The Fifth Circuit Refuses to Extend Title VII to Sexual Orientation or Transgender Status

downloadOver the past two years, the Second, Sixth, and Seventh Circuits have construed Title VII of the Civil Rights Act of 1964 to prohibit employers from discriminating on the basis of either sexual orientation or transgender status.

Last year, the U.S. District Court for the Southern District of Texas, when confronted with the issue, referenced the other circuits and ruled that it assumed that an employee’s “status as a transgender woman place[d] here under the protections of Title VII.”  See Wittmer v. Phillips 66 Co., 304 F. Supp. 3d 627, 634 (S.D. Tex. 2018). This past week, the Fifth Circuit Court of Appeals affirmed the district’s grant of summary judgment against the transgender employee, but clarified that in the Fifth Circuit (which covers Texas, Louisiana and Mississippi), Title VII affords no protections against discrimination by employers on the basis of transgender status or sexual orientation.

Specifically, the Fifth Circuit invoked its own opinion from 1979 stating that it remains the binding  precedent in this circuit.  See Blum v. Gulf Oil Corp., 97 F.2d 936 (5th Cir. 1979) (holding that Title VII does not prohibit discrimination on the basis of sexual orientation).  Furthermore, despite the amicus briefs from the EEOC and the National Center for Lesbian Rights asking the Fifth Circuit to hold that Title VII prohibits discrimination on the basis of transgender status, the court of appeals did not grant their request.

The Fifth Circuit affirmed the grant of summary judgment for Phillips 66 because the employee failed to present sufficient evidence to support a prima facie case of discrimination, and because the employee failed to present a genuine issue of material fact concerning pretext.  The evidence in this cased showed that Wittmer conditional job offer was revoked because the background check showed that she had been terminated by her previous employer, which contradicted her representations to Phillips 66 during her job interview.

BOTTOM LINE: The question of whether Title VII of the 1964 Civil Rights Act covers LGBTQ employees continues to percolate in the courts, and at least three petitions involving this issue are pending in the U.S. Supreme Court.  While the law in this area continues to develop, it may be wise for companies confronted with this issue to take a cue from Phillips 66, which sidestepped the issue of transgender protections under Title VII and instead focused on the lack of evidence that the employee experienced any discrimination in its job application process and that the company had a legitimate non-discriminatory reason to revoke the job offer.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

What Employers Need to Know About Non-Compete Agreements in Texas (Part II)

imagesIn Part I, I described requirements for non-compete agreements in Texas. In Part II, I describe the common mistakes that employers make when it comes to non-compete agreements: 

1. Not signing non-compete agreements with key employees.  It seems like a no-brainer, but there are still a lot of companies out there that do not require their employees to sign any non-compete agreements. This is a mistake.  A reasonable non-compete agreement can benefit both the company and the employees. A company is more likely to invest into training of its employees if it knows that they will not leave to work for a competitor as soon as the training is completed, and fair geographic restriction will not prevent employees from finding future employment.

2. Having restrictions that are too overbroad. Overreaching in non-compete agreements can backfire in that employees end up feeling like they have no choice but to violate them in order to make a living and courts are less likely to enforce such overbroad non-compete agreements. 

3. Not having a legitimate business interest to protect. A Texas employer must share its confidential information or goodwill with an employee in order to create an enforceable non-compete agreement.  There is no legitimate business interest in tying up employees with non-compete agreements if they perform tasks that do not involve specialized training, confidential information or goodwill of their employer. 

4. Making all employees execute the same non-compete agreement. Requiring the same 2-year / 200-mile non-compete agreement for sales people, secretaries, and C-level executives raises a red flag that the company is simply trying to prevent competition and is not protecting a legitimate business interest.  Employees that perform different tasks or serve a different purpose should have different non-compete restraints depending on what they do in the company.

5. Not providing a proper consideration. Different states require different types of consideration for non-compete agreements. In some states, just a promise of future employment is sufficient. In other states, an employer must pay money to an employee in exchange for the promise not to compete.  Texas companies should make sure that their non-compete agreements are supported by the right type of consideration in the state where they plan to enforce the non-compete agreements.

6. Not providing new consideration.  When asking an already-existing employee to sign a non-compete agreement, employers must provide new consideration for the agreement.  For more information, see my previous post here.

7. Not enforcing non-compete agreements. Once proper non-compete agreements are in place, companies should make it a policy to enforce them.  Otherwise, the agreements lose their effectiveness with employees, who quickly learn from co-workers that the company never enforces its contracts. 

8. Not enforcing non-compete agreements fast enough.  This is one of the gravest mistakes for companies in terms of consequences. The longer a company waits to seek a temporary restraining order against an employee who is violating his or her non-compete agreement, the more likely the court is to deny the restraining order because the company cannot show an “imminent” and “irreparable” injury.   In other words, if the company has not tried to stop the bleeding, how bad could the bleeding really be and does the court really need to enter an emergency order?

