10 Tips on Preventing Trade Secrets Theft by Employees Who Work from Home

workfrom homeIn 2013, Marissa Mayer’s memo to Yahoo employees cancelling Yahoo’s work-from-home policy sparked a debate on whether working from home hurts or benefits companies, and whether any cost-savings associated with such an arrangement are outweighed by a decrease in productivity of remote employees. Very few critics, however, discussed the added risks of trade secrets theft by remote employees.  It seems that many companies put a lot of emphasis on in-the-office security measures, but apply a much laxer set of rules to those who work from home. Because of that approach, the work-from-home arrangements often become the Achilles heel of the companies’ security measures.

Here are 10 tips on how to eliminate, or at least reduce, the risk of trade secrets theft by remote employees:

1. Do Not Allow Employees with Access to Highly Sensitive Information to Work from Home. While almost every employee would prefer to work from the comfort of their home, when a high-level employee has access to a highly sensitive information, working from home should not be an option.  The risk of somebody duplicating or downloading the company’s proprietary information at their “home office” is much higher than in the regular workplace. So, have your key employees come in the office if they are going to handle your top-level proprietary information.

2. Have Remote Employees Sign Confidentiality and Non-Disclosure Policies.  If a company allows its employees with access to less sensitive but still confidential information to work from home, it should require employees to execute a non-disclosure and confidentiality policy that describes what types of information the company considers confidential and what repercussions the employees will face if they violate the policy.

3. Have Log-In Reminders Emphasizing Confidentiality.  If employees are required to log into a proprietary software or a program that contains the company’s proprietary data, have the software vendor create a pop-window that reminds the employees when they log in that they are accessing confidential information.  This acts as a constant reminder to the employees that the data they are accessing does not belong to them.

4. Allow Remote Employees to Work Only on Company-Issued Computers.  There is no question that allowing employees to do work from home on their own laptops, saves companies on the costs of purchasing, maintaining, and upgrading the equipment. However, those savings can be easily dwarfed by legal costs should an employer want to examine an employee’s personal computer for evidence of trade secrets theft. When an employee uses a company-owned laptop, the company can easily retrieve it from the employee upon request.  However, when an employee uses his or her personal device, the company’s road to retrieval of its data from that device becomes much thornier (and much more expensive).

5. Have A Remote-Wipe or Lock-Out Measures. This is a no-brainer and is a must for every company that allows employees to work remotely. A company’s IT department should be able to quickly terminate any remote employee’s access to proprietary information. It should also be able to wipe the company’s confidential information from the employees’ devices, when appropriate.

6. Control Access to Confidential Information. Not every remote employee needs to access every software program or every database that a company has.  Determine which employees need access to what types of programs or data, and keep track of that information as part of their personnel file.  When such employees are terminated, the company should have a clear idea of what they had access to and what they could have potentially taken with them. This is especially important for employees who have non-compete or non-solicitation agreements.

7. Monitor What Accounts, Programs, or Devices Are Used by Remote Employees. Whether a company is using a cloud-based sharing system, VPN, or is allowing its employees to log into particular databases online, somebody at the company should monitor the use and flag any suspicious activity. The level and frequency of monitoring will depend on the size of the business, the type of the confidential data, and the manner in which such data is kept.

8. Set Up Red Flag Alerts, if Possible.  A company should work with its IT department and software vendors to determine if they can set up alerts that would notify the company when somebody downloads or copies an unusually large amount of data, prints an unusually large number of documents, or deletes a large amount of information from the company’s system.

9.  Have A System in Place for When You Need to Recover Company-Issued Computers. Figure out ahead of time whether, upon a remote employee’s termination, the company will be sending somebody to their house to collect company equipment or will be requiring them to return the equipment themselves. Whatever the system is, getting company equipment quickly after an employee’s termination, should be a priority.

10.  Plan Ahead Before Terminating a Remote Employee. There is a reason why a fired employee is usually walked out of the office right away. Being upset about getting fired may cause some employees to destroy company property or take it with them as a way of payback to the employer.  This is even a bigger concern for remote employees, as there is a time gap between them receiving a termination notice and a company being able to get its equipment back. Therefore, it is crucial for a company to be able to terminate remote employees’ access to sensitive information swiftly, instruct them clearly on how to return the company’s equipment, and follow-up with enforcement if an employee fails to follow the instructions.

Some of the above measures are cheap and easy to implement (e.g., written policies).  Others, require assistance of an IT person or a department or a purchase of a costly monitoring software.  It is up to each company to determine whether the confidential information that their remote employees work with justifies the cost of implementing the above measures.  However, every company that has employees that work from home, should at least analyze its weak spots with respect to its proprietary information, and determine how it can reduce the potential of data and trade secrets theft by remote workers.

