Small Business Corner: Limiting Competition Through Contract Provisions

download (1)Whether you are hiring a new employee or entering in a contract with your vendor or supplier, if you are planning on giving these persons access to your business’ confidential information, such as customer lists, financial information, proprietary training materials, etc., you should make sure that the person you are sharing it with is not going to take that information and use it to compete against your business. There are several tools available to business owners to make sure that this does not happen.

When properly drafted, the following contractual provisions will serve to protect a business owner from unfair competition by a former employee or business partner:

  • Non-compete clause.  This clause prevents current employees or business partners from joining or forming a competing business after the end of their employment or business relationship with your company.  It is enforceable in Texas when certain conditions are met.
  • Non-solicitation of clients clause.  This clause prevents current employees or business partners from taking the company’s clients with them after their employment or business relationship with that company ends.
  • Non-solicitation of employees a.k.a anti-raiding clause.  This clause prevents current employees or business partners from poaching their former employer’s or business partner’s employees after the end of their employment or business relationship.
  • Non-disclosure clause.  This clause prohibits employees or business partners from using or disclosing confidential information that a company shared with them during their employment or business relationship.

To be enforceable, each clause has to be drafted specifically for your business.  There are some contract clauses that stay the same no matter what the substance of the contract or the business is – these are not those clauses.

A lot of business owners will adopt a friend’s or a former employer’s non-compete and non-solicitation agreements for their own use, or copy an agreement they found online.  However, those agreements usually work only until a company attempts to enforce them, leaving a business owner exposed to unfair competition at the precise moment when it needs the protection the most.

These copycat restrictive covenants often fail because a company that attempts to enforce them in court must show why a particular geographic area or a specified time period is reasonable for a particular employee, and explain exactly what is included in the definition of “confidential information” included in the non-disclosure clause.  This is virtually impossible to do if the agreement that the company is seeking to enforce was catered to a different company’s business, with different types of confidential information, and different employee structure.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at or (214) 939-4458.

Small Business Corner: How to Hire From a Competitor and Avoid a Lawsuit

Hiring from Competitor A lot of my clients are small business owners, so I’d like to dedicate some of my articles to the common legal issues faced by smaller companies. This is the first of such articles.  As usual, it explains how to minimize the risk of litigation, but should you find yourself in a (legal) pickle, you know who to call.

In this post I describe the steps that a company should take when hiring employees from a competing company. While following these steps will not eliminate the risk of litigation completely (the only thing that would accomplish that is NOT hiring from a competitor), it will greatly minimize the risk of a company getting involved in a lawsuit related to a hiring of such an employee.  The advice is based on my experience in representing companies and their competitors on both sides of disputes arising out of employees jumping ship from one competitor to another:

1.  Gather information about the old job. When hiring from competition, you need to know what the employee did at the old company and whether there will be any overlap with what he will be doing at your company. To that extent, during the interview (or before) have the employee provide you the following information: their title and the job description at the old company, what types of information they had access to, and a copies of any agreements they signed with the old company that might have non-compete or non-disclosure covenants.

During the interview, determine what materials of the former employer the employee might still have in his or her possession (documents, electronic files, laptop, flash drives, e-mails, etc.). Take care not to ask the specifics about the competitor’s clients or other information that the competitor might consider proprietary.   However, do ask about the types of information that the employee had access to at his old job.

2.  If an employee is subject to a non-compete agreement, consider the alternatives.  If the new potential hire has a non-compete with the old company, review the agreement and determine whether it is enforceable. If the agreement is enforceable, consider whether the new hire may be placed in a different geographic area or a position at your company that will not violate the terms of the non-compete covenant until such covenant expires.

3.  Include protective language in the offer letter. Make sure that the offer letter to the new hire clearly states that the employee will not disclose any trade secrets of their former employer during their employment with your company and will not transfer any of the old employer’s information or documents to your company’s computer system.

