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:
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.
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:
- Make sure your engagement agreements/contracts make sense and are enforceable;
- Remember that non-competes and non-solicitation agreements in Texas can be enforceable;
- Screen your candidates to determine if they have entered into a non-compete or non-solicit;
- Remember that if someone you placed is sued it is likely that their new employer will be as well;
- Protect your candidate and client information – that information can be a trade secret;
- Make sure you are in compliance with the Texas Occupations Code;
- A little money spent on an attorney up front can save a lot of money down the road;
- Be factual when you talk about a potential employer;
- Don’t give legal advice; and
- 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:
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:
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”
- 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?
- Tell the employee that the company takes these obligations very seriously and will enforce them.
- Obtain all company property, keys, phones, etc. and tell them their access to company email or remote-in processes are cut-off.
- 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.
Strictly speaking under Texas law it is hard to make a non-compete stick when it is first introduced at the end of employment. Assume a situation where an employee signed a confidentiality agreement and non-disclosure agreement but didn’t sign a non-compete, non-solicit (customers), or anti-raid (employees). Is the employer out of luck? Maybe not.
For purposes of this discussion, assume that what I am about to suggest is not legally enforceable under the Texas non-compete statute. Put another way, the employer is never going to sue the agreement and the employee is under no requirement to sign the agreement. They can simply walk – a non-compete based on past consideration doesn’t work.
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.
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.
As we creep up on the end of the year employers should be considering/doing a number of things:
- 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.
- Are employee files up to date? Make sure all employees have acknowledged receiving the most recent HR manual or any changes to the manual.
- 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.
- Make sure employees have signed off on all non-compete, non-solicit, or confidentiality agreements. Make sure you have signatures!
- Frequently the end of the year involves reviews. Make sure those reviews are acknowledged by the employee and make it to their employment files.
- Do you have job descriptions for your employees? Do you even need them?
- Are your independent contractors really employees?
- Is it time for some employees to move elsewhere?
- 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!
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.