Smooth Transitions

Smooth Transitions

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

The Non-Compete Buyout

Posted in Hiring and Firing, HR Issues, Injunction, Non-Compete Agreements, Non-Solicitation Agreements, Trade Secrets


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.

NY Times Non-Compete Article

Posted in Injunction, Non-Compete Agreements, Non-Solicitation Agreements, Trade Secrets

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.

Avoiding the Litigation Super Highway

Posted in Uncategorized



We know that most cases are resolved before they ever see a jury or judge at trial.  Some go the way of summary judgment. Other go the way of settlement.  After attorneys’ fees and case related fatigue parties eventually get to a position where continued litigation no longer makes sense. Most companies and others know this, but sometimes the pain of litigation is necessary to get one or both of the parties to a dispute to a point where the case can be resolved.

So how do we avoid the litigation super highway?  A few thoughts:

  1. It can happen, but a plaintiff/defendant usually doesn’t get everything they want as part of a case. Never “fall in love” with the strength of your case. It’s difficult, but you must maintain some objectivity, which hopefully your counsel will provide.
  1. A settlement usually means you’re giving up something and so is the other side. Parties don’t walk away from a settlement getting everything they wanted.
  1. In cases where you are paying a lawyer on an hourly basis, there is an economic disincentive for the lawyer to settle the case. Ethically, this shouldn’t be an issue as the lawyer owes a fiduciary duty to put the interest of the client above their own, but it is something to keep in perspective.
  1. No matter what your lawyer tells you, the litigation cost will be more than anticipated.
  1. There is a cost to litigation beyond attorneys’ fees. Those involved in the dispute are pulled away from their day to day tasks and distracted.  Litigation, which may involve depositions, can be extremely stressful and unless you’re a masochist is an unpleasant experience.

These are just a few things to consider as you venture into a lawsuit or arbitration.  Many times there is no choice, but if the opportunity presents itself to exit the litigation process on acceptable terms, it has to be considered.  Force your lawyer to give you an up front candid evaluation of the case and an estimate of costs.  The party on the other side is usually considering the same issues and an early mediation or settlement discussions might be appropriate.  At a certain point the litigation takes on a life of itself, avoid that situation.

Trade Secret Theft – By Lawyers

Posted in Injunction, Non-Compete Agreements, Recent Cases, Uncategorized




A couple of weeks ago we wrote about the rationale behind why Texas lawyers aren’t subject to non-compete agreements.  That said, generally lawyers aren’t permitted to compete with their current law firm/employer while still employed.  That seems pretty basic.  Imagine this fact pattern pulled from the allegations from the above lawsuit:

  1. Lawyer works for Law Firm A and also maintains a solo law firm (he is the only lawyer) at the same time (we’ll call that Law Firm B).
  2. Law Firm A doesn’t know about Law Firm B and lawyer denies the existence of Law Firm B.
  3. While at Law Firm A lawyer basically attempts to move business from Law Firm A to Law Firm B.
  4. In one instance it is alleged he interviewed a potential client for Law Firm A, but signed them up as a client for Law Firm B.
  5. Lawyer used the firm credit card for Law Firm B.
  6. Lawyer assured Law Firm A he was not operating Law Firm B.
  7. For other reasons, lawyer departs Law Firm A for Law Firm B.
  8. After his departure Law Firm A learns of the above actions.
  9. Law Firm A sues former lawyer and Law Firm B and seeks a TRO/Injunction and asserts claims for breach of fiduciary duty, fraud, conversion, and about every other cause of action you can think of to claim.

As part of the lawsuit Law Firm A also seeks a temporary restraining order and injunction.

While employees in Texas can prepare to compete with their employer during off hour, that does not mean an employee can compete with an employer during business hours or divert work from one company to another.  I’ve actually seen this in the context of a recruiter who essentially diverted prospects to another company.  Additionally, most employment agreements will have a provision that requires the employee to dedicate the majority of their time to their employer and not others.  We’ll keep an eye on the case as it develops.


How to Handle a Firing

Posted in Hiring and Firing, HR Issues, Uncategorized



From an employer’s perspective the firing of an employee is hopefully the culmination of a deliberative process and compliance with the company’s policies and procedures.  It is the ultimate adverse employment action and everything that is said and done may be put under the microscope by an employee’s lawyer, EEOC, or Texas Commission on Human Rights.  So what should the employer be thinking about before someone from HR sits down with the employee:

