Smooth Transitions

Smooth Transitions

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

Back to Basics: Texas Non-Competes

Posted in Non-Compete Agreements

Happy New Year!

As we move into 2018 get ready for some employee movement.  We usually see less employee movement at the end of year because many employers pay out bonuses and other metric related compensation as the year ends.  The same also holds true for a company making a hiring decision – they wait.  Because less folks are likely to move (see above) there is less hiring.  Of course there are always exceptions to the rule.  So what does this mean?  Dust off those old employment agreements because they may apply to an employee move.  There are always those starting a new job on January 1.

Over the next few posts will go back over some of the key Texas post-employment covenants.  To start off with, here is a link to a article I wrote for the Texas Lawyer a few years ago.  Texas non-compete law has not changed and the advice in that article remains the same.  We’ll discuss garden leave/notice provisions in our next installment.

 

 

Buc-ee’s and Its Unenforceable Employee Repayment Provision

Posted in Uncategorized

 

I usually don’t dive into the weeds of particular cases here because it can be tedious and boring.  That said, a recent case from the 14th Court of Appeals in Houston caught my eye.  First, the employer at issue is none other than Buc-ee’s.  If you’ve ever driven the highways of Texas there is a good chance you went by one and may have even stopped for gas or Buc-ee’s red velvet fudge (not that I would know).  The place is gigantic and has about everything in it one would need or not need for that matter.

The case at issue involved a management level employee that Buc-ee’s hired away from TGI Fridays.  Included in the employment agreement was an “Additional Compensation” provision.  It provides:

…Employee shall be required to work for Employer a minimum of 60 months … and shall also provide Employer with a minimum of 6 months separation notice.  In the event Employee does not provide the required notification, Employee shall be required to repay all of the Additional Compensation to Employer …

The additional compensation was a fixed monthly bonus of $1500.  Guess what – the employee quit after 36 months not 60 and received a demand to pay back the additional compenation. The employee responded with a lawsuit asserting the repayment clause was unenforceable and an unreasonable restraint of trade.  Buc-ee’s counterclaimed for the amount owed and they were off to the litigation races.  The employee lost on summary judgment and appealed.

The court of appeals first ruled that the repayment provisions were unreasonable restraints of trade.  It reasoned that the repayment obligation had no limitation tied to the geographical area the employee went to work or if the employee was actually competing.  The Court also held that the provision was unreasonable because the employee had to repay even if Buc-ee’s terminated the employment relationship for any reason and even if the employee didn’t work (no competition).  Not that surprising – the intent behind the provision was not to satisfy the non-compete statue it was to force a repayment.  The analysis from the court of appeals was straightforward.

Here the core issue was whether the repayment provision was a forfeiture provision or a non-compete?  A few years ago we discussed the Drennan case where the Texas Supreme Court addressed the issue.   Here is a really long quote from that case:

[n]on-competes protect the investments an employer has made in an employee, ensuring that the costs incurred to develop human capital are protected against competitors who, having not made such expenditures, might appropriate the employer’s investment. Forfeiture provisions conditioned on loyalty, however, do not restrict or prohibit the employees’ future employment opportunities. Instead, they reward employees for continued employment and loyalty. As we recognized in Marsh, employee stock-ownership plans have a purpose that is unrelated to restraining competition—linking the interest of key employees with the employer’s long-term success. Under a non-compete, the former employer can bring a breach of contract suit to enforce the clause. But under a forfeiture provision, the former employer does not need to take legal action because the profit-sharing plan belongs to the employer.

The court of appeals held the repayment provision was not a forfeiture provision because: (1) the employer was required to pay back the company even if the company terminated her; (2) the longer the employee worked the larger the penalty became; and (3) the money had been paid already, the employer was not retaining funds.

Forfeiture provisions can be a powerful tool for preventing competition but they are not as strong as a well drafted non-compete.  If crafted properly they should put the employee in the position of choosing additional compensation over working for a competitor.  We will continue to monitor these types of cases.  Here is a link to the case.

Enjoy your holidays.

 

 

The End of Year Employment Checklist

Posted in HR Issues

As we creep up on the end of the year employers should be considering/doing a  number of things:

  1. Is the company employee manual up to date – any changes necessary? – The end of the year is always a good time to review those policies and procedures and see how they worked in 2017.  Often the year will show some deficiencies or problems with policies as they are applied.
  2. Are employee files up to date?  Make sure all employees have acknowledged receiving the most recent HR manual or any changes to the manual.
  3. Are company employment agreements up to date?  Make sure any employment agreements are updated or amended to reflect changes in ownership or term expiration.  Quite often those agreements are forgotten about and there is no agreement in place.
  4. Make sure employees have signed off on all non-compete, non-solicit, or confidentiality agreements.  Make sure you have signatures!
  5. Frequently the end of the year involves reviews.  Make sure those reviews are acknowledged by the employee and make it to their employment files.
  6. Do you have job descriptions for your employees?  Do you even need them?
  7. Are your independent contractors really employees?
  8. Is it time for some employees to move elsewhere?
  9. Get your lawyer to take you out for lunch so they can update you on any new employees issues coming in 2017 and so you can pick their brain about any other issues.

