Arbitration Policies and Employment Agreements – A Tricky Area

imagesMany business owners have been advised by their attorneys at some point in time to include an arbitration clause in their employment agreements or employee handbooks to make sure that any employment disputes are resolved by an arbitrator and not in a court of law.  After all, many attorneys subscribe to the school of thought that arbitration is cheaper and faster than litigation.

Any employers that follow that advice and want to include an arbitration clause, should follow a few simple rules to make sure that the arbitration clause is actually enforceable:

1.  The arbitration clause must be simple and clear.  For example, in Texas Health Resources and Texas Health Presbyterian Hospital Dallas d/b/a Presbyterian Hospital Dallas v. Kruse, an employee of the hospital was able to avoid arbitration by claiming that she did not know that she was required to arbitrate her employment disputes because the employee handbook “encouraged” employees to use an alternative dispute resolution process, but did not state that it was mandatory.

2.  When employment agreements are revised, make sure the arbitration clause remains in effect and covers the necessary areas.  In The Subsea Company v. Raquel Payan and Seven Onshore/Offshore, LLC, an employee attempted to avoid an arbitration clause in her old employment contract because her revised employment agreement did not have such a clause. The Fourteenth Court of Appeals closely looked at the language of the old and the new agreement and determined that since the new employment contract did not address compensation and the old agreement did, the arbitration clause contained in the old agreement continued to apply to compensation disputes.

3. Include a “Halliburton Savings Clause” in an employment handbook.  An employment handbook that contains an arbitration policy should state that it can be changed at any time by the employer only after notice is provided to employees. If an employer can change the rules without giving an employee advance notice, then the agreement between the employer and its employees is illusory and will not be enforced by courts.  The arbitration policy should also make clear that the arbitration process or policy will not be changed once an employee has suffered an employment-related injury or initiated an adverse-employment claims.

If you are interested in having your handbook reviewed and/or revised or you are involved in an employment dispute that involves an arbitration clause and need assistance, please contact Leiza Dolghih at Leiza.Dolghih@GodwinLewis.com  or (214) 939-4458.

Providing Reference for a Former Employee – What Can an Employer Say in Texas?

SteveCarellOffice.BMost employers at some point get a call asking for a reference for one of their former employees. For good employees such call is not a problem, but for those who were fired or let go due to performance issues, violations of a company policy, or commission of a crime – the employer often faces a choice of not saying anything so as to avoid a defamation claim by the former employee or warning the potential employer of the former employee’s prior history. So, how much exactly can a former employer disclose to a potential employer without facing a defamation lawsuit from the employee?

From a legal stand point, in Texas, truth is an absolute defense to defamation.  Thus, if what you are telling the new employer is true, then it cannot be defamation. From a practical standpoint, however, you should consider how easily could you prove that what you were saying about the employee was true. For example, if you decide to tell the new employer that you fired John Doe because he stole company property – if John Doe filed a suit against you, could you prove it in court that he did so?  The answer is rarely a resounding “yes.” More likely, if push came to shove, it would be the former employer’s word against the employee’s. Thus, even telling the truth about a former employee, may result in a lawsuit (and thousands in attorney’s fees) unless the employer has some proof that its statements were true.

Texas also recognizes that statements by a former employer to a prospective employer are “privileged” (or protected from a defamation claim), unless an employer made such statements with “actual malice.”  Actual malice has nothing to do with bad motive or ill will, but requires proof that the former employer made the statement either knowing that it was false or with reckless disregard of the truth of falsity of the statement. Some courts have labeled it as “calculated falsehood.”  Failure to investigate facts before speaking is not proof of actual malice.  However, making a statement  while entertaining “serious doubt” as to its truth could constitute actual malice.

Conclusion: Employers should be careful when they provide references to their former employees. While a former employer’s statements to a prospective employer are generally privileged (i.e. protected from defamation), if the former employer made false statements that caused an employee to lose his job or offer of a job, s/he might face some serious liability.

On the employee side, unless the employee has at least some proof that his or her former employer made false statements about the employee or had serious doubts about the truth of such statement, the employee bringing a defamation claim might have to pay the former employer’s attorney’s fees in defending against the lawsuit under the Texas Citizens Participation Act (TCPA), as I have previously explained here and here.

