Back in 2015 there was a lot of publicity about a non-compete Jimmy John’s was implementing for its sandwich makers.  Here is what I said back then:

“When news of the Jimmy John’s non-compete came out last October my concern was the impact it would have on businesses with legitimate non-competes.  There is always a populist theme that is anti-non-compete.  Employees should be able to come and go as they please and a non-compete agreement prevents that.  “Bad” non-competes undermine “good” non-competes.  There are situations where non-competes make sense and there is an interest worthy of protection.  But when bad non-competes are in play and receive attention, the discussion of why we have non-competes in the first place follows.”

Non-competes are low hanging fruit for politicians but they rarely receive Presidential attention and are generally challenged on a state level. Last week the President delivered a wide ranging executive order that addressed among other things non-compete agreements.  The press release/fact sheet for the order said the following (my translation in part):

  1. Many Americans workers have non-competes;
  2. Non-competes make it harder for workers to move to higher paying jobs;
  3. The President would like to ban or limit non-competes; and
  4. The Executive Order “Encourages the FTC to ban or limit non-compete agreements.”

The actual order states:

To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.

We’ve got a long way to go before this gets anywhere.  First, of all there is a very real question of what restrictions the FTC can implement to restrict non-competes.  I can tell you here in Texas we have an attorney general that challenges any federal action that infringes on state’s rights and I doubt FTC restrictions that impact the Texas Non-Compete Statue will go unchallenged.  Second, the actual language recognizes that non-competes may be appropriate in certain situations – there isn’t going to be a ban.  Finally, even if there was a ban there remains other items in an employer’s arsenal to use including: (1) non-solicitation provisions; (2) non-disclosure provisions; and (3) notice/garden leave policies.

There was a lot of pomp and circumstance about the order but that end of the day, the death of the non-compete is not coming anytime soon.

 

A few years ago I addressed venue provisions in employment contracts (see below).  A few additional thoughts –

  • A provision that specifies venue in a particular county, i.e. Dallas County, Texas or city may not always work – while Texas courts will enforce a provision that specifies Texas as the place of venue they won’t necessarily a county or city (there are some exceptions) – So you could have a situation where the dispute is resolved in Texas but not necessarily the forum specified in the contract.
  • There is a venue provision that some courts (it’s complicated) have held that a defendant must be sued in their county of residence when the primary relief sought is injunctive.

Regardless, still include a venue provision that provides for a specific county.

Post From May 2018

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:

Continue Reading Non-Compete Venue Fights

Over the last few months I’ve started following Formula 1 Racing.  There are fast cars with interesting personalities and races all over the world including Austin, Texas in October.  It is also a very expensive sport backed by big brands and wealthy people.  Without getting into the nuances of race car driving (I couldn’t tell you what they are anyway) each team has 2 cars with of course 2 drivers.  There are 10 teams – 20 cars.  On Saturday the drivers qualify and seed themselves for the race. There are differences between the cars and millions of dollars go into the design and development of those cars.

Mercedes has been on top for the last few seasons with a driver named Lewis Hamilton from Great Britain as their lead driver.  He’s one of the most highly compensated athletes in the world and pretty good at what he does.   Red Bull (the energy drink) has a stellar history but been able to keep up with Mercedes.

Recently Red Bull made a play for Mercedes engineer Ben Hodgkinson and successfully lured him away.  Currently, Red Bull relies on Toyota for its engines but is going to begin building its own engines which is where Hodgkinson comes into the story.  Reportedly, Hodgkinson has a garden leave provision in his contract with Mercedes – meaning once Hodgkinson gave notice to Mercedes that he was leaving he is required to sit out and continue to get paid by Mercedes.  Yes, that’s right, Mercedes pays him and he can’t work.   By all accounts Hodkingson won’t be available to work as Red Bull as a technical director until the end of 2022.  For employees that have technical know-how like Hodgkinson, it makes sense for Mercedes to keep him off the market even if it costs them some money.   So Hodgkinson is on “gardening leave” for the near term.