4.  Do the same with the employment agreement. Include the same language in the employment agreement, and make sure that both the offer letter and the employment agreement’s terms are the same in that respect and that the employee clearly represents to your company that he will not bringing on board or using any of his former employer’s confidential information.

Whether an employee’s former company might sue your company because of your new hire depends on the language of the former employee’s non-compete agreement, the former company’s history of enforcement of such agreements, what information the employee had access to while at the old employer and how high up the corporate ladder he or she was, and a few other factors, all of which should be considered prior to making the hiring decision.  Following the above steps can minimize the company’s risk of being sued for hiring a competitor’s employee, but when in doubt, consult with an employment attorney before making the hire decision.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Ms. Dolghih for a confidential consultation at or (214) 939-4458.

Enforcing Non-Compete Agreements in Texas: A Temporary Injunction Must Have an End Date

miles-massey_lAs a company, the last thing you want to do is to spend thousands of dollars obtaining a temporary injunction against a former employee who is violating his or her non-compete or non-solicitation obligations, only to have the injunction reversed on appeal because it failed to contain all the necessary terms.

Schlumberger learned this the hard way when the Houston Court of Appeals reversed a temporary injunction issued by the trial court because it did not contain an expiration date. The court specifically stated that “Texas law does not permit a trial court to enter an open-ended injunction against competition.”

In this case, two of Schlumberger’s employees left the company, opened a competing business, and hired 11 Schlumberger employees, which actions, arguably, violated the numerous non-compete and non-solicitation provisions in these employees’ agreements with Schlumberger.  Despite having evidence – including admissions by the defendant employees – that they have been competing with Schlumberger, the company’s efforts to shut down the competing business were thwarted when the court of appeals found the temporary injunction invalid because it failed to state a specific expiration date.

TAKEAWAY FOR COMPANIES:  Having an enforceable non-compete agreement is only half the battle. Knowing how to properly enforce it and how to obtain an injunction that will stick on appeal, is equally as important.

TAKEAWAY FOR EMPLOYEES:  Some companies will use a threat of temporary injunction or a temporary injunction itself to stifle competition, even when such competition is justified or is not contractually prohibited. Knowing how to defend against or fight an improper injunction can make a difference between shutting down the newly fledged business and keeping its doors open.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete dispute, contact Ms. Dolghih for a confidential consultation at or (214) 939-4458.

Where CEO Drinks and Sleeps with Employees, A Company Is Not Required to Allow Him to “Cure” His Behavior Before Termination

MadMencocktailsIn Duncan v. Woodlawn Manufacturing, Ltd.the company fired the CEO after he became intoxicated at a work dinner charged to a company credit card and asked a subordinate employee to kiss him. The CEO sued the company for breaching his employment agreement, which required a company to provide him with a 30-day written notice of a specific action so that he could cure, i.e. fix it, before terminating him.

During the litigation, the following facts came to light about the CEO:

  • He had a drinking problem, which his mother, who also worked for the company, helped him cover up;
  • He had sexual relations with multiple female company employees;
  • He hired a prostitute on a company business trip when he was a CEO;
  • He entertained company clients at a strip club;

At trial, the CEO argued that because the company did not provide him with a 30-day “notice and cure” period specified in the employment agreement, it could not terminate such agreement. In his defense, he also argued that his conduct occurred away from the workplace and was not precluded by his contract or company policy (i.e. no morals clause or fraternization policy), and it did not impair his work performance. In fact, the plant’s sales increased from 17 million to 22 million during his tenure as the CEO.

The Court of Appeals rejected Duncan’s arguments after finding that the evidence showed that giving Duncan a 30-day period to cure his behavior would have been futile, “and the law does not require the performance of a futile act.”  With respect to his alcohol problem, he had been counseled for it prior to his termination without success, and by his own admission, he did not recognize that he had a problem with alcohol until three months after his termination when he finally came to the conclusion that he was an alcoholic.  Thus, the Court of Appeals concluded that “[a] jury might have believed that a letter from the company would not have resulted in an earlier solution of this problem, i.e., would have been futile.