All the best next year!

Employment Transitions – The College Football Coach Way

Posted in Uncategorized

This time of  year is usually interesting from a college football coach perspective.  Most teams that intend to fire their coach have done so and are now in the coaching market.  Of course once those hires are made that creates additional openings for others.  There seem to be a lot of vacancies for very good programs this year with many in the South Eastern Conference.  The thing about these jobs is most of these coaches have a buyout provision in their contract – meaning they get paid by the university if they get fired!  What a deal.

Texas A&M fired its coach, Kevin Sumlin, yesterday afternoon.  According to reports, Sumlin gets paid $10 million for being fired.  Not too bad.  Some of these buyout provisions contain offset provisions where if the coach goes on to coach somewhere else in the same year the school that fires them gets a credit for the buyout and pays less.  It all comes down to what the coach can negotiate.  Rumor has it Sumlin will wind up coaching somewhere else so he’ll get $10 million + his new contract.   Not a horrible proposition from a financial standpoint.

The reasons these coaches are able to negotiate such great deals is because they are limited commodity – supply and demand.  Plus, there is an overall frenzy right now that defies common sense.   It’s hard to feel too bad for the universities.  They are making millions of dollars off of these coaches and more importantly players they don’t pay.  But that’s for another discussion.

Here’s a link to some interesting college coach contractual clauses.  My favorite is my Alma Mater’s coach’s tuition clause.  All of his children get to go to the University of Utah for free.  His grandchildren and great grandchildren only have to pay half in-state tuition.  The only stipulation is you have to be under the age of 26 and not married so no professional students.

Summary Jury Trial Texas Style

Posted in Recent Cases, Trial and Pre-Trial Procedure

 

What if I told you that it was possible to get a general feeling as to what a jury would do with your case in the space of a day or two prior to dedicating several weeks and lots of money to a trial?  You’d probably want to know more.  Lawyers use mock trials or focus groups to consider what a jury would do, but I’ve never had a judge make a summary jury trial a prerequisite to a trial – kind of like mediation in most cases here in Texas.

How’d it work?  This particular court requires that any case with a prospective trial that will take over 5 days submit to a summary trial.  Each side was given two hours each and we were able to work out the parameters of the presentation.  In our case we summarized the evidence, presented key exhibits, expert reports, and some testimony.  The plaintiff opened followed by the defendant and there was a brief rebuttal by the plaintiff.  No evidence went back with the jury members.  The parties paid a former judge to preside over the trial – that judge then mediated the case the next day.

This all took place at the courthouse and the judge brought in about 2o jurors.  We didn’t have to pay the jurors – this was their jury duty.  We struck two of them by agreement.  The judge then informed them they would participate in a shortened trial and they would be finished by the end of the day.  The lawyers proceeded with summations.  Then we broke up the jury into two panels of 9 that deliberated separately.  The panels were presented with a straightforward jury charge and went to work.  The juries deliberated for about an hour or so each and even had some questions.  They eventually concluded their deliberations and we were able to talk with them about their findings.  They were pretty consistent with one another and generally had the same rationale in their decision making process.   Both panels were candid with their evaluations of the case.

The following day we mediated with the judge that presided and we eventually reached a resolution.

Was it perfect? No.  It is very difficult to present a case in that amount of time but both parties face the same time constraints.  That said an hour is a pretty good amount of time to get through a lot of information.

Using two panels is key.  That way you avoid the argument of a runaway jury – especially if their findings are consistent.

The other key is having a lawyer on the other side that you can work with.  If you’re playing games over evidence or using evidence that won’t come in at trial it won’t work.  The objective has to be to get a sense from the jury on how they would rule.  Luckily I had a lawyer on the other side I could work with.

From an outcome perspective the summary jury trial worked.  We resolved the case.  The judge was able to avoid giving up a week of court time for a trial and the parties were able to talk to a jury for a fraction of the cost.

Circumstantial Evidence – Employment Claims Alive and Well in Texas

Posted in Age Discrimination, Channel 11, Dallas, EEO Claims, Hiring and Firing, HR Issues, Texas, Uncategorized, Whataburger

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.

PIP TIPS (Performance Improvement Plans)

Posted in HR Issues, Uncategorized

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.

Don’t Steal My Employees When You Quit – the Anti-Raid Provision

Posted in Anti-Raid, Confidentiality, Non-Compete Agreements, Non-Solicitation Agreements, Trade Secrets, Uncategorized

 

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.

Overtime Rules Dead

Posted in Uncategorized

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.

 

 

 

 

 

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:

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