If you suspect that your business’s trade secrets have been misappropriated or you are looking to implement measures within your organization that will prevent or minimize the chances of trade secrets being misappropriated, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.

Trends in CEO Covenants Not to Compete

CEOEarlier this year, three law professors* published an analysis of non-compete and non-solicitation restraints in a sample of 874 CEO employment agreements. You can find the entire article here. This is the first empirical study of non-compete restraints.

The professors drew their agreements from a random sample of 500 S&P 1500 companies who are required by law to disclose to the public the terms of their CEO contracts. Here’s a summary of their findings:

  • most of the CEO contracts (80%) had 1 or 2-year covenants not to compete (CNCs)
  • 89% of CNCs prohibited CEOs from working for a competitor, but only 25% prohibited CEOs from financing one
  • almost 40% of CNCs barred CEOs from working anywhere where the company had operations
  • 75% of CEO contracts barred them from soliciting companies’ employees, but only 50% barred CEOs from soliciting clients
  • almost 90% of the contracts had a non-disclosure clause
  • more than half of CNCs were triggered by any departure of the CEO, whether voluntary or not
  • KEY: CEOs are more likely to have CNCs in their employment contracts if their contracts are being enforced in jurisdictions that permit strong CNC clauses, e.g., Texas.
  • KEY: There is a significant trend toward greater usage of CNC clauses in CEO employment contracts
  • KEY: Longer employment contracts (more than one year) are more likely to includes CNCs

TAKEAWAY:  In 2015, non-compete agreements for higher level executives, including CEOs, are the norm rather than an exception. The longer the CEO or a high-level executive works for a company, the more they learn about the business and its proprietary processes, inventions and strategic data that can be used to form a competing business. Therefore, a lot of times a reasonable non-compete restraint is justified and even necessary to protect the company.  CEOs, of course, have a lot of negotiating power when it comes to the exact parameters of such restraints and the appropriate amount of compensation that will justify their sitting on the sidelines for a year or two after their departure from the company.

If an employment contract is governed by Texas law, both the company and the CEO should approach the negotiations with the understanding that non-compete agreements in Texas are governed by the Covenants Not to Compete Act, which allows companies to put reasonable non-compete restraints on employees if they are tied to a legitimate business interest. Thus, for example, for a CEO of a company that has world-wide operations, a 2-year world-wide non-compete might be reasonable under the Act and might be enforced by Texas courts. Knowing that before beginning contract negotiations should help parties assess the appropriate parameters of the restraints and the corresponding compensation package.

*  Norman D. Bishara, Associate Professor of Business Law and Business Ethics, Stephen M. Ross School of Business, University of Michigan; Kenneth J. Martin, Regents Professor of Finance, College of Business, New Mexico State University; and Randall S. Thomas, John Beasley II Professor of Law and Business, Vanderbilt Law School, Professor of Management, Owen School of Business, Vanderbilt University. 

Having represented both companies 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 dispute arises. If you need help in this area, contact Leiza Dolghih for a consultation at Leiza.Dolghih@GodwinLewis.com.

A Major Victory for Pregnant Working Women in the US Supreme Court – Young v. UPS

pregnant_at_work

This week, the United States Supreme Court issued a long-awaited ruling in Young v. UPS addressing how employers should treat pregnant employees under the Pregnancy Discrimination Act.

The Pregnancy Discrimination Act prohibits discrimination based on pregnancy and states that employers must treat pregnant women at work the same as “other persons” who are not pregnant but are similar in their ability or inability to work.  42 U.S.C §2000e(k).

Young, a UPS driver whose doctor told her not to lift over 20 pounds after she became pregnant, sued UPS because the company refused to put her on a modified light duty, while it provided such modified light-duty accommodations to employees who: (1) suffered on-the-job injuries; (2) required accommodation under the Americans with Disabilities Act (ADA); and (3) lost their Department of Transportation (DOT) certification. Under the UPS light-duty policy, an employee who could not lift heavy packages because he suffered an on-the-job injury, would be given a light-duty assignment, while Young, who was similar in her inability to lift heavy packages, would not be.  Young argued that this was discrimination based on pregnancy in that she was not treated the same as “other persons” similar in their inability to work.