Similarly, with respect to Duncan’s sexual escapades with employees, even if he could have ended them upon the receipt of a written demand from his employer to do so, he could not cure the effect of the rampant rumors around the plant, undo the perception of the favoritism garnered by those who had sexual relations with him, or eliminate the possibility of a sexual harassment claim from the employee whom he had attempted to kiss at a company dinner. Furthermore, the company’s owners believed that his efforts to hide these issues from them “completely” broke their trust in him  and there was nothing he could do to cure his lack of integrity or breach of such trust.

Thus, the Court of Appeals concluded that Duncan’s employer did not breach the employment agreement by failing to give Duncan notice prior to his termination.

TAKEWAY: Many executive employment agreements have a detailed description of what constitutes a termination “for cause” and what notice and cure period an executive must be provided before he can be terminated.  Such provisions are often negotiated by both parties to the agreement, ensuring that should an executive fail to meet his or her performance goals, he or she is allowed a certain time period to improve the performance before being terminated.  Having a clear definition of “good cause,” any “notice and cure” steps the company must follow before termination an employees, and an unambiguous statement of exceptions to such provisions is key to avoiding an expensive wrongful termination lawsuit and bad publicity.

The Duncan v. Woodlawn Manufacturing, Ltd. opinion highlights a simple proposition that a breach of employer’s trust by a high-level executive who owes fiduciary duties to the company, simply cannot be cured.  The determination of whether a particular act by an executive rises to the level of an incurable breach of trust depends on the facts of each particular case. Thus, a company considering termination of an employee “for cause,” or an employee who is facing or has been terminated “for cause,” should consult with an employment attorney to determine the best course of action.

Leiza Dolghih represents both companies and employees in litigation and arbitration proceedings in state and federal courts.  If you are facing an actual or a potential employment dispute, contact Ms. Dolghih for a confidential consultation at or (214) 939-4458.

Could Your Restaurant Be Violating A Federal Wage Law?

office-space-flairIn the words of the Fifth Circuit Court of Appeals, “this case concerns coffee and tipping.”  More specifically, Montano v. Montrose Restaurant Associates, Inc. concerns a question of whether a restaurant violated Fair Labor Standards Act (FLSA) by requiring waiters to share their tips with the restaurant’s “coffeman.”  The district court dismissed the waiters’ claim, but the Fifth Circuit reversed the ruling and send the case back to the district court to determine whether the coffeman was a “regularly tipped employee.”

If you own a restaurant, or you work in one, you are probably familiar with the practice of pooling tips, i.e. gathering all tips from the shift and splitting them between waiters, busboys, bartenders, etc. Under the FLSA, only those employees who “customarily and regularly receive tips” may be included in the pool in order for an employer to receive a “tip credit” for such employees.   The Department of Labor (“DOL”) has issued several rules and guidance over the years as to which occupations customarily and regularly receive tips and which do not. For example, waiters/waitresses, bellhops, counter personnel who serve customers, busboys/girls (server helpers), and service bartenders are considered tipped occupations, while janitors, dishwashers, chefs or cooks, and laundry room attendants are not.

The DOL also clarified in some of its opinion letters that one’s status as an employee who “customarily and regularly receives tips” is “determined on the basis of his or her activities,” not on the employee’s job title. Thus, while regular chefs are not tipped employees, sushi chefs who work at a counter in the dining room and directly serve customers may participate in tip pools.  Some courts have found that hostesses were tipped employees because they had “more than de minimis interaction with the customers” in an industry in which “undesignated tips are common.” However, salad preparers were not tipped employees because they “abstained from any direct intercourse with diners, worked entirely outside the view of restaurant patrons, and solely performed duties traditionally classified as food preparation or kitchen support work.”

