Non Compete Law in Texas: 2014 in Review

downloadThere is a lot of confusion out there about whether non compete agreements are enforceable in Texas. Some believe that they are never enforceable, others think that they always are.  The truth is, whether a non compete agreement in Texas is enforceable depends on a variety of factors, including: (1) the specific language of the non compete clause in question and (2) the facts surrounding the relationship that the non compete addresses.  Slightly different standards and approaches apply when it is a non competition clause in a business v. business transaction or a similar clause in an employer v. employee situation. The summary of the appellate courts’ decisions involving non compete issues in 2014 shows just how differently the chips fall depending on the particular facts of each case.

And the award for the most active court in the non compete arena goes to…

In 2014, Texas Courts of Appeals addressed various non-compete clauses 22 times.  One case involving a non-compete dispute even made it all the way to the Texas Supreme Court. Out of the fourteen appellate courts in Texas, the most active court on the issue of non compete agreements was the First Court of Appeals in Houston, which lead the way with 8 opinions involving non-compete clause issues, followed by the Fifth Court of Appeals (Dallas) and the Fourteenth Court of Appeals (also in Houston) with 4 cases each.

Temporary injunctions …when dotting the “I”s and crossing the “T”s really counts…

Out of 22 cases involving non-compete issues, nine were interlocutory appeals from either a grant or denial of a temporary injunction by lower courts. In four cases, the Courts of Appeals reversed the injunction order for failure to comply with Rule 683 of the Texas Rules of Civil Procedure. I have previously written about Rule 683 mandates here, here and here. Twice they uhpeld temporary injunctions and twice they reversed the trial courts’ denial of temporary injunctions. Only once did a Court of Appeals uphold a denial of a temporary injunction.

Thus, almost half of the appeals heard by the Texas appellate courts involved defendants arguing that the injunction order was not specific enough for them to know what they were prohibited from doing, and the courts of appeals agreeing with them, which is why knowing what to ask for when seeking an injunction is as important as having a well-drafted non-compete to begin with.

Non competes …so who has them?

The non-compete agreements challenged on appeal in 2014 spanned a wide variety of industries and involved all levels of employees – from high-level directors and CEOs to lower level blue collar employees.  In this limited pool of cases, the non-competes were most often enforced against those in a sales position, but included the following types of employees: insurance brokers; surgical assistants; CEO of a company that manufactured, sold, and rented frac valves; sales associates for an electricity provider; oil & gas refinery equipment inspector; CFO of an energy corporation; a doctor; directors of a solar power products company; an IT department supervisor; tax and research consultants; VP of an apparel company; VPs of a building manufacturer; sales manager for a manufacturer of heat exchangers; sales agent for a company that sold lumber products; mortgage loan officers; marketing director for a court reporting company; a pathologist; a sales agent for a company that sold stucco and masonry materials; insurance sales agent; geologist; a sales agent for a manufacturer of specialty components used in offshore oil and gas drilling and production; and a sales agent for a company that sold oilfield service equipment.  This shows that non compete agreements are not limited to particular industries in Texas.

So, what’s going to happen in 2015? 

This is one area of law that will continue to be hotly disputed in 2015 as economy picks up and more employees make lateral moves or decide to open their own business.  The challenge for business owners in 2015 will be to find the balance between protecting their confidential information and the resources invested in employees and allowing such employees to earn a living after their departure.  The variety of the outcomes on the appellate level indicates that the courts’ analysis of non compete agreements  in Texas is very fact specific and often hinges upon the specific language of the agreement.  The employers should review their non competes, update them, and institute hiring and termination polices that are meant to maximize the effectiveness of such agreements.   And remember that while not every business employee should be subject to a non compete agreement, the key level personnel’s employment contracts should definitely include non compete and non disclosure clauses.

Having represented both employers and employees, Leiza Dolghih has been on both sides of non-compete disputes and knows what employees and employers typically do when a non compete disputes arises.  If you are looking for an advice or help navigating this area of law, contact Leiza at Leiza.Dolghih@GodwinLewis.com.

A Few Lessons From the Morgan Stanley Trade Secrets Debacle

bitcoin-data-mining-online-currency-theftEarlier this month, a financial advisor at Morgan Stanley copied information of 350,000 of the company’s wealth management clients. A few days later, a sample data from 900 clients was posted on Pastebin, with the poster offering more in exchange for the payment in SpeedCoin, a type of virtual currency similar to BitCoin.