  1. Has the company complied with all policies and procedures with respect to the termination?  This could range from required warnings, write-ups, performance improvement plans etc.
  2. Have you considered what claims the employee may assert against the company?  Has the risk been evaluated with respect to those potential claims?
  3. If the company suspects potential litigation how does the employment file look?  We all know that Texas is an at-will state (the employer may fire for no reason at all as long as there is no discriminatory basis) but some basis may need to be articulated?
  4. Are there any post-employment covenants (non-competes/non-solicits/anti-raid provisions) that the employee needs to be reminded of or may need to be enforced in the future?
  5. Are there other contractual obligations the company may have to the employee?  Usually this is compensation related like stock options/retention bonuses etc.
  6. Is the company going to articulate a basis for the firing to the employee?  Best practice here is to actually walk through the mechanics of the let-go and dialogue with the employee.
  7. Pay the employee everything they are owed. Enough said there.
  8. Last day logistics – cut off access to email and company documents, orchestrate the return of all company property, and conduct any necessary exit interviews.  If it is going to be an ugly departure prepare accordingly.
  9. Is the company offering severance?  Is the company going to let the employee continue to work for the company while they look for new employment or provide notice on when the termination will take place?  What day of the week will the termination take place?
  10. Will the company require a release in exchange for severance?

These are just a few items to consider.

Why Texas lawyers aren’t subject to non-competes.

Posted in Injunction, Non-Compete Agreements, Non-Solicitation Agreements


Quite often I have lawyer friends ask me why Texas lawyers (and lawyers from other states) aren’t the subject of non-competes?  There aren’t really any cases that I’ve run across on the subject, which sometimes is an indicator that law firms aren’t trying to enforce them.  The answer is not that complicated. Queue Texas Rule of Disciplinary Procedure 5.06:

Restrictions on Right to Practice

A lawyer shall not participate in offering or making: (a) a partnership or employment agreement that restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or

(b) an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a suit or controversy, except that as part of the settlement of a disciplinary proceedings against a lawyer an agreement may be made placing restrictions on the right of that lawyer to practice.

The comments to the rule provide that the purpose of the rule is not only to prevent restrictions on lawyers post-employment moves but also to prevent restrictions on clients from selecting their lawyer of choice. Put another way, it’s not fair to keep a client from engaging their attorney of choice because they left their previous firm.  This is no different than non-lawyer cases where the argument is made that a customer should be able to pick whom they want do business with even if a non-solicitation agreement is in play.  This rule is found in similar form in other states.

Beyond post-employment issues, the comments also make clear that settlement agreements cannot prevent lawyers from agreeing not to represent other clients in lawsuits against defendants.

In Texas we really don’t have any particular statutes/rules/regulations directed towards particular professions other than doctors.  Those particular agreements require that the doctor have a buy out provision for their non-compete.


Texas Non-Competes Without Geographical Restrictions

Posted in Injunction, Non-Compete Agreements, Non-Solicitation Agreements, Trade Secrets


A Texas non-compete must satisfy two main components to be enforceable. The non-compete has to be ancillary to an otherwise enforceable agreement and be reasonable in time and scope. Before the Texas Supreme Court this week was a case where the court was asked to consider a non-compete without a geographical restriction and consider whether such an agreement was per se unenforceable. I discussed the issue in a recent Law 360 article that you can find here.

My short answer to the question was no on two counts. First, there is no Texas requirement that the geographic restriction appear in the non-compete. Second, it is unlikely the Texas Supreme Court would impose such a requirement. A geographic component is pretty basic. Tell me where I as an employee cannot compete with my former employer. (The same analysis could also impact non-solicitation and anti-raid agreements.) At its essence that could be a lot of things including: (1) cities, states or counties; or (2) a mileage restriction like a 10 mile radius from the employees office.

But sometimes there are agreements that don’t have a specified geography though it is implicit from the agreement itself and it is possible the restriction is nationwide. For instance, an agreement that prevents competition in any state where the employee worked with company customers or a restriction that was tied to a list of competitors. Are these unenforceable because there is no explicit geography?

The defendants in the case before the Texas Supreme Court did some bad things and got caught as they tried to compete with their former employer in the healthcare industry – a psychiatric management company. The non-compete prevented the ex-employee from working for a psychiatric management company that was in direct competition with the employer. No specific geographic restriction, right? But does that matter? Not if the non-compete is “reasonable” according to the Plaintiff and they are probably right.

First, each non-compete requires a case by case analysis. Here the non-compete was limited to 1 year – usually reasonable. Second, the Plaintiff argued the non-compete language was limited to the niche market of psychiatric management and the former employees could still work in other healthcare businesses. The trial court agreed and ruled the non-compete was enforceable.

It would seem unlikely that the Texas Supreme Court impose a bright-line geography requirement in this case. Fist, the non-compete statue requires a case by case analysis so bright-line tests really don’t work. Second, the restriction was limited to a niche market. Third, and finally, the defendants weren’t exactly the most sympathetic defendants based on their conduct.

We’ll monitor the case going forward.