Lower Courts’ Rulings:

The trial court and then the Fourth Circuit Court of Appeals rejected Young’s argument finding that she was comparing herself to categories of employees who were not similar to her and that the UPS’s policy was “pregnancy-blind” in that it treated all employees who suffered an off-the-job injury that limited their working ability the same.  Buying into the UPS’s argument, the Fourth Circuit explained that Young more closely resembled “an employee who injured his back while picking up his infant child or  . . . an employee whose lifting limitation arose from her off-the-job work as a volunteer firefighter,” neither of whom would have been eligible for accommodation under UPS’s policy; so, UPS was really not treating Young any different from other employees.

US Supreme Court Ruling

The Supreme Court did what it often does – it vacated the lower courts’ rulings, rejected both parties’ arguments, and came up with its own framework for determining whether an employer’s policy violates the Pregnancy Discrimination Act.

The Court rejected Young’s argument that an employer who provides accommodations to some workers, must provide such accommodations to all pregnant employees, noting that pregnant women were not entitled to a “most favored nation status.” However, the Court also rejected UPS’s argument that its policy treated all pregnant and non-pregnant employees similarly, noting that UPS’s interpretation of the law would “fail to carry out an important congressional objective” of treating pregnancy disability like disabilities stemming from disease and accidents.

Instead, the Court held that an employee who asserts a disparate treatment claim under the Pregnancy Discrimination Act, should have her claim analyzed under the McDonnell Douglas burden-shifting analysis.In a nutshell, the analysis works like this:

1.  A pregnant employee shows that the employer treats pregnant and non-pregnant employees differently in providing accommodations.

2.  The employer must then justify its different treatment by establishing a legitimate, non-discriminatory reason for the difference. While this burden traditionally set a comparatively low bar for employers to overcome, the Court cautioned that an employer’s reasoning that “it is more expensive or less convenient” to extend protection to pregnant women will not suffice.

3.  Even if the employer establishes such a reasons, the employee may then show it’s just a pretext.  While showing “pretext” traditionally has presented a comparatively high bar for plaintiffs to overcome, here the Court held that this burden may be met if the employee can point to evidence that the employer’s policies “impose a significant burden on pregnant workers, and that the employer’s ‘legitimate, non-discriminatory’ reasons are not sufficiently strong to justify the burden, but rather – when considered along with the burden imposed – give rise to an inference of intentional discrimination.”

After applying the above-described analysis to Young’s claim, the Supreme Court concluded that her claim should not have been dismissed by the lower courts and sent it back to the district court to analyze whether Ms. Young could prove her claim of discrimination under the Pregnancy Discrimination Act.

WHAT THE RULING MEANS FOR EMPLOYERS: The Court’s ruling makes is substantially easier for plaintiffs to succeed in pregnancy discrimination and accommodation claims, and employer’s policies that tend to negatively impact pregnant employees – particularly where there is evidence that the requested accommodations have been provided to non-pregnant employees – are likely to be scrutinized and may well be deemed to be unlawful.

Employers should review their policies and practices with the Court’s ruling in mind, and make whatever changes necessary to ensure appropriate accommodation of, and no adverse effect with respect to, pregnant employees. Employers should take all requests for pregnancy-related accommodations seriously and evaluate them thoroughly and consistently, so as to ensure compliance and help prevent claims under the Pregnancy Discrimination Act.

Employers should pay special attention to employees’ pregnancy-related claims that might also qualify as disability accommodation requests.  In 2008, Congress amended the ADA and expanded the definition of “disability” under the ADA to make clear that “physical or mental impairment[s] that substantially limi[t]” an individual’s ability to lift, stand, or bend are ADA-covered disabilities.” Thus, most pregnancy-related disabilities would now likely be protected by the ADA and subject to its reasonable accommodation requirements.

WHAT THE RULING MEANS FOR EMPLOYEES: This case does not provide an affirmative right to pregnant workers to receive an accommodation. Thus, an employer who does not provide accommodations for any workers with a temporary disability are under no obligation to do so for pregnant workers.

However, according to the US Supreme Court’s ruling, if an employer provides accommodations to certain employees, but refuses to accommodate pregnant employees, a pregnant employee might have a claim under the Pregnancy Discrimination Act.  Similarly, if an employer treats pregnant employees differently from non-pregnant employees in the workplace, a pregnant worker might have a claim under the Pregnancy Discrimination Act.

Leiza represents both employers and employees in handling pregnancy accommodation and pregnancy discrimination claims.  If you need help in this area, contact Leiza Dolghih for a consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.