The Fifth Circuit ruled that “in determining whether an employee customarily and regularly receives tips, a court—or a factfinder—must consider the extent of an employee’s customer interaction.”  It explained that the central difference between employees who are traditionally tipped and those who are not is that the former work primarily in the front of the house where they are seen by and interact with customers, while the latter work primarily or exclusively in the back of the house. Applying this logic, it found that the district court erred in failing to consider the extent of the coffeeman’s customer interaction in determining whether he customarily and regularly received tips.

In conclusion, the Court explained that “determining whether an employee is one who “customarily and regularly receives tips” is a fact-intensive inquiry that requires a “case-by-case analysis of the employee’s duties and activities.”

TAKEAWAY:  In recent years, restaurant industry has faced many wage-and-hour lawsuits involving claims for unpaid overtime and failure to pay minimum wage. Restaurants which use tip pools face additional claims related to such pooling arrangements.  The Montano case illustrates that who is a “tipped employee” and who is not for the purpose of a pooling arrangement is a factually intense question, which means that employers should carefully consider whether certain types of their employees belong in a tipping pool and should consult with an attorney before instituting such a system in their establishment.

Leiza Dolghih represents both companies and employees in litigation and arbitration proceedings in state and federal courts.  If you are facing an actual or a potential employment dispute, contact Ms. Dolghih for a confidential consultation at or (214) 939-4458.

Two Common (and Costly) Mistakes in Trade Secrets Litigation

kkTrade secrets litigation can be expensive, and if you can avoid it by implementing the measures that I’ve previously described here, then you are off to a good start.  But if your trade secrets have been misappropriated and you have no choice but to go to court, here are two important issues that are often not given enough attention until much later into a lawsuit, when it’s, often, too late.

How will your company’s trade secrets be protected during the lawsuit?

Typically, when sensitive information is going to be exchanged by the parties to a lawsuit during litigation, both parties will ask the court to enter, what is called, an “agreed protective order,” which describes how the parties will handle the confidential information that they receive from each other. It also imposes restrictions on how a party in a lawsuit may use the information or with whom it can share it.  Such an order is, basically, a contract between the parties, blessed by the court.

In my experience, however, a standard protective order used in many business litigation cases does not address many of the issues that arise in a litigation battle between two direct competitors, where the risk of confidential information being misused by the other side is magnified in comparison to a typical business case. Some standard protective order provisions are not restrictive enough, while others are so restrictive that the parties may run into roadblocks during discovery, increasing the costs of the lawsuit and frustrating the discovery of relevant documents.

Therefore, when deciding how to proceed with a trade secrets lawsuit, a company and its litigation counsel should discuss the specific aspects of a protective order and consider whether additional above-the-board protections should be put in place once the lawsuit is filed.  Since an agreed protective order is viewed by courts as a contract between the parties, the courts are often reluctant to change their terms unless both parties agree, which can make it difficult to add protections down the road if the other side objects to them.  Thus, it pays to analyze what trade secrets are likely to be disclosed during the litigation and what a provisions a protective order should include to ensure the preservation of their confidential nature during the discovery stage and trial. 

How will you calculate and prove the damages your company suffered from the misappropriation?

Many companies spend a lot of money and time proving that their trade secrets were taken and used by a competitor, only to receive a big fat “zero” in damages from the jury or to have a judge throw out their expert’s opinion regarding the damages the company suffered as being too “speculative” or “unreliable.”  

Sometimes, all that a company wants is for the person or entity that took the trade secrets to return them and/or a court order restraining that person or company from using the information they took. However, if the cat is out of the bag, so to speak, and the information has already been used by the time the company finds out that something was stolen, then the company might want to seek monetary compensation. In that case, analyzing what type of damages a company might be able to recover and how such damages may be proven must be done before the lawsuit is filed or shortly thereafter. Knowing whether a company might have a problem showing the amount of damages or linking such damages to the misappropriation can help the company set a realistic litigation budget and devise a settlement strategy.