As it happens, earlier that year, Morgan Stanley hosted a bitcoin event at its headquarters, which all employees were invited to attend. And while Morgan Stanley CEO was busy announcing to the world that he does not understand what Bitcoin is, some lower level employees were apparently taking notes.

As you can imagine, the stolen data had a wealth, pun intended, of information about each client.  A six-year advisor was able to get the information by simply running reports within the company’s database. Although he was quickly fired after the breach was discovered, and is now subject to a FBI investigation, the damage to the company’s reputation in terms of clients’ trust has been done.  My guess is that the damage is quite significant, whether the company will admit it or not.

Unfortunately for business owners, trade secret theft is a daily occurrence. With the proliferation of personal electronic devices and the increasing connection of office devices, such as printers, faxes, etc. to the internet, confidential information can be stolen and shared with third parties in a matter of minutes.  The Morgan Stanley debacle shows that even the international powerhouses who have almost unlimited budgets and resources to protect their confidential information and the information of their clients can suffer from blind spots in their security systems that are meant to protect sensitive data. My guess is that Morgan Stanley relied a little too much on the criminal penalties bestowed upon those who misuse client data in the banking world and did not implement as strong of a security system as it should have.

As a business owner, manager, or a person in charge of the confidential information within your organization, it is your responsibility to make sure that that data is protected.  While it is impossible to keep up with every technological advantage, it is relatively easy to set up a protection system within the company that will prevent most, if not all, data theft. How, you say? Here’s how:

1.  Take a few hours and write down a list of every type of information that your company considers proprietary or confidential, even if it’s an obvious one.  This can include customer list and information, vendors list, source code for your software program, design plans for your product, your marketing plans, your financial data, etc.  Any successful business will probably have more than one type of confidential information.

2.  Consider who within your company or business has access to each type of confidential information.  Then, consider whether they need to have access to it.  For example, does your marketing department need to have access to your manufacturing schemes? Does your manufacturing department need to have access to your financials or customer list? It might seem silly, but I guarantee that after taking stock, you will find that some people or departments incidentally have access to the data that they don’t need or use in their jobs. Eliminate such access.  Of course, be careful not to deprive people of the information that they need to do their jobs.

3.  Consider whether each person with access to confidential information has signed proper agreements. Do your employees have non-compete agreements, non-solicitation agreements, and non-disclosure agreements? If they do, are the agreements consistent? Do they have all the necessary bells and whistles to make them enforceable? How long ago were they updated?  Having thorough yet clear agreements will discourage most employees from attempting to steal trade secrets.

4. Take stock of all electronic devices issued to employees.  Do you consistently keep track of what electronic devices are issued to employees by the company? Do you have a policy governing how such devices are used? Do you have security measures on such devices? Do you have a way to determine whether a device has been used to transfer confidential information? This is particularly important for the employees who work from home.

5. Do you have appropriate agreements with vendors, suppliers, business partners, and other parties who receive confidential information from you? If not, you need to add such agreements into your relationship with such parties to make sure that your confidential information is not used to replace or cut you out.

LESSON:  What happened at Morgan Stanley, can happen anywhere. But, it is less likely to happen in a company where employees get a sense that the company is serious about protecting its trade secrets and confidential information of its customers.  The serious attitude is conveyed to the employees by having an organized framework – from legal agreements, to passwords, to restricted access to non-essential employees – within the company. When employees see that a company’s efforts to protect its information are disorganized or haphazard, they are more likely to attempt theft of such information because they believe that they will not be caught. In Morgan Stanley’s example, it appears, that the company did not even know that the employee obtained its client data until weeks after it was posted for sale on the internet, which means that its internal database did not alert the company when large amounts of reports were being generated.

Make 2015 the year that you insulate your business from trade secret theft.

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 for a consultation.

Not Reading a Contract Costs a Party Half a Million Dollars

200567130-001The Texas Supreme Court just confirmed what most of us already know – that you should read your contracts before signing them. In National Property Holdings, L.P., et al. v. WestergrenWestergren sold a piece of real estate to National Property Holdings (NPH) pursuant to a written agreement. Additionally, NPH orally promised to Westergren that once it develops the property, it will pay Westergren $1,000,000.

