Courtesy of AMC
Courtesy of AMC – The Showdown

The much acclaimed Mad Men AMC television series is coming to an end with only a few episodes left.  The partners and employees of the New York advertising firm Sterling Cooper have given us a number of employment, partnership, negotiating, and other lessons over the years.  Times have changed with the firm as we have followed its evolution from 1960 to the early 1970s.  The final and seventh season finds Sterling Cooper operating as a subsidiary of McCann Erickson, an advertising behemonth.  Previous to this the Sterling Cooper partners sold their interests to McCann and they are now all millionaires.  For the past few episdoes the Sterling Cooper folks have been operating with relative autonomy with offices in New York and Los Angeles.

So, it comes as a shock to Roger Sterling when he finds out that McCann has cancelled Sterling Cooper’s New York office lease and McCann will essentially absorb Sterling Cooper.  The partners have a few closed door meetings where it is revealed by Joan (the sole female partner) that they are all subject to a non-compete agreement, which was part of the terms of their buyout.  Of course buyout non-competes are relatively common.  An acquirer of a new company does not want to  compete with the folks it is acquiring after the deal closes.  Courts are generally more apt to enforce these types of agreements though in Texas, they still must satisfy the non-compete statute.   Regardless, the partners do not question the enforceability of the non-compete.  They assume it is enforceable and place no calls to counsel for guidance.  (That would probably take too long in the space of a 60 minute episode.)

Leave it to Don Draper to come up with a plan.  The Sterling Cooper partners will move to Los Angeles and operate and continue to operate a subsidiary of McCann.  They will continue to work for clients that McCann cannot represent and everyone will be happy.  The partners then go into overdrive as they attempt to secure the move of those clients and Don prepares to make the most imporant presentation of his life to McCann.

The next day the partners head over to McCann where their proposal is met dead on arrival.  McCann concedes the Sterling Cooper partners have won and awards them several high profile accounts to handle.  Don gets Coca-Cola.  Of course, Joann gets nothing.  Now we can spend the next few episodes seeing how the contour of this new relationship works.  We’ll see how the sexist McCann employees deal with Joann.

Courtesy of AMC - Celebratory drinks after the meeting.
Courtesy of AMC – Celebratory drinks after the meeting.

The Sterling Cooper partners give us a solid takeaway for non-compete disptues.  In many instances the non-compete an employee faces is enforceable.  But, that fact does not foreclose the possibility to negotiate or reach some agreement with the former employer.  A non-litigation solution in most instances is preferable to a lawsuit where the outcome is uncertain.

The team watches the moon landing.
The team watches the moon landing.

Sunday night was the midseason finale of Mad Men.  It’s always hard to stick with a television series for more then a few seasons, at least for me. Mad Men has been no different but I still follow along into season 7. The trials and tribulations of Don Draper have been fascinating coupled with the backdrop of the 1950s and 1960s the show has been quite entertaining. In addition to filling up Sunday evenings, the show has provided some wonderful examples of business partnerships and employer/employee relations. This season has been no different.

At the end of season six Don Draper had an epoch failure where he revealed his childhood secrets during an advertising pitch to Hershey’s:

That leads us to our top “legal” moments from this season:

1. Working from home.

After the Hershey’s meltdown, the firm concluded season six by sending him home.  Season 7 begins with a very interesting arrangement Don has worked out.  He gives off all appearances that he is working.  His secretary answers his phone (though he has no office) and he returns calls and even has some limited meetings.  He is also using Freddy, a former employee, to take some of his ideas to work.  Problem is he is not allowed to work.  He does not actively participate in anything and the powers that be wont’ let him near any accounts.  Don continues to receive his paycheck but is not allowed to work.  Not a bad deal, but he is in a downward spiral of booze and lethargy.  The takeaway – Paid leave should be used in very limited circumstances and most often times will fall with within some sort of disability plan offered by an employer.  Don’s situation is unique.  As a partner in the firm, the other partners don’t want to buy him out but they don’t want him in the office.  They don’t know what to do with him.