A Texas Company’s Chairman is Personally on the Hook for $1.3 Million for Hiring a COO Without Board Approval

employmentcontractEarlier this month, the First Court of Appeals  in Wilmot v. Bouknight upheld an award of $1,337,500 against a company executive and the chairman of the board who hired a chief operating officer (COO) for a 5-year term knowing that he did not have the authority to enter into such agreement without the board approval and knowing that the board would not approve the agreement.

For two years, the chairman proceeded to give the COO assignments, provided him paychecks, promised him additional compensation, and treated him like he was working for the company. Then he fired him, almost three years before the contract was to expire.

The COO sued the chairman in his personal capacity arguing that he fraudulently induced him into the employment agreement by representing that he had the authority to enter into the agreement while knowing full-well that he did not have such authority. The chairman claimed that he was not liable for the remaining compensation because: (1) there was no valid contract; (2) the “merger clause” in the contract subsumed any oral representations; (3) he was acting as an agent of the company; and (4) employees cannot sue for fraud in Texas. The trial court rejected all of his arguments and found that the chairman committed fraud when he told the COO that he had the authority to bind the company to the employment agreement while knowing full well that he did not have it.

TAKEAWAY: It’s not uncommon for employees to complain that their compensation structure or other terms of employment turned out to be different from what the employer promised when they were originally hired. And, typically, while disappointing, such difference in what was offered vs. what the employee actually received, does not give rise to a legal claim. This is because Texas is an at-will employment state, which means that an employer may change the terms of employment or compensation at any time and if an employee does not like it, they can leave.

However, as illustrated in the above case, where an employee is not at-will (has a guaranteed term of employment) and the company (or in this case, the chairman of the company) make representations about the future employment or conditions of employment, without any intention of fulfilling them, then the person making such representations may be liable for fraud. Moreover, making representations on behalf of the company does not absolve a corporate agent from being personally liable for such statements.

Thus, while proving fraud in employment agreements in Texas has become harder after Sawyer v. E.I. DuPont de Nemours & Co., it is not out of the realm of possible, especially, where an employee has a guaranteed-term contract.

Leiza often helps employers and employees negotiate and draft employment agreements and advises in employment-related disputes. If you need help in this area, contact Leiza Dolghih for a consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.

Anti-Raiding Provisions with Clients, Vendors and Subcontractors – Why It’s a Good Idea

imagesMany companies have basic non-compete provisions that prevent employees from working for a competitor for a certain period of time, but they often fail to address a situation where an employee goes to work in-house for a client of the company or jumps ship to work for a vendor, supplier, or a subcontractor of the company. While, technically, such move by an employee may not constitute “competition” with his/her former employer, a lot of times it eliminates a client’s need for the company’s services in the area that is now being covered by the new employee or it otherwise affects the company’s relationship with a vendor or a sub resulting in a reduction of revenue to the company.

One solution to this problem is including an anti-raiding provision in the vendor and client agreements, which states that the vendor/client/sub will not recruit, hire, or solicit the company’s employees.  Of course, a company is always free to waive such restraint for a particularly large client or after it receives assurances that there will be no reduction in business from the employee’s departure, but it will protect the company in all the other situations.

However, just as with other employment covenants, the anti-raiding clause must be clear and reasonable. Just last week, the Fourteenth Court of Appeals in Houston held that a sub-contractor’s anti-raiding clause did not prevent it’s contractor from indirectly employing sub-contractor’s employees.[1]

In this case, LyondellBasell hired Modis (contractor) to provide technical personnel for computer-related projects. Modis, in its turn, hired NetMatrix as a subcontractor. The sub agreement, among other provisions, stated that Modis “shall not recruit, hire or otherwise solicit” NetMatrix’s personnel assigned to the project.

Two years into the sub agreement, one of NetMatrix’s technicians quit and went to work for Millenium – another subcontractor employed by Modis. The technician proceeded to work on the same project for LyondellBassell to which he was assigned while at NetMatrix.

NetMatrix argued that Modis breached the sub agreement’s anti-raiding clause because it allowed NetMatrix’s employee to work for Modis’ other subcontractor and, therefore, it “indirectly hired” the technician in violation of the above clause.

The Court of Appeals disagreed, finding that other employment covenants in the sub agreement prohibited both “direct” and “indirect” activities, but the anti-raiding clause did not address “indirect” hiring. Therefore, it was clear that the parties meant to prohibit only direct hiring, and, consequently, Modis did not violate that clause when it allowed its sub to employ NetMatrix’s employee.

TAKEAWAYS: First, make sure that your vendor, sub, and client agreements have anti-raiding clauses. Second, make sure that the clauses are precise, reasonable, and are consistent with other restraints contained in such agreements. Finally, if you are considering waiving such a clause for a particular employee, make sure that you don’t create a permanent waiver that would render the anti-raiding clause unenforceable in the future.