Bottom line is that the two issues identified above should be addressed and analyzed early on, rather than in the middle of a costly litigation battle, when substantial funds and resources have been invested by the plaintiff and a non-suit might no longer be an option. 

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. Contact Ms. Dolghih for a confidential consultation at or (214) 939-4458.

Is Your Non-Compete Enforceable in Texas?

stevecarelMany a business owner has been tempted to save a few hundred dollars by using a non-compete agreement found somewhere on the web or bought from Legalzoom or the like.  The problem with such an approach is, of course, that every state has different rules about what makes a non-compete agreement enforceable. What might be enforceable in one state, might be a worthless piece of paper in another. This is why obtaining a form non-compete agreement, without verifying its enforceability in Texas, is dangerous. It is also dangerous not to update employees’ non-compete agreements, as the law on this issue is always evolving.

I do not know if either of those factors were present in Hunn v. Dan Wilson Homes, but the non-compete in that case was clearly missing the language necessary to make it enforceable in Texas.  It could have been because the owner copied an agreement from another state, or did not update the agreement, or because the necessary language was omitted from the agreement by mistake.  In the end, it did not matter, as the court refused to enforce the non-compete against an employee who, after leaving his employer, continued to work directly for his employer’s client.

In Texas, for a non-compete to be enforceable it must “be ancillary to or part of an otherwise enforceable agreement at the time the agreement is made.”  The Fifth Circuit in Hunn v. Dan Wilson Homes recently re-affirmed that in Texas, a non-compete agreement must be accompanied by either a promise from employer to provide an employee with confidential information or an employee’s promise to keep confidential information provided by the employer confidential.  Without such promises, a non-compete agreement that is based simply on an employer’s promise of continued employment in an at-will contract is unenforceable.  In other states, simply promising to provide an employee with employment is enough to make a non-compete agreement valid.  However, Texas courts require more.

Takeway for Employers: Determination of the sufficiency of consideration for a non-compete executed by an at-will employee often turns on which state’s law applies.  If the relevant facts and circumstances permit, an employer should include a choice-of-law provision designating the law of a state where at-will employment is adequate consideration. However, where an agreement is governed by Texas law, a simple promise to continue to employ an at-will employee is not enough to support a binding non-compete.

Takeway for EmployeesNot every non-compete agreement is enforceable in Texas.  If your employment agreement contains a non-compete clause, you should consult with an attorney before signing your agreement to determine what consequences you will be facing if your employer decides to enforce it against you in the future. Likewise, if you have already signed one but are trying to figure out what your options are once you leave your employment, consult with an employment attorney to determine whether it enforceable and what course of action to take.

You can read the entire case here.

Leiza litigates non-compete and trade secrets lawsuits on behalf of EMPLOYERS and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need advice regarding your non-compete agreement, contact Ms. Dolghih for a confidential consultation at or (214) 939-4458.

It’s All Fun And Games Until An “Old Fart” Files An Age Discrimination Lawsuit: A Lesson for Employers from the Fifth Circuit

oejidOkay, so George Clooney was not involved in this case, but he has one thing in common with the employee who filed the age discrimination claim in Goudeau v. National Oilwell Varco, L.P. – they are almost the same age.

When Maurice Goudeau was terminated by National Oilwell Varco (NOV) in 2011, he was 57 years old and had been working for the company and its predecessors for 18 years. Approximately 12 months before his termination, he began working with a new supervisor, who told him that “there sure [were] a lot of old farts around here,” asked Goudeau about the age of two older employees also assigned to this supervisor, and told Goudeau that he planned to fire both of them. Later, he also told Goudeau that he wore “old man clothes,” called him an “old fart,” and said that a smoking area was “where the old people met.”

Over the course of the next twelve months, Goudeau – who in the prior 17 years had an exemplary work record – received four write-ups and a poor annual performance review, and was terminated for insubordination and poor job performance.  The evidence showed that although he had complained about his supervisor’s “old fart” comment to the human resources department, they did nothing to investigate his complaint. Two months after his termination, the two older employees previously mentioned by his supervisor were also terminated for various reasons.