The concept of garden leave came from European financial services company.  No Texas court has construed the enforceability of a similar type provision and American companies have have been slow to adopt the garden leave approach to post-employment covenants.   That said you often times see notice provisions that require certain amount of notice before an employee can leave.

 

 

 

Texas non-compete law has changed very little over the last few years.  There have not been any seminal Texas Supreme Court cases construing the Texas non-compete statute and little instructive case law from our intermediate appellate courts providing guidance.  The reality is Texas trial judge are construing non-competes at the temporary restraining order/temporary injunction stages all the time but Texas trial judges don’t issue published opinions and we don’t see many appeals from those decisions.

So what are employers and employees to do?

From the Employer Side

Think narrow and reasonable.  In terms of time, the shorter the better.  Everyone always wants to two years but will six months accomplish what is necessary?  Of course every situation is different.  In terms of geography limit the covenant to where the employee worked and make sure the services they are prohibited from offering are the services they offered for the employer.  Remember the Texas statute requires that the non-compete be ancillary to an otherwise enforceable agreement meaning there has to be something of value provided to the employee.  When in doubt remember that a good customer non-solicitation provision can often be an alternative to a non-compete and easier to enforce.

From the Employee Side

First, don’t sign it unless you have to do so.  Second, consider the restrictions you will encounter if you decide to move on to another job and assume they are enforceable.   No one likes to think that way at the outset of employment but you should.  Can you push back on some of the terms?  Anything less is better.  Employers do enforce non-competes and courts will uphold them.  Don’t dismiss these restrictions as simply part of standard employment paperwork – they are not.

We’ve now been in the midst of this global pandemic since March (give or take a few weeks) and we have a little more runway to look at the state of employee movement.  It seems that most folks fall in three categories in terms of the Coivd impact on their job: (1) looking for a job; (2) in a precarious spot and not looking to make a move; or (3) looking to make a move.  Of course these are three categories you usually see.  After the initial impact of Covid, it appears employers/employees are adjusting to our new normal.

From my admittedly limited view representing employees and employers I don’t think things are back to normal but employee movement continues.  There is generally less movement towards the end of the year because employees have compensation tied to year end bonuses and metrics.

Some general thoughts on post-employment covenants:

  1. Texas employers continue to us overly broad non-competes and non-solicits – make them narrow if you want them to stick;
  2. Texas employers are using severance packages that are tied to non-competition/non-solicitation covenants to lock down former employee.  For example, I agree to pay you $XXXX a month as long as you don’t compete.  These are simple and basically they employer gets whatever they want and the employee gets paid as long as they comply.
  3. This is a gross generalization but most employees don’t enforce their non-competes/non-solicits.
  4. Good luck enforcing a non-compete against a former employee that a company terminated in the the time of Covid.  Yes, in theory you can do it but I can’t imagine judges are going to be happy to see those types of cases in this environment.
  5. If a company includes a non-compete in a an employment agreement it generally should also include a non-solicit (customers), anti-raid (employees), and confidentiality provision.  Also, think about a notice provision for termination of employment.
  6. Employees work very hard to figure out how they can finesse the requirements of a non-compete and non-solicit so they can still make a move.

Stay safe.

 

 

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:

Some COVID-19 Links for employers:

 

Yesterday Judge Jenkins entered a revised stay at home order –  March 29 Dallas County Order – that impacts the way construction companies in Dallas County do business.  Some highlights:

  • If a worker has a temperature above 99.6 degrees they have to stay at home;
  • Employer must check worker’s temperature;
  • Shift work mandatory – basically split crews by 50%;
  • No gatherings during breaks/meals;
  • Requirements for hand washing, soap and hand sanitizer, and 1 toilet for every 15 workers;
  • No retaliation against an employee who self-quarantines or is advised to self-quarantine; and
  • Each site must designate a COVID-19 safety monitor.

A violation of the order is a misdemeanor punishable by a fine not to exceed $1,000 or jail time no to exceed 180 days.

This version of the order expires on April 3.

We will continue to track this.  As this pandemic continues expect further refinement of the order for specific businesses.  Austin currently has an order in place that prevents most construction.

 

 

More regulations are to follow, but here is a link to the FAQ from the Department of Labor.