EEOC’s 2016 Stats in Texas

Posted in HR Issues

2016 EEOC Stats


As a lawyer who frequently deals with EEOC charges/responses the EEOC’s yearly statistics always provide some interesting information on what folks are filing claims over these days.  Here is a link to a state by state breakdown of claims in 2016.  So what were some key Texas numbers?  Here are a few:

  1. 9,308 Total Claims
  2. 3,244 Race Based Claims
  3. 2,765 Sex Discrimination Claims
  4. 1,190 National Origin Claims
  5. 358 Religion Based Claims
  6. 4,633 Retaliation Claims (Based On All Statutes)
  7. 2,000 Age Claims
  8. 2,775 Disability Claims
  9. 90 Equal Pay Act Claims
  10. 24 GINA Claims

Texas was down by about 200 claims from 2015 but 9,308 is still a lot of claims for the EEOC to address.  Why does that matter?  Because employers who face a claim want the the claim resolved in a timely manner.  If you have had any recent experience with EEOC claims in Texas you know that resolution of the claims takes some time.  Why?  In part because there are a lot of other claims ahead of you.  The EEOC is limited in terms of the number offices and investigators it has to resolve claims.  As long as Texas continues to see close to 9,000 claims a year it will be a long process.




Nothing Like A Hair Stylist Non-Compete Case

Posted in HR Issues, Injunction, Non-Compete Agreements, Non-Solicitation Agreements, Recent Cases, Uncategorized

white hatThe details are slim from a recent article from the New York Post about a $3 million dollar non-compete/breach of contract case against a New York City hair stylist.  What we know:

  • Stylist Annie Rush worked at the salon for 6 years;
  • Apparently she is alleged to have signed a 1 year non-compete (that is a guess based on the article);
  • The suit alleges Rush started handing out business cards a month before her departure from the salon;
  • Rush moved on to another salon and took all of her clients with her; and
  • Her former salon sued her for a lot of money and to keep her from working for a year.

The facts from this case aren’t all that different from the facts of most non-competes.  Employer claims it spends a lot of money developing employee – employee leaves and takes customers with her – employer reacts with lawsuit to enforce non-compete.  That said, the one fact I didn’t like was the allegation that Rush set up her move/transition by allegedly handing out new business cards for her new venture while still employed by the former employer.  That’s bad news and great evidence if you are trying to enforce a non-compete or non-solicitation agreement.

Judges, like most people, are going to have some natural reaction and assign roles to litigants.  What do I mean by that?  Someone is going to be the good guy and someone is going to be the bad guy.  It may be a close call, the judge or jury may be unsure, but in most cases someone will be good and someone bad.  Better to be the good guy.  We sometimes call that  person the party with the “white hat”.  (In the recent HBO series WestWorld, one of the key characters wears a white hat implying he is a good guy.  Without spoiling the series, his role transitions over time along with the color of his hat.)

Assuming Rush decided to hand out business cards on the premises of her employer – pre-move that would be a major no-no.  First, we’ll assume that action violates numerous provisions in her well-drafted employment agreement including a non-solicitation agreement and some species of a duty of loyalty provision.  Second, it just looks bad.  Most employment moves like these are premeditated, but an employee can do certain things to make the move “clean”.  This includes not soliciting current customers to a new place of employment while you’re still employed by the employer who may sue you.  Put another way, be smart.  Don’t solicit customers while still employed, don’t take customer lists, and don’t take confidential/proprietary/trade secret information.

Happy New Year!



Don Mattingly – The Yankee Who Refused to Cut His Hair

Posted in Uncategorized

Don Mattingly

My favorite baseball player growing up was Yankees’ first baseman Don Mattingly.  Mattingly was an outstanding left handed hitter who never won a title with Bronx Bombers.  In the summer of 1991, Mattingly refused to get his haircut and the Yankees benched and fined him.  Employee dress code and appearance policies are nothing new, not even for high-paid athletes.

One of the more interesting posts from a few years ago was the Army’s tattoo policy.  Years ago, the Army had a policy that prevented soldiers from having tattoos.  That doesn’t work now, there aren’t enough prospective soldiers out there to simply exclude all folks that have them.  The Army is no different than many other employers.  Of course what is acceptable in certain professions doesn’t work in others.

I remember interviewing a potential candidate for a receptionist position in our law firm.  The candidate had a the infinity symbol on their wrist.  It wasn’t obnoxious and hardly noticeable but it did stand out and we actually discussed it.  The candidate was hired and did a fine job.

A high tone ski resort I know of doesn’t permit its employees to have facial hair, non-traditional piercings,  or tattoos that are visible.  Most ski resorts don’t have those types of policies.  But the high tone ski resort is trying (successfully) to appeal to a higher end demographic in what already an economically selective customer base.

These types of policies normally don’t violate the law and the employer can impose these types of restrictions.  Of course, they may be excluding potentially good candidates for employment.  As tattoos and piercings become more acceptable, employers (like the Army) have to adapt.  The challenge for the employer is balancing what is balancing what is appropriate in the workplace with what is culturally acceptable.  They are not always the same.