provision for the dispute; and

13. Specify the venue for where the arbitration will take place.

 

The Non-Compete Buyout

Posted in Hiring and Firing, HR Issues, Injunction, Non-Compete Agreements, Non-Solicitation Agreements, Trade Secrets

 

One option we’ve never spent much time discussing here as it relates to non-competes is the buyout option – on both sides.  Buying out a non-compete is neither new nor novel.  Physician non-competes in Texas require that the non-compete provision include a buyout option.   The statute provides:

the covenant must provide for a buy out of the covenant by the physician at a reasonable price or, at the option of either party, as determined by a mutually agreed upon arbitrator or, in the case of an inability to agree, an arbitrator of the court whose decision shall be binding on the parties

Sometimes there are fights over what the amount should be, but that can be resolved through negotiation or when all else fails, arbitration.  I have seen some formulas used to arrive at the number such as a percentage of income or gross production.  The parties are only limited by their imagination and negotiating skills in terms of structuring a deal.

There is not a buyout provision in Texas for non-doctors, but that doesn’t prevent parties from using them.  In my career I’ve seen one employer that offered a buyout provision and that was in the context of a placement professional.  It can make sense in certain situations.  In sales related employment the departing employee will likely have strong personal relationships with customers that the employer may not be able to replicate.  The reality is a departing employee will eventually take that business with him/her when the customer decides they want to move the business.  So why not consider letting the departing employee buy their way out of the non-solicitation or non-compete agreement?  The employer could actually tie the amount to production the departing employee achieves in their new job.  Of course there could simply be an agreed upon amount paid over time – again no limits on how the deal is structured.

The flip side is the the employee that has departed and may be violating a non-compete and non-solicit.  Why not approach the former employer about a buyout?  The reality is that discussion probably won’t happen until the former employer threatens to sue or sues the former employee.  (A former employee is unlikely to initiate buyout discussions without some threat of a lawsuit.)  Of course the former employee will have better leverage when a lawsuit is pending but the former employee will always be able to attack the validity of the non-compete or non-solicit.  The employer also has to consider that it may not be able to hold onto the business in the long run and will lose the income stream anyway.

So how is it done?  The buyout is a contract that could be included as part of a settlement agreement or release.  If you’re the employer be thinking about how you are going to enforce the agreement if the employee fails to pay.  The buyout won’t make sense in every situation but it is something to consider.

NY Times Non-Compete Article

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

I don’t think I’ve ever dedicated a post to a newspaper article but a recent New York Times article entitled “How Noncompete Clauses Keep Workers Locked In” does a great job addressing the human toll of non-competes.  Here is a link to the article.  The article is generally anti-non-compete when it comes to lower paid workers but cites some examples where they can make sense.  The article also focuses on the ramifications of more and more non-competes, they drive wages down.

To me the most interesting focus is on the use of non-competes to control work experience:

The growth of noncompete agreements is part of a broad shift in which companies assert ownership over work experience as well as work. A recent survey by economists including Evan Starr, a management professor at the University of Maryland, showed that about one in five employees was bound by a noncompete clause in 2014.

As someone who represents folks/companies on both sides of the non-compete equation I’m not sure I would agree with the claim that non-competes use is on the rise or that one in five employees is bound by one.  Regardless, they are out there and in numerous industries.  The publicity we most often see deals with bad non-competes, like the Jimmy Johns non-compete from a few years ago.

The economics of enforcing bad non-competes doesn’t work.  It is expensive to sue someone and get a temporary restraining order. Plus, in most circumstances lawyers are going to confront judges that don’t want to prevent a former employee from working in an industry that they may have been tied to their entire working life.  As we have discussed here on numerous occasions, the better odds on protecting a business is through enforcement is through non-solicitation agreements that prevent a former employee from calling on customers and hiring away employees.

Non-competes will continue to be dealt with on a state by state basis.  There is not going to be some federal legislation that kills them.  Employers should use them sparingly and in instances where they make sense – for highly paid employees that have received access to to true trade secrets/proprietary information or received serious training. Employers that use them must also enforce them.  Simply drafting them and not enforcing them is bad policy and undermines an employers ability to enforce them in the future.

Avoiding the Litigation Super Highway

Posted in Uncategorized

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We know that most cases are resolved before they ever see a jury or judge at trial.  Some go the way of summary judgment. Other go the way of settlement.  After attorneys’ fees and case related fatigue parties eventually get to a position where continued litigation no longer makes sense. Most companies and others know this, but sometimes the pain of litigation is necessary to get one or both of the parties to a dispute to a point where the case can be resolved.

So how do we avoid the litigation super highway?  A few thoughts:

  1. It can happen, but a plaintiff/defendant usually doesn’t get everything they want as part of a case. Never “fall in love” with the strength of your case. It’s difficult, but you must maintain some objectivity, which hopefully your counsel will provide.
  1. A settlement usually means you’re giving up something and so is the other side. Parties don’t walk away from a settlement getting everything they wanted.
  1. In cases where you are paying a lawyer on an hourly basis, there is an economic disincentive for the lawyer to settle the case. Ethically, this shouldn’t be an issue as the lawyer owes a fiduciary duty to put the interest of the client above their own, but it is something to keep in perspective.
  1. No matter what your lawyer tells you, the litigation cost will be more than anticipated.
  1. There is a cost to litigation beyond attorneys’ fees. Those involved in the dispute are pulled away from their day to day tasks and distracted.  Litigation, which may involve depositions, can be extremely stressful and unless you’re a masochist is an unpleasant experience.