Some highlights:

  • In effect on April 1 – Not April 2 as originally calculated;
  • Applies to employers with less than 500 employees – Integrated Employer Test used just like traditional FMLA;
  • There is an exemption for those with less than 50 employees that can’t afford it and can justify it (still no details on this);
  • Discusses how to calculate benefits for part-time workers and how overtime is considered;
  • Paid sick leave is capped at 80 hours period – it doesn’t start over for separate incidents; and
  • Paid FMLA only applies to COVID-19 reasons.

 

 

Last night County Judge Clay Jenkins went over the contents of a shelter in place order that goes into effect tonight (3/23/20) at 11:59 pm.  The basis for the order is to prevent an overrun of North Texas hospitals and the projections are here.  Hopefully we never get there.  The complete text of the order can be found here – Dallas County Shelter in Place (thanks to Texas Tribune) and covers a wide range of items from appropriate social distance to what businesses are deemed essential.  Here is what business owners and employees need to know:

  1. This applies to individual who reside in Dallas County and work in Dallas County – Yes, it applies to employees even if you don’t work in Dallas County but reside in Dallas County;
  2. It goes into effect tonight at midnight and ends April 3 (for now);
  3. If you can work from home/telework this does not apply to you or your business;
  4. This doesn’t apply to restaurants that provide take-out or grocery stores, drug stores etc.; and
  5. This doesn’t apply to Essential Businesses.

Does your company/employer fall within an essential business exception?  Let’s walk through them:

Essential Health Care Operations (pretty straightforward)

Essential Government Functions

Essential Critical Infrastructure (airports, oil, construction, public transportation etc.)

Essential Retail (food stores, takeout, gas stations, dry cleaners etc.)

Providers of Basic Necessities to Economically Disadvantaged Populations
Essential Services Necessary to Maintain Essential Operations of Residences or Other Essential Businesses.
Newsmedia (self-explanatory) 

Childcare Services (services for parents of children who are working for an Essential Business)

It remains to be seen whether other North Texas counties follow suit as called for by Judge Jenkins.  Tarrant County declined to adopt similar orders last night and neither Collin nor Denton are there yet.  We will continue to to monitor the situation.  We expect there will be lay offs to follow as many small businesses will be unable to make payroll if they are not in business.

 

The President signed the Families First CoronaVirus Response Act last night after the Senate approved the measure earlier in the day.  Though the scope of the legislation is much broader our focus is sick pay and expanded FMLA leave.  What it means for employers:

The When and Who

  1. Goes into effect on April 2, 2020 and sunsets on December 31, 2020
  2. Only impacts employers with 500 employees or less
  3. Companies with 50 or fewer employees can be exempted if they can show requirements would jeopardize the business (whatever that means)
  4. Health care providers/emergency responders not covered

Two Weeks of Sick Leave (But this covers childcare as well)

  1. 80 hours of paid leave for full time employees/part-time employees get what they would be entitled to based on hours normally worked during two week period
  2. Covers everybody regardless of whether they were just hired
  3. Covers those: (1) that can’t work/telework because: (a) they are subject to government quarantine, health care provider quarantine; or isolation order; (b) experiencing Covid-19 symptoms and waiting for diagnosis; (c) employee is caring for someone in quarantine; or (d) employee has to care for employee’s child if school closed or child care unavailable
  4. Limited to $511 per day and $5,110 aggregate for employee’s illness/quarantine, and $200 per day/$2,000 aggregate for any other qualifying reason

Expanded FMLA Leave

  1. First ten days is unpaid
  2. After ten days, employer must pay TWO-THIRDS their regular rate of pay – pay is limited to $200 per day or $10,000 in aggregate
  3. Employee has to have worked for 30 days to be eligible
  4. Covers employees who have to work or telework because they have to care for a child whose school is closed or childcare unavailable

 

There are a lot more details in terms of definition and benefits but this is the meat of the new legislation.   If your company already offers FMLA leave, the expanded leave is part of the 12 weeks of traditional leave.  Also, the sick pay provision is in addition to whatever a company currently provides.  Here is a link to the complete bill.