Smooth Transitions

Smooth Transitions

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

Round 2 – Overtime Rules

Posted in HR Issues

 

Towards the end of the Obama administration, the Department of Labor announced standards that would expand overtime coverage.  Here is a run down from what was proposed from a post way back in 2016:

The 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.

The rules we were addressing then never happened.  There was a lawsuit and new administration.  The new regulations from the Department of Labor are moving the number up to $35,000 not $47,476,  That reduces the number impacted from 4 million to 2.4 million.  That said my advice remains the same.  The propsoed rules are subject to public comments for the next 60 days, then a final version should go to the President for consideration.  We’ll keepy

Loose Lips Sink Ships

Posted in Hiring and Firing, HR Issues, Trade Secrets

 

At the outset of most employment relationships, the employer will have an employee sign a litany of documents ranging from a IRS form W4 to a non-compete agreement.  Buried within those documents is usually some form of a confidentiality agreement.  Within the agreement the employee agrees not to share any of the employer’s confidential information while an employee and after they depart.  Sometimes the agreement is referred to as a non-disclosure agreement or NDA.  Here is an example of a clause from such an agreement:

1. The Parties shall (i) use reasonable efforts to maintain the confidentiality of the information and materials, whether oral, written or in any form whatsoever, of the other that may be
reasonably understood, from legends, the nature of such information itself and/or the circumstances of such information’s disclosure, to be confidential and/or proprietary thereto or to third parties to which either of them owes a duty of nondisclosure (collectively, “Confidential Information”); (ii) take reasonable action in connection therewith, including without limitation at least the action that each takes to protect the confidentiality of its comparable proprietary assets; (iii) to the extent within their respective possession and/or control, upon termination of this Agreement for any reason, immediately return to the provider thereof all Confidential Information not licensed or authorized to be used or enjoyed after termination or expiration hereof, and (iv) with respect to any person to which disclosure is contemplated, require such person to execute an agreement providing for the treatment of Confidential Information set forth in clauses (i) through (iii). The foregoing shall not require separate written agreements with employees and agents already subject to written agreements substantially conforming to the requirements of this Section nor with legal counsel, certified public accountants, or other professional advisers under a professional obligation to maintain the confidences of clients.

Usually you see the agreement come into play as part of a bad employee departure.  Employee leaves employer and then proceeds to use “confidential information” in a new venture.  The confidentiality agreement might be part of a larger non-compete fight or may serve as the basis for a lawsuit itself.  There is always a fight over what is or isn’t “confidential information” or a trade-secret.

This brings us to the real world sports example of former ESPN announcer Adnan Virk.  Virk was a rising star in ESPN’s announcing cadre.  On February 1, he was escorted to his desk at ESPN’s Bristol, Connecticut headquarters where he was allowed to remove his personal items and then escorted off site – typical over the top employee departure.  All reports indicate he was fired for leaking confidential information about ESPN”s baseball coverage that turned up in a news story.  The information was considered confidential by ESPN.  So ESPN fired him with no severance.  Virk recently denied the accusations and stated his lawyers were meeting with ESPN’s lawyers to resolve the matter.  So it goes…

I suspect Virk signed a confidentiality agreement and ESPN claims he breached it.  How the matter is resolved remains to be seen but we will continue to follow it.  The ESPN example illustrates the importance of these types of agreements and underscores the fact that companies should continue to train/educate employees on confidentiality so they can protect their own confidential information or information of clients/customers.

 

Latest Texas Non-Compete Lessons

Posted in Non-Compete Agreements

 

I recently finished a hard fought non-compete case that settled the day before trial.  Unlike most non-compete cases that resolve themselves early on during the temporary injunction fight, this non-compete contained a liquidated damages provision that specified the damage number in the event of a non-compete breach.  The terms of the non-compete prevented the employer from seeking injunctive relief – the only remedy was the liquidated damages clause. The trial court ruled the non-compete was enforceable and the amount of the liquidated damages provision was never challenged.  Even with those rulings/facts the case dragged on to the point of trial.

I’ve seen non-competes with liquidated damages provisions. I had not seen a non-compete that prevented the employer from seeking injunctive relief.  This transformed what would be a typical non-compete case into a more traditional lawsuit.  There are legitimate reasons why the employer did not include an injunctive relief component beyond the scope of this discussion.  Even so, the lawsuit was resolved in a little over a year and was a day away from trial – that’s fast these days.

What are the lessons learned from the case?