For more information regarding defamation and business disparagement claims in Texas, contact Leiza Dolghih.

U.S. Supreme Court Employment Cases to Follow in 2015

SupremeCourtIn 2015, the U.S. Supreme Court is posed to rule on the following important employment law issues:

1. Integrity Staffing Solutions, Inc. v. Busk - must employers compensate employees for the time spent undergoing security screenings at the end of the workday under the Fair Labor Standards Act

The employees in this case allege that Integrity requires post-shift security screenings lasting up to 25 minutes, yet fails to compensate them for the time spent undergoing the screenings, which is a violation of the Fair Labor Standards Act (FLSA).

Integrity claims that it is immune from liability under the Portal-to-Portal Act of 1947, which provides that employers are not required to compensate for activities that are postliminary to an employee’s primary work activities.

The Ninth Circuit sided with the employees and ruled that the employees stated a plausible claim for relief because the security clearances were for Integrity’s benefit and necessary for the employees’ job performance. Specifically, the Court noted that the prevention of employee theft—a concern specific to the employees’ warehouse work duties—motivated the security clearances, thereby benefiting Integrity. Therefore, Integrity was required to compensate its employees for the time spent in the security screening.

2.  Young v. United Parcel Service, Inc. – must an employer accommodate a pregnant woman with work restrictions related to pregnancy in the same manner as it accommodates a non-pregnant employee with the same restrictions? 

UPS offered “light duty program” to workers who were injured on the job, but refused to provide any light duty accommodations to pregnant employees. Young challenged the policy and argued that the Pregnancy Discrimination Act (PDA) requires an employer to provide pregnant employees light duty work if it provides similar work to other employees in other circumstances.

The Fourth Circuit sided with UPS and ruled that: (1) the employer did not “regard” a pregnant employee as disabled under the Americans with Disabilities Act (ADA); and (2) employers are not required under the PDA to provide pregnant employees with light duty assignments so long as the employer treats pregnant employees the same as non-pregnant employees with respect to offering accommodations.

3.  EEOC v. Abercrombie & Fitch Stores, Inc. – does an employee have to provide a direct, explicit notice to the employer of the need for a religious accommodation? 

In this case, EEOC has alleged that Abercrombie violated Title VII when it failed to hire a prospective employee, Samantha Elauf, because of her religious practice without offering her a reasonable accommodation. Elauf, a Muslim, interviewed for a sales position at Abercrombie while wearing a black hijab (headscarf), a practice inconsistent with Abercrombie’s policy prohibiting sales employees from wearing black clothing or “caps.” Although the assistant manager interviewing Elauf assumed that Elauf wore her hijab because she was Muslim, Elauf did not say that she needed to wear it for religious reasons or request a religious accommodation. There was evidence that Abercrombie did not hire Elauf because of her attire.

The Tenth Circuit sided with Abercrombie and explained that plaintiffs claiming religious discrimination based on a failure to accommodate ordinarily must prove that they informed the employer that they engage in a particular practice for religious reasons and require an accommodation. It rejected the EEOC’s position that Title VII may be satisfied by notice short of an explicit communication from the applicant. The Tenth Circuit’s decision is in tension with decisions of the Seventh, Eighth, Ninth, and Eleventh Circuits, which have adopted the EEOC’s position that the element of notice is established where the employer has actual knowledge of an employee or applicant’s religious practice even if there is no an explicit request for an accommodation.

Leiza Dolghih frequently advises employers on how to handle troublesome employees, assists with responding to EEOC charges, and litigates employment disputes. For more information, e-mail Leiza.Dolghih@GodwinLewis.com.

What is a Trade Secret?

downloadWhat are trade secrets and how they are regulated depends largely on what state your business is operating in.  Currently, each state has it own statute and/or body of law that defines what is a “trade secret” and what legal remedies the owner of a trade secret may pursue if such trade secrets are taken or misappropriated from him or her.

In Texas, trade secrets are governed by the Texas Uniform Trade Secrets Act (TUTSA), which came into effect on September 1, 2013.

TUTSA defines “trade secrets” as “information,” that “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use” AND “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”  Thus, any information that has economic value – either actual or potential – and that the owner has reasonably attempted to keep secret, could constitute a “trade secret” under TUTSA.