2. What to do in the face of a non-compete?

As the partners at Sterling Cooper & Partners struggle with what to do with Don, they realize the no-win situation that has been created.  When Roger Sterling and Jim Cutler discuss Don’s non-compete agreement they reach the conclusion that if they fire Don the non-compete will not hold up in court and Don will go work somewhere else and might be entitled to damages from the firm.  The takeaway – Make sure your partnership agreement has a clearly defined departure plan.  Both the partners and the business need to know how they will depart if necessary.

3. A very specific contract.

The other partners eventually figure out a way to return Don to work.  They draw up a very specific contract that forbids him from being involved in any business pitches and drinking, among other things.  He basically goes back to being a low level ad guy under Peggy’s (his former worker bee) tutelage.  Surprisingly, Don agrees and is back with the firm.  The takeaway – draw up specific terms for any return to work plan.  Set goals and requirements for the return of the employee that must be met.  To often there is a meeting with a troubled employee with no real plan of action – just a memo to the file.  Those don’t help if you really want someone to stay.  Don’s partners did a good job in setting specific expectations here.

4. The attempt to force Don out.

So Don happened to show up for a business pitch with a cigarette company.   Cutler uses this as an opportunity to force down out as a violation of his contract but the partners vote (right in the middle of the office in front of everyone) and Don stays.  The takeaway – if a partnership is going to force someone out make sure there is legal basis to do so and that all conditions in the partnership agreement are satisfied/followed.  A partnership needs to follow its rules.

5. A new purchase.

On the night of the moon landing, Betram Cooper, the senior partner of the firm, passes away.  That same night Cutler tells Roger and Joan that he wants Don out.  Roger finds a way out and arranges for the purchase of the firm by a rival.  But, the firm remains a subsidiary with Roger at the helm and Don in place.  A rather contentious meeting takes place amongst the partners but the deal passes through.  The takeaway  – Don’t underestimate Roger Sterling.

The remainder of the final season picks up sometime in 2015.  It will be interesting to see how Don Draper and the rest of the firm deals with regime change.  We’ll see how Roger Sterling does at the helm.

                                                    

 

A few weeks ago, the  fifth season of "Mad Men" came to an end.  The folks at the 1960’s advertising agency, Sterling Cooper Draper Pryce have survived another year, but not without their fair share of partnership disputes and employee issues.  Obviously, the employment and partnership environments of the 1960’s were quite different from what we experience today, but there are some interesting lessons to learn.  So, without further ado, here are my top five employment/partnership disputes at Sterling Cooper Draper Pryce for the years 1966-67.

1.  Sleeping Your Way to the Top:  Pete Campbell is the young partner is the office that everyone loves to hate.  When there was the opportunity to obtain the advertising business from Jaguar, it came with an implicit quid pro quo from a Jaguar executive that he have an intimate evening with the redhead Joan Harris.  Pete not so subtly suggested this to Joan and, in what had to have been a radical move for a woman in the ’60’s, she agreed to enter into this tryst in exchange for a partnership in the advertising firm. 

2.  Fist Fights to Resolve Partnership Disputes:   Pete also got into a dispute during a partner meeting with Layne Pryce, the British financial guru for the firm.  (Unfortunately, Layne would later commit suicide.)  What started off as an argument, turned into a fight.  In a scene reminiscent of some 1920s boxing match, Layne proceeded to land one punch and knock Pete to the floor.  At that point, the other partners intervened and ended the dispute.  While most partnership agreements may contain an arbitration provision or some other type of ADR process to resolve a deadlock within the partnership, I haven’t seen one yet that deals with a standard fight to resolve issues.

3.  Employee Theft:  The aforementioned Layne had some issues with back taxes in England that he had to resolve.  Unfortunately, he was short on the funds.  Under an immense amount of pressure, Layne decided that he would forge the signature of Don Draper and cut a check for $5,000.00 to address his financial woes.  Draper discovered the forgery and fired Layne in a very dignified fashion.  Draper did not reveal the forgery to anyone, and before Layne could leave the firm, he decided to hang himself in his office.  