[1] Although the Court applied Florida law per the parties’ agreement, similar analysis would follow under Texas law as well.

Having represented both companies 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 dispute arises. If you need help in this area, contact Leiza Dolghih for a consultation at Leiza.Dolghih@GodwinLewis.com.

Four Ways to Protect Your Business Ideas: Patents, Trademarks, Copyright, and Trade Secrets

pictureWhether you are an owner of an established business or a budding entrepreneur working on a start-up, understanding how you can protect your business ideas is key to making your company attractive to investors, securing funding, growing the company and ensuring the longevity of your business.

Depending on the type of idea that you have, the state of the idea, and the amount of money at your disposal, you have the following four ways to protect your intellectual property:

1. PATENTS.   There are three types of patents in the U.S.: utility patents (90% of all patents); design patents, and plant patents. Having a patent for an invention or a design allows the owner to exclude others from making, using, or selling the invention or design for a certain period of time.  To obtain a patent, a person must file an application with the U.S. Patent and Trademark Office (USPTO).

Utility patent may be granted to anyone who invents or discovers any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof.  Approximately 90% of the patent documents issued by the USPTO in recent years have been utility patents, also referred to as “patents for invention.”  Utility patents last up to 20 years from the date of patent application.

Design patent may be granted to anyone who invents a new, original, and ornamental design for an article of manufacture.  In general, a design patent is obtained for the aesthetically appealing features of a product. It gives the owner the right to prevent others from making, using, or selling a product that so resembles the patented product that an “ordinary observer” might purchase the infringing article, thinking it was the patented product.  An example of a famous design patent is Coca-Cola’s unique bottle shape. Also, many clothing companies often patent a unique design to prevent other companies from imitating it.  Design patents last for up to 14 years from the date of the grant.

In many circumstances, one may obtain a design patent in addition to a utility patent for the same invention. Also, to the extent that the subject qualifies as a work of art, there may be an opportunity to obtain a copyright for the same, and if the design is embodied in a physical article, and also functions as a trademark, a trademark registration may be obtained.

Plant patent may be granted to anyone who invents or discovers and asexually reproduces any distinct and new variety of plant.

The patent application process is complicated and can cost thousands of dollars as most applications require help from a qualified patent attorney or agent.  To maintain the force of the patent, you must pay fees due at 3.5, 7.5 and 11.5 years after the patent grant.  The total amount of maintenance fees for a small entity (such as an independent inventor) is $4,430, while bigger entities must pay $8,860.

2. COPYRIGHT. Copyright protects original works of authorship including literary, dramatic, musical, and artistic works, such as poetry, novels, movies, songs, computer software, and architecture. Copyright does not protect facts, ideas, systems, or methods of operation, although it may protect the way these things are expressed.  You do not have to register your work to have copyright protection.  However, only registered works may be eligible for statutory damages and attorney’s fees in a copyright infringement suit. Thus, you should register your work with the U.S. Copyright Office, which can be done online for just $35 – $55 fee.

The term of copyright for a particular work depends on several factors, including whether it has been published, and, if so, the date of first publication. As a general rule, for works created after January 1, 1978, copyright protection lasts for the life of the author plus an additional 70 years. For an anonymous work, a pseudonymous work, or a work made for hire, the copyright endures for a term of 95 years from the year of its first publication or a term of 120 years from the year of its creation, whichever expires first.

3. TRADEMARKS. A trademark is a word, phrase, or design that distinguishes the source of the goods of one business from its competitors.  A right in a trademark is acquired by use, but registration with U.S. Patent and Trademark Office (USPTO) makes it easier to enforce such right.

To apply, you must have a clear representation of the mark, as well as an identification of the class of goods or services to which the mark will apply.  You can submit an online application, and filing fees vary according to the type and the number of classes of goods or services, among other factors. Filing an application for trademark is complicated, so, as with patents, most people hire attorneys who specialize in trademarks to handle the process.

4. TRADE SECRETS. Trade secrets in Texas are protected by the Texas Uniform Trade Secrets Act (TUTSA).  A Texas business or a person may claim as a trade secret any information that (1) has economic value because it is not generally known and (2) is subject to efforts to maintain its secrecy that are reasonable under circumstances. Trade secrets may include, but are not limited to the following: formula, pattern, compilation, program, device, method, technique, process, financial data or list of actual or potential customers or suppliers.