Goudeau brought an age discrimination lawsuit against NOV, arguing that he was written up for not doing tasks that were not in his job description, that he never saw the write ups prior to his termination or given an opportunity to take any corrective steps (as required per NOV’s own policy), and that NOV used the write-ups as a pretext for firing him, but that he was really fired because of his age.

The trial court dismissed his age discrimination and retaliation claims, but the Fifth Circuit reversed, holding that the “old fart” comments, combined with NOV’s failure to follow its own write-up and discipline procedures with respect to Goudeau, and the termination of two older employees, presented enough evidence to allow the case to go in front of the jury (as opposed to dismissing it outright like NOV argued). The Fifth Circuit, therefore, send the case back to the trial court so that the jury could decide whether NOV fired Goudeau based on his age, and whether the write-ups and a poor performance review were just a pretext for his termination.

TAKEAWAY: Normally, “stray comments” about age, race/color, sex, religion, national origin, physical disability or age, are not sufficient to give rise to an employment discrimination claim.  However, where such comments are later followed by an adverse employment action, such as termination or demotion, a risk of a discrimination lawsuit is very high.

Of course, while an employer can provide employment discrimination training to its employees, it cannot guarantee that all employees will follow it.  However, employers can do two things, which NOV did not do, to minimize litigation.  First, employers should never ignore discrimination complaints, however, small or petty they might seem at the time they are made.  Had the HR conducted the investigation and reprimanded or warned the supervisor about the inappropriate age comments, NOV might have avoided going to court. Second, if a company has a progressive discipline policy (by the way, not required under Texas law), it should apply such policy in a consistent and uniform manner.  When it comes to discrimination claims, not having a progressive discipline policy is almost better than having one that is applied arbitrarily.

You can read the entire court opinion in Goudeau v. National Oilwell Varco, L.P. here.

Leiza Dolghih represents both employers and employees in litigation and arbitration proceedings in state and federal courts.  If you are facing an actual or a potential employment dispute, contact Ms. Dolghih for a confidential consultation at or (214) 939-4458.

A Placed Employee Embezzles $15 Million. Is the Staffing Agency Responsible?

businesswoman holding a wad of cashThe answer, of course, is “maybe.” In this case, a staffing agency placed a receptionist with a company, who, after being promoted to the head of accounting, proceeded to embezzle $15 million in the course of eight years. When the company discovered the theft, it sued the staffing agency arguing that it should have conducted a criminal background check on the woman (she had a prior theft record) before placing her with the company and that the staffing agency failed to notify the company of the woman’s criminal record when it discovered it at some point after she had been placed.

The trial court held the staffing agency did nothing wrong and dismissed all of the company’s claims finding that:

  • the staffing agency’s contract with the company did not require it to conduct criminal background checks;
  • the agency did not owe the company a fiduciary duty in placing employees because their contract specifically stated that the staffing agency was an “independent contractor;”
  • the agency was not negligent in supervising the employee because the staffing contract excluded the accounting department from the list of departments to be supervised by the agency;
  • the agency was not negligent in hiring or retaining the employee without a background check because it was not foreseeable that the employee would engage in embezzlement as a receptionist – the position in which she was originally placed.

The Court of Appeals agreed with the trial court on all except one claim.  It found that the staffing agency could be liable for negligent retention  i.e. for continuing to employ the employee after it found out about her criminal record and after it found out that the company had placed the employee in its accounting department, and failing to notify the company about the employee’s criminal background. Thus, a jury will have to decide whether it was foreseeable that an employee with a theft record would embezzle money when placed in an accounting department.