Furthermore, TUTSA specifically provides that “trade secrets” may include the following types of information:

  1. formula
  2. pattern
  3. compilation
  4. program
  5. device
  6. method
  7. technique
  8. process
  9. financial data
  10. list of actual or potential customers or suppliers

Moreover, as defined by the statute, “trade secrets” may include information that its owner has not yet had an opportunity to use or information that the owner is no longer using (as long as it still has actual or potential economic value).

“Trade secrets” also include information that has commercial value from a negative viewpoint, such as the results of lengthy and expensive research which proves that a certain process will not work. See UTSA § 1 cmt.

Whether the information is considered “secret” is determined by whether a party undertook “reasonable efforts to maintain the secrecy of such information,” rather than the difficulty with which such information could be acquired.  The standard allows a fact finder to consider the nature of the trade secret and the facts and circumstances surrounding the efforts to maintain its secrecy in order to determine whether these efforts were reasonable under the circumstances.

To learn more about other provisions of TUTSA, see my previous post here.

If you are facing a trade secret misappropriation claim or are suspecting that a theft of trade secrets occurred at your company, contact Leiza Dolghih at Leiza.Dolghih@GodwinLewis.com.

Religious Discrimination – What Every Business Owner Needs to Know

619763-LGSconundrumx-1382216657-586-640x480Under the Title VII of the Civil Rights Act of 1964, an employer may not discriminate against an employee on the basis of his or her religion. Employer must make reasonable accommodations for the religious observances of its employees unless it creates undue hardship on the business. As you can imagine, whether a requested accommodation is “reasonable” and whether providing such accommodation would create an “undue hardship” on a business, are often two hotly contested issues in religious discrimination cases.

Employee’s burden. An employee will be required to present evidence of the following in order to establish a case of religious discrimination:

(1) employee held a good faith religious belief;

(2) employee’s belief conflicted with an employment requirement;

(3) employer was informed of that belief; and

(4) employee suffered an adverse employment action for failing to comply with the conflicting employment requirement.

An employee who fails to establish one of the above elements cannot prevail on its claim of religious discrimination.  For example, earlier this year, I wrote about an employee whose claim for religious discrimination was dismissed because she failed to show that she told her employer (as opposed to her co-workers) that she could not perform a job function due to her religious beliefs.  Thus, she failed to show that her employer knew about her religious beliefs (third element above).

Employer’s burden. If an employee presents evidence of each element above, the employer may defend by showing that:

(1) it reasonably accommodated the employee; or

(2) it was unable to reasonably accommodate the employee’s needs without undue hardship.

The Fifth Circuit Court of Appeals recently addressed what constitutes an “undue hardship” for an employer as it relates to religious accommodation under Title VII. In Davis v. Fort Bend Countythe county fired its technical support supervisor, who skipped work to attend a church function.  A few days before the county’s scheduled upgrade of its computer system, Ms. Davis notified her supervisor that she would not be present during the update because she planned on attending a church service during that time.  Although Ms. Davis arranged for a replacement during her absence, the County fired her.

The Fifth Circuit explained that an undue burden may arise when: (1) an employer has to force one employee to substitute for another’s religious observance; or (2) an employee’s absence from the job leaves the employer short-handed.  Neither of these factors, however, were present in Fort Bend County, since Ms. Davis was able to find a volunteer employee to cover for her absence due to a church function.  Thus, the county was not left short-handed or suffered any costs associated with Ms. Davis’ absence. Therefore, the county failed to establish an undue hardship.

BOTTOM LINE FOR BUSINESS OWNERS: When an employee requests time off or asks for another accommodation due to his or her religion, whatever that religion might be, a business owner should consider whether granting such a request will create an undue hardship on the business.  If the answer is “no,” then the request should be granted.

The most commonly requested religious accommodations have to do with the dress and/or grooming requirements associated with certain religions.  An employer facing such a request, should read the U.S. Equal Employment Opportunity Commission Religious Garb and Grooming in the Workplace guide recently issued by the EEOC, which provides a lot of examples on how to handle specific requests.

Leiza Dolghih frequently advises employers on how to handle troublesome employees, assists with responding to EEOC charges, and litigates employment disputes. For more information, e-mail Leiza.Dolghih@GodwinLewis.com.