These are just a few things to consider as you venture into a lawsuit or arbitration.  Many times there is no choice, but if the opportunity presents itself to exit the litigation process on acceptable terms, it has to be considered.  Force your lawyer to give you an up front candid evaluation of the case and an estimate of costs.  The party on the other side is usually considering the same issues and an early mediation or settlement discussions might be appropriate.  At a certain point the litigation takes on a life of itself, avoid that situation.

Trade Secret Theft – By Lawyers

Posted in Injunction, Non-Compete Agreements, Recent Cases, Uncategorized

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A couple of weeks ago we wrote about the rationale behind why Texas lawyers aren’t subject to non-compete agreements.  That said, generally lawyers aren’t permitted to compete with their current law firm/employer while still employed.  That seems pretty basic.  Imagine this fact pattern pulled from the allegations from the above lawsuit:

  1. Lawyer works for Law Firm A and also maintains a solo law firm (he is the only lawyer) at the same time (we’ll call that Law Firm B).
  2. Law Firm A doesn’t know about Law Firm B and lawyer denies the existence of Law Firm B.
  3. While at Law Firm A lawyer basically attempts to move business from Law Firm A to Law Firm B.
  4. In one instance it is alleged he interviewed a potential client for Law Firm A, but signed them up as a client for Law Firm B.
  5. Lawyer used the firm credit card for Law Firm B.
  6. Lawyer assured Law Firm A he was not operating Law Firm B.
  7. For other reasons, lawyer departs Law Firm A for Law Firm B.
  8. After his departure Law Firm A learns of the above actions.
  9. Law Firm A sues former lawyer and Law Firm B and seeks a TRO/Injunction and asserts claims for breach of fiduciary duty, fraud, conversion, and about every other cause of action you can think of to claim.

As part of the lawsuit Law Firm A also seeks a temporary restraining order and injunction.

While employees in Texas can prepare to compete with their employer during off hour, that does not mean an employee can compete with an employer during business hours or divert work from one company to another.  I’ve actually seen this in the context of a recruiter who essentially diverted prospects to another company.  Additionally, most employment agreements will have a provision that requires the employee to dedicate the majority of their time to their employer and not others.  We’ll keep an eye on the case as it develops.

 

How to Handle a Firing

Posted in Hiring and Firing, HR Issues, Uncategorized

 

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From an employer’s perspective the firing of an employee is hopefully the culmination of a deliberative process and compliance with the company’s policies and procedures.  It is the ultimate adverse employment action and everything that is said and done may be put under the microscope by an employee’s lawyer, EEOC, or Texas Commission on Human Rights.  So what should the employer be thinking about before someone from HR sits down with the employee:

  1. Has the company complied with all policies and procedures with respect to the termination?  This could range from required warnings, write-ups, performance improvement plans etc.
  2. Have you considered what claims the employee may assert against the company?  Has the risk been evaluated with respect to those potential claims?
  3. If the company suspects potential litigation how does the employment file look?  We all know that Texas is an at-will state (the employer may fire for no reason at all as long as there is no discriminatory basis) but some basis may need to be articulated?
  4. Are there any post-employment covenants (non-competes/non-solicits/anti-raid provisions) that the employee needs to be reminded of or may need to be enforced in the future?
  5. Are there other contractual obligations the company may have to the employee?  Usually this is compensation related like stock options/retention bonuses etc.
  6. Is the company going to articulate a basis for the firing to the employee?  Best practice here is to actually walk through the mechanics of the let-go and dialogue with the employee.
  7. Pay the employee everything they are owed. Enough said there.
  8. Last day logistics – cut off access to email and company documents, orchestrate the return of all company property, and conduct any necessary exit interviews.  If it is going to be an ugly departure prepare accordingly.
  9. Is the company offering severance?  Is the company going to let the employee continue to work for the company while they look for new employment or provide notice on when the termination will take place?  What day of the week will the termination take place?
  10. Will the company require a release in exchange for severance?

These are just a few items to consider.

Why Texas lawyers aren’t subject to non-competes.

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

 

Quite often I have lawyer friends ask me why Texas lawyers (and lawyers from other states) aren’t the subject of non-competes?  There aren’t really any cases that I’ve run across on the subject, which sometimes is an indicator that law firms aren’t trying to enforce them.  The answer is not that complicated. Queue Texas Rule of Disciplinary Procedure 5.06:

Restrictions on Right to Practice

A lawyer shall not participate in offering or making: (a) a partnership or employment agreement that restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or

(b) an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a suit or controversy, except that as part of the settlement of a disciplinary proceedings against a lawyer an agreement may be made placing restrictions on the right of that lawyer to practice.

The comments to the rule provide that the purpose of the rule is not only to prevent restrictions on lawyers post-employment moves but also to prevent restrictions on clients from selecting their lawyer of choice. Put another way, it’s not fair to keep a client from engaging their attorney of choice because they left their previous firm.  This is no different than non-lawyer cases where the argument is made that a customer should be able to pick whom they want do business with even if a non-solicitation agreement is in play.  This rule is found in similar form in other states.

Beyond post-employment issues, the comments also make clear that settlement agreements cannot prevent lawyers from agreeing not to represent other clients in lawsuits against defendants.

In Texas we really don’t have any particular statutes/rules/regulations directed towards particular professions other than doctors.  Those particular agreements require that the doctor have a buy out provision for their non-compete.

 

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