TAKEAWAY FOR COMPANIES: If your company uses a staffing agency, make sure your contract accurately and fully describes every responsibility and duty that you want the staffing agency to undertake. e.g., criminal background checks.  If a placed employee does something that creates potential liability, the language of the staffing agreement will be key in determining who is held responsible for that employee’s actions.

TAKEAWAY FOR STAFFING AGENCIES: Sharing suspicions, concerns, or red flags about placed employees with the company with which they are placed can help avoid a later argument by the company that it had no knowledge of these concerns and blaming the agency. Also, when contracting with a company, consider limiting the staffing agency’s indemnification obligations only to those situation where the agency itself is negligent. If a company transfers or assigns a borrowed employee to a task or department that is not covered by the staffing agreement, consider getting a written release from the company confirming that the agency is not responsible for monitoring such employee after the transfer.

To read the entire Court of Appeals’ opinion, see Davis-Lynch, Inc. v. Asgard Technologies, Inc. (Tex. App.–Houston [14th Dist.] June 30, 2015.

Leiza Dolghih litigates employment and business disputes. She advises employers and employees on how to minimize the risk of litigation before it occurs and pursues and defends their rights in courts and arbitration once litigation arises. For more information, contact Ms. Dolghih for a confidential consultation at or (214) 939-4458.

Is Sales Commission Part of an Employment Agreement? Make it Clear and Put it in Writing. This Goes for Employers and Employees.

moneyA recent case from the Houston Court of Appeals demonstrates how failing to document the exact terms of a sales commission arrangement can result in a loss of such commission for an employee and a costly legal dispute for an employer.

In Colter v. Amkin Technologies, the company hired Colter as a sales director to sell portable drilling rigs. His offer letter stated that he would get $4,000 a month salary and a commission, the structure of which would be determined at a later time.  The parties never drafted or executed a written agreement detailing the terms of the commission structure.

After Amkin terminated Colter’s employment citing his lack of productivity, Colter sued the company for breach of contract claiming that after he was hired, Amkin’s president orally agreed to pay Colter 3% commission on each sale he made.   Not surprisingly, the president denied making such a promise and testified that based on the commission arrangements made with other sales directors, he would have never offered Colter a guaranteed 3% commission.  Furthermore, the history of commission payments to Colter showed that he got 3% on some sales, but less than 3% or nothing on others.

At trial, the jury was presented with employer’s president’s testimony, employee’s testimony, and documents showing that the employee did not consistently receive 3% commission on each sale he made at Amkin. Based on this evidence, and lack of a written agreement, the jury found that Amkin never agreed to pay Colter 3% commission on each sale.

Colter appealed, claiming that the jury got it wrong and that their finding was not supported by the evidence, but the Court of Appeals affirmed the original judgment stating that the jury was fully within its rights to find Amkin’s president’s testimony more credible than Colter’s testimony that the parties had an oral agreement regarding the commission structure.

TAKEAWAY FOR EMPLOYEES: When entering into an employment agreement, make sure that all parts of your compensation are clearly spelled out in the agreement. Otherwise, you might end up in a situation where it’s your word against the word of your employer, and a jury of your peers will be deciding on who they believe more.  Furthermore, if you believe that you have an agreement, insist on employer complying with its terms.  Failure to insist that the employer pays you what you believe you are owed, can result in a waiver of your rights and significantly hurt your case down the road if you decide to take it to court.

TAKEAWAY FOR EMPLOYERS: Employers also have a direct interest in writing down the precise terms of the compensation. If Amkin here had a written agreement that stated that Colter’s commission was discretionary, Amkin could have probably avoided the lawsuit.  While it might be tempting to rely on an oral agreement when a working relationship is new and going well, remember that when things go sour between an employer and an employee, their memory of what the terms of the oral agreement are, may diverge significantly.

Leiza Dolghih litigates employment and business disputes. She advises employers and employees on how to minimize the risk of litigation before it occurs and pursues and defends their rights in courts and arbitration.  For more information, contact Ms. Dolghih for a confidential consultation at or (214) 939-4458.


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