  1. There is nothing better than having an enforceable non-compete – if on the employer side scrutinize the language of the non-compete during the drafting stage and when in doubt ask for less not more.  The agreement needs to be narrowly tailored and reasonable;
  2. If a court modifies the non-compete the only relief available going forward is injunctive relief – not damages;
  3. Companies should consistently enforce their non-competes so a departing employee believes they will get sued if the breach; and
  4. Non-compete cases generally don’t go to trial.

The Beginning of the Year Employment Checklist

Posted in HR Issues, Uncategorized

 

As the New Year begins a couple of things to consider:

  1. Is the company employee manual up to date – any changes necessary? – The beginning of the year is always a good time to review those policies and procedures and see how they worked in 2018.  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 2019 and so you can pick their brain about any other issues.

All the best in 2019!

The Beauty of An Employment Settlement

Posted in Age Discrimination, EEO Claims, HR Issues, Uncategorized

 

I remember when I was a younger lawyer the difficulty I had with clients settling lawsuits that factually and legally had little merit.  I remember the partner I worked for telling me that was the cost of doing business.  While I knew he was right that comment still bothers me to this day.  But the reality is lawyers cost money and the time and expense defending lawsuits can be distracting, especially when a company doesn’t have a legal department or is a routine player in employment disputes.

No matter how distasteful, at the same time a company is getting together all of the documents and identifying the witnesses that are key to defending a claim, the powers that be also need to evaluate the possibilities of settlement.  What does mean?  Defense counsel should be reaching out to plaintiff’s counsel early on in the process to determine what the plaintiff wants.  There are two things I tell my clients that I am generally certain of: (1) a dispute will cost more then you think; and (2) it will also take up more of your time then anticipated.

Now there are certain times where the company may need some discovery to be in a position to evaluate the claims of a plaintiff. But in many situations, dialogue with opposing counsel may give the other side a read into what the lawyer actually believes the merits of the case may be.  Trust me, a lawyer on a contingency fee does not want to spend time on a case that is marginal.  If it’s marginal they are going to want to resolve it, if not maybe the case as not as marginal as the company thinks.

Most cases are never going to trial.  That means there could be a summary judgment or more likely a settlement at some point in the process.  The earlier in the process that can be reached the better.

Notice Provisions for Texas Lawyers

Posted in Uncategorized

 

 

For some time Texas has been a hot market for lawyers.  Big firms from other parts of the country who want to shop here not surprisingly will hire lawyers from other big firms that are already here.  Many of the partners in these firms have notice provisions in their partnership agreements that require them to provide notice to their firm of their departure.  A recent Texas Lawyer article highlighted the issue:

Shearman & Sterling, which moved into Texas in March in Austin, didn’t open its new Houston office as fast as the firm wanted to this spring because Baker Botts held a group of oil and gas lawyers for 90 days. Another group of six energy partners from Baker Botts lawyers faced the same issue in 2017 as they were held for 84 days after they resigned and before they could  move to Gibson, Dunn & Crutcher‘s new Houston office.

So before the lawyer can move to their new firm they have to provide contractually required notice – not two weeks.  It’s unclear whether the partners are paid/work during the notice provision.  That seems like a recipe for disaster when you have folks that want to leave but can’t for months.

The notice provisions are very similar to garden leave provisions. In the garden leave scenario the employee is paid not to work.  They provide notice then stay at home (while still an employee) until the notice runs.  A Texas court has never addressed the enforceability of one of these provision and the question remains whether it falls within the scope of the Texas non-compete statute.  Regardless, these can be very effective at preventing a departing employee from taking their business with them.

Will keep tabs on the migrating lawyer situations.  Maybe we’ll see a court of appeals provisions on one of these clauses.

 

Getting Out of the Way of A Settlement

Posted in Injunction, Non-Compete Agreements, Recent Cases

 

Non-compete cases that are well lawyered should be resolved early in the litigation process.  Why do I say that?  If the plaintiff is an aggressive former employer it will in most instances move for a temporary restraining order followed by an application for a temporary injunction in Texas state court.  In that process a lot of things can happen.  First, the parties will have appeared before a judge and gotten a flavor for how the judge will rule and what the judge thinks of each parties’ claims and defenses.  Second, there may be expedited discovery including document productions and depositions.  The judge may even order the case to mediation to avoid having to spend court time on a temporary injunction hearing – which is like a mini-trial.

Most importantly, both side will incur attorneys’ fees and in many cases a lot of them in short amount of time.  Injunction cases and expedited discovery are not cheap.  It all takes place up front and the client is likely to receive one large bill.  Point is they will have a flavor for the costs and will see more fees on the horizon.