Once NPH developed the property, Westergren demanded his $1,000,000. Instead of paying the full amount, NPH gave him $500,000 and asked him to sign a release agreement, which was titled in bold and underlined AGREEMENT AND RELEASE and stated that Westergren agreed to relinquish any and all interest in the property and all claims against NPH in exchange for the total payment of $500,000. Westergren signed it without reading.

He later sued NPH for breach of their agreement to pay him $1,000,000 and claimed that he was fraudulently induced to sign the release.  Westergren argued that at the time of the signing, NPH representatives told him that they will be making the second payment as soon as the building is built, that the release agreement was just a “receipt” and that he will be getting the other half of the $1 million as soon as their development of the land starts.  Westergren admitted that he did not read the release because he “was in a hurry” and “forgot his reading glasses ” and that he relied on the NPH’s representations about the second payment instead.

The jury found that NPH fraudulently induced Westergren to sign the release and the Court of Appeals agreed. The Texas Supreme Court, however, was less forgiving.  It found that Westergren had an ample opportunity to read the document and that had he done so, he would have discovered that the language of the agreement directly contradicted the representation made by NPH. The Court, therefore, found that NPH did not fraudulently induce Westergren to sign the release, reinforcing the old rule that “instead of excusing a party’s failure to read a contract when the party has an opportunity to do so, the law presumes that the party knows and accepts the contract terms.”  The Court even cited the 19th century U.S. Supreme Court’s opinion that best describes this point of contract law as follows:

It will not do for a man to enter into a contract, and, when called upon to respond
to its obligations, to say that he did not read it when he signed it, or did not know
what it contained. If this were permitted, contracts would not be worth the paper on
which they are written. But such is not the law. A contractor must stand by the
words of his contract; and, if he will not read what he signs, he alone is responsible
for his omission.

Thus, while a party may have a claim for fraudulent inducement where it as induced to enter into a contract by false promises, where the written agreement’s terms directly contradict the false promises, the claim for fraudulent inducement will most likely fail.

CONCLUSION: As the old saying goes, “trust, but verify.” When it comes to signing a legal agreement, do not rely on the other party’s explanation of what the agreement does or means.  Read it, and where appropriate, have an attorney review it on your behalf so that you know and understand what you are signing.  Remember, that in Texas, if somebody tells you one thing, and the written agreement actually says something else, barring a rare exception, you will be held to what the written agreement says, not the oral representations.

If you have been sued in Texas for a breach of contract or are thinking of pursing a breach of contract claim, contact Leiza Dolghih for a consultation at Leiza.Dolghih@GodwinLewis.com.

A Minority Employee Must Be “Clearly Better Qualified” For Promotion to Succeed in an Employment Discrimination Claim

what-do-you-mean-that-i-am-not-koalafied

Just before the New Year’s Eve, the Fifth Circuit Court of Appeals topped off 2014 with yet another pro-employer decision. In Martinez v. Texas Workforce Commissionthe Court found that a Mexican-American employee failed to show that he was passed over for promotion because of his national origin and not because he was the lesser qualified candidate.

The Court of Appeals explained that where an employer offers a reason or reasons for promoting a white employee over a minority one, in order to show that these reasons are just a pretext, the minority employee must show that he is “clearly better qualified” such that “the qualifications are so widely disparate that no reasonable employer would have made the same decision.” Thus, Martinez had to show that his qualifications were so much better than the qualifications of the white employee who was promoted over him, that no reasonable employer would have promoted that employee over Martinez. If that sounds like a tough standard to meet for employees – it is.

The Court of Appeals clarified that employers may weigh the qualifications of prospective employees, so long as they are not motivated by race.  Thus, just because one employee has better education, work experience, and longer tenure, does not necessarily establish that he is clearly better qualified. An employer, for example, may value specific experience, such as military service, more than general experience or years of service at the company. Likewise, an employee’s experience in a particular department does not necessarily make him “clearly better clarified” than another employee who does not have such experience.

The Court of Appeals also affirmed many employers’ practice of scoring employees’ interview performances, finding that where the candidates are asked an identical set of questions and are scored based on the similarity of their answers to a model answer, their interview scores may serve as a legitimate basis for the employer’s decision whether to promote a particular employee. An employer must, however, provide evidence as to how the interviewers arrive at their scores.