Thus, even those ideas and business processes that do not qualify for patents, copyright or trademark protection, can be protected by the owner as trade secrets, as long as they have economic value and the owner’s efforts to keep the ideas secret are reasonable under circumstances.

Under TUTSA, Texas business owners may also seek a temporary injunction to prevent misappropriation or threatened misappropriation of their trade secrets. A temporary injunction is a court order, which, if granted, prevents a person or a company from using the information claimed to be a trade secret.  Sometime, injunctive relief is the only way to protect valuable information from being stolen or misused by a competitor, but the owner must act fast after discovering misappropriation or a court might decide that the misappropriated information is not as valuable as the owner claims.

For more information about Texas trade secrets law, please click here.  If you suspect that your business’s trade secrets have been misappropriated or you are looking to implement measures within your organization that will prevent or minimize the chances of trade secrets being misappropriated, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.

 

Responding to an EEOC Discrimination Charge: A Guide for Texas Employers (Part III)

imagesIn Part I, I outlined the EEOC process of investigating a charge of discrimination, and in Part II, I described the steps that an employer should take in responding to an EEOC’s charge of discrimination or retaliation. Finally, in Part III, I address what business owners should consider specifically in drafting a position statement.

1. Remember that a position statement can be later used in litigation. What employer states in a position statement can be used in litigation, thus the employer should be able to back up its statements with documents and/or witness testimony and verify everything that is described in that statement.  A lot of times, an employer will provide one reason for taking an employment action in the position statement, and then provide another or additional reason or reasons during litigation.  Such discrepancies can be damaging to employer’s credibility and can make it impossible to obtain a summary judgment and an early dismissal of the suit.

2. A detailed position statement is better than a short response. While the charge form will often contain only a paragraph or two describing a discrimination or retaliation claim, the position statement should be much longer and address the nature of the employer’s business, past consistent employment decisions, and attach appropriate documents that support the employer’s positions (such as, for example, written warnings or discipline notes regarding the employee who was terminated; important emails or attendance records). You should also use the position statement to teach the agency about the nature of your business and how the employment decision that is discussed in the charge is consistent with your business goals. 

3. Keep the position statement confidential.  Information related to the EEOC investigation, the charge, and the employer’s position statement should be shared on a need-to-know basis. If possible, it should be kept within the HR department and not shared outside of it.  

4. Work with legal counsel. The charge can be a first step in the employee’s decision to bring a lawsuit against your business.  Any discrepancies in the position statement or failure to address allegations in a complete and open manner, can increase the chances of employee filing a lawsuit and prevailing on his or her claim.  If you decide to conduct an investigation on your own, at the very least you should have an attorney review the position statement before it is sent to the EEOC.

5. Respond in a timely matter and cooperate with the agency.  Providing a timely response and cooperating with the EEOC’s investigator regarding any addition requests for information is key in making sure the the investigation is completed as soon as possible.  Failure to respond or cooperate may result in an adverse decision.

The common mistakes that employers commit when responding an EEOC charge is ignoring the charge completely; not responding to the charge in a timely manner; providing a response that fails to address the allegations in the charge; or providing a response that relies on one person’s account of what happened, without conducting a proper investigation or verifying that person’s statements. What business owners should understand is that a charge can be the first step in a future lawsuit. Thus, failing to investigate the situation at the charge phase and verify all statements submitted to the EEOC, can end up costing the business a lot more time and money down the road, once the EEOC or the charging employee file a lawsuit arising out of the charge.

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

Responding to an EEOC Discrimination Charge: A Guide for Texas Employers (Part II)

imagesIn Part I, I outlined the EEOC process of investigating a charge of discrimination. In this part, I describe the steps that an employer should take in responding to an EEOC’s charge of discrimination or retaliation.

1.  Calendar the Deadlines.  Don’t think that because the employee’s complaint to the EEOC is “ridiculous” or “silly” in our eyes, that you don’t need to respond. You should always respond, no matter how trivial or ludicrous the complaint is in your opinion. So, don’t put the letter in a “I’ll-deal with-this-later” stack, but calendar the response date and other deadlines as soon as you receive the charge from the EEOC. Then, contact your HR department if you have one, and if not, consider consulting with an attorney who deals with labor and employment issues.

2.  Determine if the Charge Involves an EEOC “Hot” Issue.  Employers should take special note when a charge involves any of the six enforcement priorities highlighted in the EEOC’s Strategic Enforcement Plan (SEP), as that could mean that the case will get special scrutiny from the agency.  If the charge alleges a violation related to the areas identified in the SEP, the employer should be extra-careful in responding to it.

