Smooth Transitions

Smooth Transitions

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

Another Recruiter v. Lawyer Lawsuit

Posted in Placement Professionals

Recruiters and lawyers always seem to get tangled out. The Texas Lawyer had an interesting piece about a recently filed Harris County Lawsuit where a recruiter is suing a lawyer at Holland and Knight.  According to the article, the recruiter called the lawyer and told him he had a position to discuss, but he would not reveal what it was until after the lawyer agreed he would exclusively use the recruiter. The recruiter alleges the lawyer agreed and the recruiter revealed information about the Holland & Knight position. The discussion was allegedly recorded. The recruiter attempted to contact the lawyer about the position several times after the initial discussion to no avail. A few months later the recruiter learned the lawyer was now with Holland & Knight and another recruiter received the placement fee from the law firm.

So, after a few demands and some back and forth, the recruiter sued the lawyer (not Holland & Knight) for the fee alleging breach of contract, fraud, and a few other causes of action. The article does not mention a signed placement agreement between the recruiter and lawyer so I assume there was not one. Conceivably an oral recruiting contract could be enforceable, but of course the better practice is to have the agreement in writing. So it sounds like we are in for a “he said – he said” fight between the parties. Every recruiter’s goal is to get paid and stay out of court. How could this situation have been avoided?  Number one suggestion was is to get the placement agreement signed in writing. Number two suggestion is to at least try and confirm the conversation with an email and attempt to have the agreement signed. Notifying Holland & Knight probably isn’t a real option from a business perspective, clients don’t want to hear about your disputes. We’ll monitor this case and see how it turns out. No lawyer likes getting sued (well most don’t) and the recruiter doesn’t sound like he is going away.

New Overtime Rules

Posted in HR Issues

clock-899205_960_720Thee new “Whit Collar Rule” for exempt/non-exempt from the Department of Labor kicks in on December 1, 2016.  In short, employers will no longer be able to treat “white collar” employees that make more than $47,476 per year as exempt and will pay overtime once they work over 4o hours a week.  The DOL suggests three options to employees:

  • Raise salary and keep the employee exempt from overtime: Employers may choose to raise the salaries of employees to at or above the salary level to maintain their exempt status, if those employees meet the duties test (that is, the duties are truly those of an executive, administrative or professional employee). This option works for employees who have salaries close to the new salary level and regularly work overtime.
  • Pay overtime in addition to the employee’s current salary when necessary: Employers also can continue to pay their newly overtime-eligible employees the same salary, and pay them overtime whenever they work more than 40 hours in a week. This approach works for employees who work 40 hours or fewer in a typical workweek, but have occasional spikes that require overtime for which employers can plan and budget the extra pay during those periods. Remember that there is no requirement to convert employees from salaried to hourly in order to calculate their overtime pay!
  • Evaluate and realign hours and staff workload: Employers can ensure that workload distribution, time and staffing levels are all managed appropriately for their white-collar workers who earn below the salary threshold. For example, employers may hire additional workers.

Here is a link to general guidance from the DOL.  Employers have options but need to be vigilant in complying with the law to avoid FLSA collective actions a.k.a. class action lawsuits over overtime.

Recruiter Tips

Posted in Uncategorized

Today, 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:

EEOC On Site Inspections – What you need to know and should be thinking about.

Posted in Hiring and Firing, HR Issues

 

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We’ve talked here multiple times about the EEOC charge process and how a employers should handle the process.  Employers have to keep their eye on the ultimate goal – an EEOC Form 161 Right to Sue letter.  Of course the EEOC will ask the employer for a position statement and certain documents, but what if the EEOC requests a site inspection?  Can it do so?  Yes it can.  So what can the employer and its lawyer do to prepare?