CONCLUSION: In the the Fifth Circuit, which covers Texas, Louisiana, and Mississippi, once an employer shows that it had a legitimate non-discriminatory reason or reasons for promoting one employee over another, the employee who claims employment discrimination under Title VII must show that he or she was “clearly better qualified” for the promotion such that no reasonable employer would have made the same promotion decision.

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.

In the News: A Dallas strip club is sued by the dancers for failure to pay overtime; ends up settling for $2.3 million.

12.26.2014  The lawsuit alleged that Jaguars, a strip club in Dallas, illegally classified the dancers and “house moms” as independent contractors and failed to pay them overtime.  According to the petition filed with the court, the club hired/fired, issued pay, supervised, directed, disciplined, scheduled and performed all other duties generally associated with that of an employer with regard to the dancers and “house moms.” Additionally, Jaguars instructed the dancers about when, where, and how they were to perform their work; required them to fill out employment applications as a prerequisite to their employment, determined their schedule, and fined any dancers who failed to comply with it.

Jaguars answered that the dancers were independent contractors and not the club’s employees because they leased space from the club to dance as supported by the lease agreements they signed with the club.  After 2 years in court, the club settled the suit with 190+ dancers this week for $2.3 million. Jones, et al. v. JGC Dallas LLC, et al., 3:11-cv-02743 (N.D. Tex.)

Commentary: Lawsuits arising out of employee misclassifications have been skyrocketing over the past few years.  The costs associated with such lawsuits are high since the employer who is found to have misclassified its employees as independent contractors must pay the back overtime wages it owes such independent contractors and the employees’ attorney’s fees, which a lot of times exceed the backpay.  While it is tempting to designate one’s workers as independent contractors to lower labor costs, a single lawsuit brought by a dissatisfied employee may erase or even exceed any savings gained by the misclassification.  When in doubt, an employer should consult with a labor and employment attorney to determine whether certain categories of workers should be classified as employees or independent contractors.

If you are facing a Department of Labor audit or have been sued under the Fair Labor Standards Act for misclassification and need legal assistance, contact Leiza Dolghih at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.

Non Compete Agreements in a Sale of Business

hwbAnybody who is buying a business – no matter how large or small – should consider including a non compete agreement or clause in the sale documents. For a buyer, such clause ensures that the seller does not take the proceeds from the sale and open a competing business around the corner using his or her know how and vendor or customer connections.  For a seller, a non compete clause can provide a great bargaining chip during the sale process since the length and scope of the restrictions can factor into the price of the business.

The following list identifies the common sticky points for buyers and sellers during both the negotiation of a non compete agreement as part of the sale of a business and litigation that may arise out of a non compete agreement after the sale.

1. How is the “competitive activity” defined in the non compete agreement? The buyer will want the competitive activity defines as broadly as possible, while the seller will want to make sure that it does not encompass activities that the company has not been engaged in prior to the sale.  Having a defined universe of activities that are tied to the company’s assets, operations and business conducted by the seller will help both parties understand what they can and cannot do after the sale and will minimize the chances of litigation.

2. Is the length of the non compete agreement reasonable?  Business non compete agreements (between two companies) are governed by the Texas Covenants not to Compete Act, which also governs employment non compete agreements (between companies and employees).

Under Section 15.50 of the Texas Covenants not to Compete Act, “a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.”

Pursuant to Section 15.50, any restriction in a business-related non compete agreement must be reasonable. However, Texas courts have interpreted business non competes more broadly than employment or personal services non compete agreements. Thus, a five-year non compete, for example, that would never be enforceable in an employment context, could be found reasonable and enforceable in a sale of business situation.

3. Is the geographic area of the non compete agreement reasonable? The geographic restrictions in a business non compete agreement must be tied to a legitimate business interest and must reasonable. Thus, for example, including a nationwide non compete agreement in a sale of a local moving company that only does business in Dallas, Texas, is not likely to hold water in court as a reasonable geographic restriction.

4. Is the non solicitation clause reasonable and does it include employees, vendors, and customers? Non solicitation agreements or clauses are subject to the same reasonableness requirements as non  compete agreements and must be driven by a legitimate business interest of the company.

5. Does the confidentiality clause impose additional anti-competitive restrictions? If the sale documents do not include a specific non compete or non solicitation agreement, the seller and the buyer should consider whether a confidentiality or non disclosure clause might, nevertheless, result in a anti-competitive restrictions by imposing limitations on what information the seller may or may not use after the sale.  The buyer will want to make sure that the company’s competitive advantage is protected via the confidentiality provision and the seller will want to make that the sale price factors in the additional protections afforded by the confidentiality clause.