4.  The Smooth Transition:  Peggy Olson, one of the central characters of the show, is a young up and coming advertising exec in a strictly male world.  Draper took her under his wing in the first season.  They always had sort of a love/hate relationship.  Peggy eventually grew tired of the relationship and realized that it was time to make a move.  In probably the best scene of this season, she gave Draper her resignation.  Draper told her that he was essentially the reason for her success, which she did not dispute.  She told him he would do the same thing and he did not dispute the assertion.  In the ultimate employee transition, Don then kissed her hand as tears began to come down her cheeks. She left the firm in the midst of a party for securing the Jaguar business through the "hard work" of Joan.

5.  Office Nepotism:  Draper married his secretary, who was later promoted to the advertising side of the business.  It seemed a little awkward as a partner in the firm would walk in with his wife for each day on the job.  Apparently, the Sterling Cooper policies and procedures did not address nepotism, but it clearly created friction and issues within the firm, and provides good reason for such policies.

There are numerous other instances of interesting employment and partnership issues at Sterling Cooper.  Hopefully, employers and employees have made significant strides since this time. 

 

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.

 

 

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.

 

 

The end of 2014 is almost here.  Next week Thanksgiving and before you know it New Years.  Back in 2012 I made the following year end reccomendations:

  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 2012. 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.
  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.

These remain good suggestions.  The law hasn’t changed that much and the traditional HR/Legal items employers should cover remain the same.

End of year is also a good time to have conversations with employees about where they are going.  If there is a poor peforming employee it might be time to discuss a transition.  There is never a good time for these discussions but employers owe it to their employees and it will be best for everyone in the long run.

Finally, end of year is also a good time to take stock of security.  I don’t necessarily mean whether the locks on the doors are strong (though that’s a good place to start).  What I mean is cybersecurity.  Are the companies’ trade secrets treated like trade secrets?  Is access restricted to this type of information and does the company keep track of who accesses this type of information?  These are all good things to consider as we move into 2015.

 

 

 

 

 

                                                 

Daniel Schwartz’s latest entry on social media discovery illustrates how easy it is for parties in a lawsuit to obtain someone’s Facebook records:

No longer are companies required to spent countless hours subpoenaing Facebook for the records of the terminated employee who is suing you. Just ask for the Plaintiff to download all of his or her information and then move to compel if he or she doesn’t.

Facebook now includes a feature that allows a user to obtain and print out all of their historical Facebook activity.  The reason this is important is because discovery in many instances is limited by cost and a court’s hesitancy to allow parties in a lawsuit to conduct fishing expeditions.  Now both the cost and burden of obtaining this information is minimal.  Of course, whether the requesting party is on a fishing expedition will remain an issue.

Other social networking sites allow for some historical information.  For instance, Twitter allows individuals in most instances to see a person’s previous entries.  The point of this is most of these sites may follow the lead of Facebook and make this type of information easily obtainable.

In the context of non-compete and trade secret cases, Plaintiffs are always trying to reconstruct the departure of the employee.  Did the employee print out customer information or trade secrets at midnight the night before they resigned?  Or did they simply dump the information onto a zip drive for future use?  Any circumstantial evidence that an employer can develop is helpful in reconstructing the time line – social media may have that information or evidence.

                                      

All employment relationships in Texas are presumed to be at-will, meaning an employer can fire an employee with or without cause. There are of course, exceptions.   Rebutting the presumption of at-will employment is an uphill battle. 

In Cahak v. Rehab Care Group, Inc., a 2008 Waco Court of Appeals case, the  Court affirmed a trial court’s granting of summary judgment on John Cahak’s claims against his former employer. Cahak was hired in 1997 by Rehab as a program director for one of its rehabilitation units   After a poor performance review, Cahak was given two options: (1) continue employment with Rehab, “as needed”, and Rehab would assist with developing Cahak’s management skills; or (2) a six-week severance plan. The “as needed” basis placed no obligation on Rehab to provide Cahak with ongoing employment.  Cahak was eventually fired by Rehab after he was caught working for another employer while he was supposedly injured.