3.  Collect and Preserve Relevant Evidence.  Determine which people and departments within your company will have information relevant to the charge and then contact them and ask them to collect the relevant evidence. Independently, your IT department should also help you collect and preserve the relevant evidence behind the scenes.

4.  Schedule Interviews and Interview Relevant Witnesses. You will want to interview all the people mentioned in the charge, but also others who might have knowledge of relevant facts.  Depending on the size of the organization and allegations, you might have to start scheduling interviews right away.  You will have to decide whether you’d like your HR department, an independent third-party investigator, or an attorney to conduct such interviews.  You will also need to determine in which order to line up the relevant witnesses.

5.  Warn Against Retaliation.  In matters involving current employees, the employer should remind everybody interviewed or involved in the investigation, that they may not retaliate against the employee in any manner for having filed a charge.  Likewise, retaliation against anybody who testifies on behalf of the employee or assists the EEOC with its investigation is also prohibited.

6.  Establish a Point of Contact with the EEOC.  Designate one person within the organization who will be responsible for contact with the EEOC’s agent assigned to the charge.  This person should be professional, courteous, and somebody who is capable of and has the time to keep the EEOC agent apprised of any delays in the investigation. Cooperation and courteous working relationship with the EEOC is key!

7. Consider Mediation.  Mediation affords employers an opportunity to resolve the issues addressed in a charge without incurring the cost of a time-consuming investigation.  During this time, the agency investigation is placed on hold. In the event the matter does not settle, employer may be able to obtain additional information from the employee which may enable it to more effectively respond to the allegations in the charge.

8.  Draft the Position Statement.  See Part III for guidance on drafting a position statement.

9.  Respond to Requests for Information. EEOC’s requests for information (RIFs) will most likely be over broad, and it is up to the employer to negotiate the scope of production.  Negotiating to limit the time period or the geographic scope can help keep the costs down and limit the investigation to issues immediately at hand.  The deadline for production of documents is also often negotiable.

10.  Arrange for Employee Interviews.  The investigator will usually notify you of the names of the employees that he or she will want to interview.  You may be present during interviews with management personnel, but an investigator is allowed to conduct interviews of non-management level employees without your presence or permission. If the investigator asks the employer to arrange for such interviews, cooperation is the best approach.

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

 

 

Responding to an EEOC Discrimination Charge: A Guide for Texas Employers (Part I)

imagesOpening mail and finding out that an employee has filed a charge with the Equal Employment Opportunity Commission (EEOC) against your business is as far from a pleasant surprise as it gets. However, it happens to quite a few businesses each year.  In 2014, there were 88,778 charges filed with the EEOC, with Texas, Florida and California being the top three states. Overall, the most common claims were retaliation (42.8%), followed by race discrimination (35%) and sex discrimination (29.3%). Thirty percent of all charges included some sort of harassment allegations.

The EEOC Investigation Process

Typically, when an employee files a charge with the EEOC, the agency will notify the employer within 10 days that a charge of discrimination has been filed and will provide the employer with the name and contact information for the investigator assigned to the case.

During the investigation, the assigned EEOC agent will ask the employer and the employee who filed the claim to provide information, which the investigator will evaluate to determine whether unlawful discrimination has taken place. The agent may ask the employer to provide any or all of the following:

  • submit a statement of position;
  • respond to a Request for Information (RFI);
  • request an on-site visit; and/or
  • provide contact information for or have employees available for witness interviews

If the charge was not dismissed by the EEOC when it was received, that means there was some basis for proceeding with further investigation. There are many cases where it is unclear whether discrimination may have occurred and an investigation is necessary. Such investigation, thus, presents an opportunity for an employer to state any facts that the employer believes will show the allegations are incorrect or do not amount to a violation of the law.

The Employer’s Role in the Investigation

According to the EEOC, employers should do all of the following to help with the investigation:

  • Work with the investigator to identify the most efficient and least burdensome way to gather relevant evidence.
  • You should submit a prompt response to the EEOC and provide the information requested, even if you believe the charge is frivolous. If there are extenuating circumstances preventing a timely response from you, contact your investigator to work out a new due date for the information.
  • Provide complete and accurate information in response to requests from your investigator.
  • The average time it takes to process an EEOC investigation is about 182 days.  An undue delay in responding to requests for information extends the time it takes to complete an investigation.
  • If you have concerns regarding the scope of the information being sought, advise the investigator. Although EEOC is entitled to all information relevant to the allegations contained in the charge, and has the authority to subpoena such information, in some instances, the information request may be modified.
  • Keep relevant documents. If you are unsure whether a document is needed, ask your investigator. By law, you are required to keep certain documents for a set period of time.