Leiza Dolghih litigates disputes arising out of non compete agreements and represents companies that seek to enforce non compete agreements as well as those who have been accused of breaching such agreements. You can contact her at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458 for a consultation regarding your non compete agreement.

Employers Do Not Have to Pay Employees for the Time Spent in a Security Screening After Work, Says the U.S. Supreme Court.

imagesAmazon warehouse employees can’t seem to catch a break. A few years ago, the media was abuzz with the stories about the grueling conditions inside the company’s warehouses. This year, the United States Supreme Court ruled that the warehouse employees are not entitled to overtime pay for the time spent waiting to undergo and going through the required security screenings after the end of their normal work hours.

In Integrity Staffing Solutions, Inc. v. Busk, Integrity Staffing Solutions, Inc. required its hourly warehouse workers, who retrieved products from warehouse shelves and packaged them for delivery to Amazon.com customers, to undergo a security screening before leaving the warehouse each day.

The employees argued that they spent roughly 25 minutes each day waiting to undergo and undergoing the screening that was meant to prevent employee theft and that since such screening was conducted for the sole benefit of the employer and its customers, the employees had to be paid for their time under the Fair Labor Standards Act of 1938 (FLSA).

The employees’ argument was based on the Portal-to-Portal Act (PPA), which provides that employers do not have to pay their employees for (1) “walking, riding, or traveling to and from the actual place of performance of the principal activity or activities which such employee is employed to perform,” and (2) “activities which are preliminary to postliminary to said principal activity or activities.”  The employees argued that the screening time was an integral and indispensable part of their principal activity – retrieval and packaging of Amazon products – and, therefore, was compensable time under the PPA.

The U.S. Supreme Court sided with the employer after finding that the security screening was neither the principal activity for which employees were hired, nor the “integral and indispensable” part of the employees’ duties as warehouse workers. The Court explained that it did not matter whether a particular post- or pre-shift activity was required by an employer, but whether such additional activity was indispensable to the performance of employees’ work.  In this case, the security screening, although required by the employer, was not integral part of the work for which the warehouse employees were hired – packaging of Amazon products. Thus, the employer did not have to pay for such time.

Compensable Pre- and Post-Workshift Activities 

Here are some examples of what pre-shift and post-shift activities the Court has previously held to be compensable because they were indispensable to the main work activities:

  • The time battery-plant employees spent showering and changing clothes because the chemicals in the plant were “toxic to human beings” and the employer conceded that “the clothes-changing and showering activities of the employees [were] indispensable to the performance of their productive work and integrally related thereto.”  Steiner v. Mitchell, 350 U.S. 247, 252-253 (1956).
  • The time the meatpacker employees spent sharpening their knives because dull knives would “slow down production” on the assembly line, “affect the appearance of the meat as well as the quality of the hides,” “cause waste,” and lead to “accidents.” Mitchell v. King Packing Co., 350 U.S. 260, 262 (1956)

Non-Compensable Pre- and Post-Shift Activities 

On the other hand, the Department of Labor regulations explain that the following post- and pre-workshift activities are generally non-compensable:

  • When performed under the conditions normally present, activities including “checking in and out and waiting in line to do so, changing clothes, washing up or showering, and waiting in line to receive pay checks” See 29 CFR Sec 790.7(g) (2013).

Practical Implications 

Those employers who have facilities where employees must pass through gates, security checks, or take other steps before entering or leaving the workplace, should apply the test that the Court formulated in Integrity Staffing Solutions, Inc. v. Busk to any such activities to determine whether they should be compensable or not. If the activity is a “principal” activity or is an “integral and indispensable” part of such “principal activity,” then the employer should pay employees for the time they spend performing such activities. Additional guidance as to what is considered compensable post- and pre-work activity is provided by the Department of Labor here.

For more information regarding compliance with the wage and hour requirements of the Fair Labor Standards Act, contact Leiza Dolghih at Leiza.Dolghih@GodwinLewis.com.

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.

UPDATE (12/9/2014) - The U.S. Supreme Court ruled that the time spent undergoing a security screening is not compensable under the FLSA.

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.

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