  1. Define the Scope of the Site Inspection – What does the EEOC Investigator want?  This needs to be agreed to before the investigator arrives for the interview.
  2. Document Review – They may want to review employee files, employee manuals, policies etc.  See #1.  Agree what is going to be provided, review it, and have it ready for inspection.
  3. Employee Interviews – Yes, the EEOC can interview employees.  If they are management employees an attorney or company representative is entitled to sit in the interview.  If they are non-management, the EEOC (at least according to it) is entitled to interview them without a lawyer or representative.  (That should scare anyone.)  See #1.  Agree on who is going to be interviewed and who is management versus non-management.  Obviously, the less individuals that are interviewed the better.  See if you can work with the EEOC to make sure you are providing someone that can actually provide responsive information.  This could limit the number of folks they interview.
  4. Preparation – Management – Treat the interviews like depositions.  Prepare the witness thoroughly on expected topics, how to answer questions, how to be responsive. If there are certain key documents review them with the witness.   In the interview where counsel is present, help facilitate the interview if need be.
  5. Preparation – Non-Management – Who knows what an employee is going to say to the EEOC?  Maybe they have an axe to grind?  Hopefully not.  The witness needs to know what they can expect and what the process is about.  But assume anything you share with them will be relayed to the EEOC.  Better to be safe than sorry.
  6. What can they ask?  Quesitons should be limited to the scope of the charge.  Of course there is some wiggle room there, but the charge should provide guidance.
  7. Be Nice – The idea is to make the site inspection a one time event.  Reasonably accommodate the investigator in terms of his or he requests.  It should be approached as a collaborative process, but never forget the power the EEOC has.
  8. Debrief – Debrief any witnesses that are interviewed.  Since you won’t be present for non-management folks you need to know what was said.
  9. Follow up in writing. – Confirm in writing to the EEOC that it was provided with everything requested.
  10. Disruption – Take steps to minimize business disruption.  Not everyone needs to know about what the inspection.  If a conference room is available that is not in the middle of everything, use it.

These are just a few thoughts on the site inspection.  Remember the ultimate goal is to obtain the Dismissal and Notice of Rights.  Finally, make sure all of the employer’s required notices are up to date and posted.

President Obama and Non-Competes

Posted in Non-Compete Agreements, Trade Secrets

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Nobody likes non-competes except business owners/leaders trying to use them to protect their business.  It is the proverbial political softball that some legislatures attempt to address every session.  In May the Obama Administration took on non-competes and released a report entitled  “Non-Compete Agreement: Analysis of the Usage, Potential Issues, and State Responses”.  The report is a precursor for further discussions with the Administration convening “a group of experts in labor law, economics, government, and business to facilitate discussion on non-compete agreements and their consequences.”  There is nothing within the report that even hints that non-compete agreements have any redeeming traits whatsoever.

Some observations/thoughts:

  1. The numbers relied upon (number of folks subject to non-competes, rise of non-competes etc.) are not reliable – it’s almost impossible to determine how many folks are subject to non-competes or restrictive covenants of some type – the Administration has done the best it can with what is out there;
  2. It is unclear what falls within the scope of a non-compete – does this include non-solicitation provisions, anti-raid provisions, garden leave provisions etc. ?
  3. A number that is very interesting is that only 24 percent of employees report they possess trade secrets – not sure if that number is remotely accurate but I do agree with the conclusion that trade-secrets do not drive non-compete activity;
  4. The report focuses on the use of non-competes for folks that make less money – that makes sense and has been an issue we have discussed here – non-competes don’t make sense for fast food workers;
  5. The biggest stretch I see is the conclusion that workers in states with lower levels of non-compete enforcement have higher wages – the basis for that conclusion seems really thin along with the data cited;
  6. Worker’s don’t understand non-competes – maybe some, but I think the average worker is smarter than the reprort gives them credit for; and
  7. Some employers use non-competes that aren’t enforceable – agree.

Though I don’t agree with a number of items in the report I’m glad the discussion is taking place.  It will be interesting to see what recommendations come from the Administration.  Bottom line is this is a state by state issue and federal legislation is unlikely on this type of issue.  Plus, who knows if the Obama administration could actually pass non-compete legislation.  I’ll leave that to the political experts.  We’ll keep you posted on developments.

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

Posted in Trade Secrets, Uncategorized

Opinion

 

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

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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.

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