Yesterday’s Dallas Morning News homepage had not 1 but 2 employment related cases. Texas icon Whataburger has been sued for alleged discriminatory hiring practices and CBS 11 has been sued for violating the ADEA when it chose to hire a younger female traffic reporter over 44 year old Tammy Dombeck. Both cases were filed by the Equal Employment Opportunity Commission. We’ll keep an eye on both cases.
The purpose of the performance improvement plan or “PIP” is to give an employee the opportunity to make certain changes in their work performance so as to merit ongoing employment. Put another way satisfy the PIP and you keep your job. Of course, there are all sorts of statements in the PIP (or there should be) that satisfaction of the PIP does not mean an employee will keep their job, but that’s the intent. Or is it?
Often times I end up looking at employment situations and I’m asked to evaluate what types of claims might be filed and the strength and merits of such claims. The tough part of that evaluation is trying to figure out if the company has handled the situation “fairly”. In some circumstances the employer will have attempted to use PIP before they ever talk to me – that is generally good news. As a rule of thumb, if an employer is talking to me about implementing a PIP it’s probably too late in the employment progression. Why do I say that? For a PIP to work there needs to be “buy in” from the folks implementing it. Some times I’ll see situations where the PIP is almost viewed as a box to check before a firing. They don’t work that way and if that is the approach from the outset they are most likely going to fail. If the person needs to be let go, the PIP may not make sense and that’s okay.
When the PIP is constructed the goals associated with PIP have to be reasonable. Part of the PIP will usually have fuzzy goals like “getting along with others” or working on communication skills. That will come down to a subjective evaluation. Then we have the objective items like billable hours or sales goals. There are objective numbers that can be tied to a goal, some of which may already exist pre-PIP. The numbers have to be reasonable and there has to be enough time to give the employee an honest shot at satisfying the PIP. A month isn’t always enough time. If the employer doesn’t want to do that – don’t do the PIP. Finally, make sure the employee understands the PIP. It should be easy to read and the goals clear. Interim evaluations during the PIP period usually make sense.
If done correctly a successful PIP could mean salvaging the employment relationship. If the employee doesn’t perform, so be it, yet another example of the employer trying to work with the employee. I have also seen the situation where the employee quits rather than go through the PIP. Bottom line is to seriously consider whether the PIP is appropriate before going that route.
The usual gamut of post-employment covenants includes non-compete restrictions, non-solicitation of customer restrictions, confidentiality restrictions, and in many cases the anti-raid provision designed to keep a departing employee from hiring away a former employer’s employees and contractors. The anti-raid is not always given a lot of thought, but it should be. Why? Because when there is an orchestrated departure, the odds are a departing employee will attempt to hire away the top lieutenants. In most cases, the departing employee would rather use the same team as opposed to staring from scratch.
An anti-raid provision is a restraint of trade and subject to the Texas non-compete statute. In the 2011 Marsh opinion that we have previously discussed, the Texas Supreme Court confronted this very issue. The non-compete agreement in that case contained a clause stating that the departing employee could not “solicit any employee of [former employer] who reported to [departing employee] directly or indirectly to terminate his employment with [former employer] for the purpose of competing with [former employer].” In the section of the opinion where the court was laying out general rules for evaluating enforceability of non-competes, the Court reasoned: “Covenants that place limits on former employees’ professional mobility or restrict their solicitation of the former employers’ customers and employees are restraints on trade and are governed by the [Covenants Not to Compete Act].” See Marsh USA, Inc. v. Cook, 354 S.W.3d 764, 768 (Tex. 2011). Other courts have made similar rulings relying on Marsh.
So, like a non-compete agreement, generally the anti-raid must be ancillary to and otherwise enforceable agreement and reasonable in time and scope to satisfy the non-compete statute. In most situations the anti-raid will accompany a non-compete agreement and non-solicit agreement because they are held to the same standard. That said, a court may be more likely to enforce an anti-raid provision as opposed to the non-compete. Why? Because a court would rather keep a former employee from hiring folks away as opposed to putting them out of work.
What are some things to consider when drafting an anti-raid? (1) Should the agreement apply to individuals the departing employee actually worked with? (Yes, the narrower the better and the odds are the departing employee isn’t going to hire folks they don’t know or haven’t worked with.) (2) Try to use language that is broad in terms of the actions the former employee can use to hire someone one away but narrow enough to be enforceable (not always easy). (Usually we see the use of the phrase “direct or indirect” but there are other ways to deal with this issue. (3) Make sure you consistently use the anti-raid provision for all employees as appropriate. (Often times an orchestrated raid may involve multiple former employees trying to take customers away.) (4) Include a reasonable time period. (Usually this is the same length as the non-compete or non-solicit.) (5) Remember Texas is an at-will state and employees can leave. Try to keep them happy.
Last year I worked with a number of employers to address the Obama administrations’ new overtime rules. Here are some posts on the subject. Eventually a judge here in Texas (the same judge that is handling the Ezekiel Elliot lawsuit) entered an order preventing implementation of the new rules. Then President Trump was elected and the lawsuit over the rules was delayed. In late June, the Trump administration dropped the lawsuit indicating it wanted to revisit the rules. That is not a big surprise, but does put a book end on the issue. We’ll continue to monitor the situation for any developments.
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:
- Make sure your engagement agreements/contracts make sense and are enforceable;
- Remember that non-competes and non-solicitation agreements in Texas can be enforceable;
- Screen your candidates to determine if they have entered into a non-compete or non-solicit;
- Remember that if someone you placed is sued it is likely that their new employer will be as well;
- Protect your candidate and client information – that information can be a trade secret;
- Make sure you are in compliance with the Texas Occupations Code;
- A little money spent on an attorney up front can save a lot of money down the road;
- Be factual when you talk about a potential employer;
- Don’t give legal advice; and
- 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:
Wednesday I will be speaking with the Executive Search Owners Association here in Dallas.
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.
Over the years we’ve been building a list to consider when putting together an arbitration provision.
- A requirement that the case be disposed of within a certain time period. (i.e. 6 months from filing);
- 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;
- Statute of Limitations – is a provision necessary that spells out how long a party has to bring a claim;
- A provision that either adopts and references the Texas arbitration statute or Federal Arbitration Act;
- 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?;
- A provision that requires some form of mediation before an arbitration can be filed (another way to try and short circuit the process);
- If the provision dispenses with using AAA or some other group, specific details about arbitrator selection and the process of the hearing.
- 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
- A provision that is broad enough to encompass any potential dispute between the parties.
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.
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.
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.