Cahak claimed in his lawsuit that Rehab’s offer to continue his employment as long as he participated in a management development program altered his at-will status.  The Court ruled that his fraud claim, based on alleged misrepresentations by Rehab of continued employment, failed because an at-will employee is barred from bringing a fraud claim against his former employer based upon its decision to discharge the employee.

To prove his negligent misrepresentation claim, Cahak had to establish Rehab misrepresented an existing fact rather than a promise of future conduct.  Because the alleged promise made by Rehab of continued employment was a promise of future conduct, rather than statements of existing facts, the Court affirmed summary judgment on Cahak’s negligent misrepresentation claim. 

Joe Torre’s recent memoir concerning his stint with the Bronx Bombers has prompted some in Yankee circles to suggest the need for non-disparagement clauses for players and managers.  Typically, non-disparagement clauses appear in settlement and severance agreements.  The idea is that in exchange for money a former employee will not bad mouth his or her former company. 

Here is an example from a settlement agreement:

Non-disparagement. The Parties agree not to make any statements, written or verbal, or cause or encourage others to make any statements, written or verbal, that defame, disparage or in any way criticize the personal or business reputation, practices, or conduct of Defendant, its employees, directors, and officers. The Parties acknowledge and agree that this prohibition extends to statements, written or verbal, made to anyone, including but not limited to, the news media, investors, potential investors, any board of directors or advisory board or directors, industry analysts, competitors, strategic partners, vendors, employees (past and present), and clients.

The Parties understand and agree that this Paragraph is a material provision of this Agreement and that any breach of this Paragraph shall be a material breach of this Agreement, and that each Party would be irreparably harmed by violation of this provision.

The above is couched to support the application for an injunction, hence the "irreparably harmed" language.  While wonderful in theory, (who wouldn’t want to prevent an ex-employee from belittling the company) actually enforcing such an agreement is another matter.  As with any breach of contract claim, the plaintiff will have to prove breach and damages.  Proving damages in a non-disparagement case is akin to proving damages in a defamation case, both are difficult.   

Quantifying a damage number based upon a written or oral communication is cumbersome.  For that reason, some clauses attempt to tie a liquidated damage into any breach.  In order to enforce a liquidated damage clause in Texas, the court must find: (1) that the harm caused by the breach is incapable or difficult of estimation, and (2) that the amount of liquidated damages called for is reasonable forecast of just compensation (not punitive). 

Including a non-disparagement clause in a severance or settlement agreement is good practice, but enforcement of the clause is an entirely different matter.  Every effort should be made to ensure that the language defining "disparagement" is specific enough to remove all doubt as to whether the statements are actionable.  Whether an aggrieved party can quantify the the damage caused by the disparagement will be an uphill battle in most cases.

 

                          

 I’ve seen a few employee handbooks in my time, but nothing quite like the 1943 Disney handbook, which is filled with a number of illustrations as one might expect and some blatant sexism along the way.  It’s kind of like watching an episode of “Mad Men” where you can’t believe what was acceptable or the norm.

Some of the highlights: 

  • Charges of outgoing calls – “At the risk of interfering with the even tenor of your social life, we must ask that you limit personal phone calls to emergencies.  You know, of course, that you will be charged for all outgoing personal calls.”
  • Holidays are the same – “You will be provided holidays for New Years’ Day and Memorial Day, Fourth of July, Labor Day, Thanksgiving and Christmas.
  •  Not sure if there are any all male penthouse clubs any more – “Penthouse Club – For all particulars, membership, and like that, check with Walt Pfeiffer  – Men only!  Sorry, gals. . .”

There are a number of other interesting tidbits from the manual.  The running theme throughout the manual is that the exemplar male employee is obsessed with his co-female employee and restaurant waitress. (see below) By the way Walt Pfeiffer was a writer for Disney according to IMDB but apparently also ran the penthouse club.