By the end of all this the parties should know all the bad things the other side has done and merit of their claims and defenses.  Couple this with overall litigation fatigue (caused by time expended on the case and attorneys’ fees) and there is usually a good opportunity to have a settlement dialogue and get the case resolved.

What if that doesn’t happen?  What if the case just sits there, the plaintiff doesn’t seek an injunction or press for discovery, and there is no end in sight?  I had this happen on a case recently.  A year into the lawsuit, the case wasn’t moving a long, we were just starting depositions, and mediation was a long way away.  Then it happened – during the break in a deposition the two key players were left in the room together while the lawyers talked outside.  During the middle of attorney discussions I started to hear some heated argument – but it was good heated argument.  After months of the case going no where, the players were venting towards one another.  The attorneys went in to break it up but the players still wanted to talk.  We agreed everything was a settlement discussion cloaked in privilege and we left the players in the room to continue.  There were a few times we had to calm the sides down but that emotional venting had to happen.  Finally, they reached terms.  The lawyers papered the settlement and the case was over.

The point of all this is the parties always need to be looking to an exit ramp from the litigation highway.  You just have to be willing to take the exit even if means leaving two people in the same room who are upset with each other.  This won’t always work but it’s been my experience that there is nothing better than good, frank discussion.

ESOA Presentation

Posted in Uncategorized

 

Tomorrow, 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:

Where are we going to fight? – Venue provisions in employment agreements.

Posted in Uncategorized

 

Whenever I draft or review an employment agreement (or for that matter any contract) one of the first things I look for is a venue provision.  Usually there is one, but if not you fall back on the laws of the state the party would like to bring suit in to see if venue works.  There is nothing that will take the steam out of a lawsuit then the contention it was filed in the wrong place. Drafting tip – make sure there is a venue provision.

So, assuming there is a venue provision it’s likely there is a choice of law provision as well.  Often times the venue provision will require an employee to agree to venue in the state/city where the employer is located.  The idea from the employer’s standpoint is it would rather enforce its agreements in the place where it is located and in most cases under the same laws.  The provision will look something like this:

Mandatory Venue Provision:  Employee and Company agree that any lawsuit arising from or related to this Agreement shall be filed in the state or federal courts of Dallas County, Texas.  Employee agrees that Employee consents to jurisdiction in the state or federal courts of Dallas County, Texas.

There are a lot of good things about making an ex-employee defend a lawsuit somewhere other than where they reside.  They will have to get a lawyer there and there is the headache of not being at home.  That said, it is also very difficult to push a non-compete case in a place where the employee doesn’t live.  First, off an employer enforcing a non-compete may seek a temporary restraining order.  Assuming the company obtained the TRO in Dallas against an employee that lives in Arizona.  The logistics of serving the former employee in Arizona can be daunting.  This is especially true when the company wants expedited discovery (depositions/documents).  I say all this to underline the concept that venue should be considered in the context of enforcement and how that enforcement will work.

The employer might consider a provision along these lines:

Mandatory Venue Provision:  Employee and Company agree that any lawsuit arising from or related to this Agreement shall be filed in the state or federal courts of Dallas County, Texas or the state or federal courts of the county the Employee resides in at the time this Agreement is executed as set forth below.  Employee agrees that Employee consents to jurisdiction in the state or federal courts of Dallas County, Texas and will not contest the filing of the lawsuit in Dallas, County Texas based on lack of personal jurisdiction.

Something to consider!

 

Termination Opportunities

Posted in Uncategorized

For whatever reason an employee leaves, the exit interview (if that’s what the company calls it) or instance when the HR person in charge collects the employees building badge and any company property is an excellent time to remind the employee of their post-employment covenants.  We talked about agreements at the end of employment during the last post.  Let’s assume here that the employee has signed some type of post-employment covenant.  What should be on the employer’s checklist”

  1. Provide the employee with any previous agreement(s) – remind them of any obligations under the agreement(s) – ask them if they have any questions about the agreement?
  2. Tell the employee that the company takes these obligations very seriously and will enforce them.
  3. Obtain all company property, keys, phones, etc. and tell them their access to company email or remote-in processes are cut-off.
  4. Make sure they are being paid what they are owed in accordance with company policies – that payment may take place during the next pay day.

I have been involved in cases where an ex-employee “forgot” about their non-compete.  I believed the defendant because they did everything possible to violate the agreement as-if they had no idea it existed.  It would have saved everyone time and money if at the time of departure the agreement(s) and obligations associated with it were raised with the employee.  Even if a sit-down is not possible, put the agreement(s) in the mail or email.  Remove any excuses a departing employee might have if they decide to violate a post-employment covenant.

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