Is Your Non-Compete Agreement Hidden in Your Stock Option Plan?

reading_document-300x253Many employees assume that a non-compete agreement will be clearly titled so as to provide them notice that they are agreeing not to compete with their employer on certain terms after they leave. However, that is not always the case. In fact, a lot of times, a non-compete agreement is just a clause in an another contract, buried among many other terms and conditions of employment or a compensation package.

After the Texas Supreme Court ruled in 2011 that an employer’s grant of stock options to an executive employee constituted sufficient consideration to support the enforcement of a non-solicitation of customers provision (in an employment agreement) against a former executive when he jumped ship to work for a competitor, employers in Texas began to include covenants not to compete and/or non-solicitation clauses in their stock options plans. Soon, Texas employees began to challenge them, and we are now seeing a new wave of opinions addressing these covenants not to compete coming out of the Texas Appellate Courts. I have previously written about the Texas Supreme Court’s ruling in ExxonMobil v. Drennen that came out in early September, and now, the Houston Court of Appeals in Cameron Int’l Corp. v. Guillory upheld the employer’s application for a temporary injunction because of a covenant not to compete included in the employee’s stock award agreement.

In Guillory, in recognition of its employee’s exceptional performance, Cameron awarded him 283 shares of restricted stock.  The employee was sent a copy of the restricted stock agreement online via http://www.etrade.com and was prompted to “accept” its terms electronically. Included in those terms was the covenant not to compete, solicit or disclose confidential information. Guillory accepted the terms, but then left to work a competitor. Cameron filed a lawsuit seeking a temporary injunction based on the non-compete provision that Guillory accepted in return for receiving Cameron’s stock.

The Court of Appeals found that a temporary injunction was justified, that Guillory’s electronic acceptance of the contract was valid under Texas Uniform Electronic Transactions Act, and that I-didn’t-read-the-contract-before-I-agreed-to-it was not a defense (duh!).

So, what’s the conclusion?

If you are an employee, read your employment agreements and your compensation agreements carefully before signing them and make sure you understand them. If you can, negotiate the restrictive covenants. If you cannot negotiate, plan for contingencies before leaving your employer.

If you are an employer, make the covenant not to compete prominent in the agreement to alert the employee that they are agreeing to certain restrictions.  If an employee is aware that s/he has agreed to such a covenant and the covenant is reasonable, they are less likely to violate it and you are less likely to have to spend your money on enforcing the agreement.

Also, when an employee leaves, remind him or her, either during the exit interview or via a separate letter, that they are subject to a covenant not to compete or a non-solicitation clause.

For more information regarding non-competition agreements in Texas, contact Leiza Dolghih at Leiza.Dolghih@GodwinLewis.com.

A Lost Employment Agreement Costs an Employer a Lot of Money

document-loser1In United Rentals, Inc., et al. v. Smith, the company tried to force the employee to arbitrate their wrongful termination dispute pursuant to an arbitration clause contained in the employment agreement that Mr. Smith had allegedly signed when he was hired by the United Rental.  The catch was that the company could not find the original agreement and all the copies on file were illegible.

So, in support of its motion to compel arbitration, the employer submitted a “digitally enhanced” copy of an employment agreement and a statement by its former human resources director, who swore that Mr. Smith signed an employment agreement when he was hired, but did not identify the “digitally enhanced” copy as being that agreement or its “true and correct” copy. The employee’s counsel argued that the copy produced by the employer was not authentic and, therefore, there was no proof that Mr. Smith ever agreed to arbitrate its disputes with the United Rentals.  Both the trial court and the Eighth Court of Appeals agreed.

Thus, instead of going through an arbitration, the employer in this case ended up having to defend itself in court, spend thousands of dollars on an appeal of the trial court’s order, and spend even more time and money to continue to defend in state court after losing the appeal.

Moral of the Story? While record keeping is not a fun part of running a business, it is a key component of a successful enterprise.  Employers should always keep a good and legible copy of all employment (and independent contractor) agreements on file.

Leiza Dolghih frequently advises Texas business owners regarding a variety of employment and business issues with the goal of reducing their risk of litigation from employees and the companies with whom they do business.  For more information, contact  Leiza Dolghih at Leiza.Dolghih@GodwinLewis.com.

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