The Results of the Investigation

Once the investigator has completed the investigation, the EEOC will make a determination on the merits of the charge.

  • If the EEOC determines that there is no reasonable cause to believe that discrimination occurred, it will send the employee a letter called a Dismissal and Notice of Rights that tells the employee that s/he has the right to file a lawsuit in federal court within 90 days from the date of receipt of the letter. The employer will receive a copy of the letter as well.
  • If the EEOC determines there is reasonable cause to believe discrimination has occurred, both employer and employee will be issued a Letter of Determination stating that there is reason to believe that discrimination occurred and inviting the parties to join the agency in seeking to resolve the charge, through an informal process known as conciliation.
  • Where conciliation fails, the EEOC has the authority to enforce violations of its statutes by filing a lawsuit in federal court. If the EEOC decides not to litigate, the employee will receive a Notice of Right to Sue and may file a lawsuit against the employer in federal court within 90 days.

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

Houston, We Have a Problem. Where’s That Non-Compete Agreement?

disorganizedA Houston Court of Appeals last week found an employer’s non-compete agreement unenforceable and awarded a former employee his attorney’s fees in defending the lawsuit brought by the former employer. Yes, this can happen in Texas where a company attempts to enforce an agreement that is clearly unenforceable. In this case, the original non-compete was superseded by several employment agreements culminating in one that cancelled the original non-compete provision. Yet, the employer sued the former employee for breaching the original non-compete. The employee asked the court to declare the agreement unenforceable and for his attorney’s fees, and the trial court’s grant of both requests was affirmed by the Court of Appeals. Although a subsequent agreement does not always replace the original one (see my previous post here), the multiple agreements in this case clearly did, as evidenced by the following timeline:

2001 – employee signed an “Employment, Confidentiality and Non-Compete Agreement and Employee Assignment of Intellectual Property.” (every company should have key employees execute agreements like this)

2001 – 2004 – employee returned to work for the company several times, but did not sign any new employment agreements.  (the company should have had the employee execute a non-compete each time he came back).

2006 – employee signed “Sales Representation Agreement,” which stated that it superseded all prior contracts and understandings between the employee and the company. The agreement also stated that the employee would execute a separate Confidentiality and Non-Competition Agreement and Assignment of Intellectual Property, but the employee never signed such agreement,  and the company never insisted. He later left to work for another company.  (the company should have made sure he signed the non-compete).

2010 – employee was hired in market development, but was not asked to sign a non-compete. (the company should have asked him to sign a non-compete if his job involved handling clients and/or confidential information).

2010, 5 months later – the company was sold and the buyer was given a copy of the employee’s 2001 agreement.

2011 – employee signed an employment agreement with the new company, which did not have a non-compete, but stated that it was “supplemental contract to any previous employment agreement in place.”  (it is never a good idea to sign an agreement that references prior agreements unless you have a copy of them. In this case, the company should have not referenced prior agreements but should have made sure that the new agreement contained all the necessary terms)

2011, a few months later – the new company changed the nature of the employee’s compensation and the Pay Change Form provided that the “Employment Agreement previously negotiated is nullified and replaced with a . . . bonus . . . .”  (somebody at the company should have considered how this nullification clause affected non-compete obligations of the employee).

2012 – employee resigned and was sued by the new company for breach of the 2001 (yes, original) employment agreement, breach of fiduciary duty, and claims under Texas Theft Liability Act, arguing that the employee “reaffirmed” the original agreement each time he came to work for the company and that he was estopped from denying that he was bound by the non-compete.  The employee counterclaimed seeking a declaration that there was no enforceable non-compete agreement between the parties, and his attorney’s fees.

The trial court dismissed the employer’s claim for breach of contract on summary judgment and the employer non-suited the rest of the claims. The employee proceeded to try his counterclaim and won – obtaining a declaration from the court that there was no valid non-compete.  Such declaration entitled him to obtain his reasonable and necessary attorney’s fees from the employer.

Conclusion: When buying a company or a business, the buyer should always make sure that it has all the employment agreements of all the key employees. If such agreements are missing or are outdated, the buyer should make sure that the key employees sign new employment agreements that contain all the terms necessary to protect the buyer. Finally, all employment agreements must be reconciled with the compensation documents, any arbitration agreements in place, and any employment policies, to ensure that the non-compete and other restraints are the same across all documents signed by the employee.

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 dispute arises.  If you are looking for an advice or help navigating this area of law, contact Leiza at Leiza.Dolghih@GodwinLewis.com.

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