9. Not providing confidential information. As mentioned above, a proper consideration for a non-compete agreement in Texas includes a company’s promise to provide confidential information to the employees signing the agreement.  Companies, however, must deliver on that promise and actually provide such confidential information in order to make their non-compete agreements enforceable.

10. Not saving an electronic version of the signed non-compete agreements.  Companies must make sure that they save an electronic signed version of their non-compete agreements in a location where employees cannot access and delete them.  

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

What is a “Reasonable” Non-Competition Agreement?

Most states will enforce reasonable non-competition agreements, but what is “reasonable” and how the courts reach that conclusion varies.  In Texas, there are some rules of thumb as to what is generally considered reasonable.  A recent opinion from a federal court in Austin illustrates these rules as well as what happens when an employer attempts to enforce an overbroad, i.e., “unreasonable” non-competition agreement. 

In this case, a company that provides management services to amenity facilities, spas, and health clubs, sued its former employees for breaching their non-compete agreements after they went to work for a competitor.  Among many claims that the company brought in the lawsuit, it specifically asked the Court to enforce the non-compete agreements and enjoin (i.e. prevent) the former employees from competing with it for 12 months. 

The employees’ non-compete agreements prohibited them from being “employed in a business substantially similar to or competitive with” the company for a year after leaving its employment.  The agreements were not limited in their geographic scope or in the scope of activities to which they applied.  The court stated that the company prohibited its former employees from working for its competitors anywhere in the country, even if a competitor was based outside the geographic area where the employees worked.  It also barred the employees from working for a competitor “in any capacity” and, therefore, was not related to the employees’ duties while they worked for the company. 

The court explained that in Texas, “the hallmark of enforcement [of non-compete agreement] is whether or not the covenant is reasonable.”  Generally, a reasonable area for purposes of a covenant not to compete is considered to be the territory in which the employee worked. Furthermore, noncompete agreements barring an employee from working for a competitor in any capacity are invalid.  To be valid, the restrictions on the scope of the employee’s activities at a new company have to bear some relation to the activities of the employee at the old company.  In the case above, the court specifically noted that the company failed to “articulate how [its] broad non-compete agreements [were] necessary to protect its business interests,” which is another requirement for an enforceable non-compete agreement in Texas. 

The company in this case will get another chance to address the above issues and produce some evidence supporting the reasonableness of its restraints at the temporary injunction hearing in a few weeks. However, the court’s denial of the company’s request for a temporary restraining order means that the employees in question remain free to continue to work for the company’s competitor until the hearing. 

BOTTOM LINE:  When it comes to non-compete agreements, “reasonableness” is the name of the game, and while employers often want to err on the side of safety and put in longer and larger restrictions thatn what might be necessary, doing so can backfire when an employer has to enforce its agreement in court. Setting non-compete restrictions should not be done off-the-cuff, but should be a strategic and well-thought-out decision supported by legitimate business reasons. 

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below. 

 

 

What Employers Need to Know About Non-Compete Agreements in Texas (Part I)

imagesIn Texas, non-compete agreements are generally enforceable if they meet certain requirements. Specifically, they must be: (1) part of an otherwise enforceable agreement, (2) reasonable, and (3) not greater than is necessary to protect a legitimate business interest. 

Part of an Otherwise Enforceable Agreement

This simply means that a stand-alone non-competition agreement is not enforceable in Texas.  Instead, a promise not to compete with an employer must be part of another valid agreement. Most of the time, non-compete clauses are included in employment agreements, but they can also be used in confidentiality or restricted stock units (RSU) award agreements. 

Reasonable

Non-competition agreements in Texas must be reasonable as to the geographic area, duration, and scope of activity restricted. In court, employers have the burden of explaining why certain restrictions are reasonable, so they should be prepared to explain why the restrictions included in their non-compete agreements are reasonable for their industry, their business, and with respect to a particular employee against whom they seek to enforce the agreement. Not surprisingly, the reasonableness of the restrictions is one of the most hotly litigated issues in non-compete lawsuits and its resolution often depends on the industry, the type of the business involved, the duties of the employee, and several other factors.

Typically, geographic restrictions should be limited to the geographic area where the employee worked.  However, a larger restriction may be permissible in certain situations where the employee’s duties justify it.

As a general rule, two- to five-year duration is considered a reasonable non-compete term in an employment relationship (the rules are different for non-compete agreements related to a sale of business).

Finally, the scope of restricted activity must be reasonable in that an employee who goes to a competitor to work in a different capacity from what he or she did at the former company, should be able to do so.  Thus, the restraints should be related to the employee’s duties at his or her current place of employment.

Related to Legitimate Business Interest

Since Texas law places the burden on employers to show that their employment non-compete agreements are enforceable, employers must be able to explain why and how the restraints are related to their business interest. If the only explanation for a non-competition clause is that the employer wants to prevent competition from a former employee for a certain time period, such a “naked restraint” without business justification will not hold up in court.

Non-Ambiguous 

Non-compete agreements should be clear as to what they prohibit, when they end, and what territory they cover. If the language of the agreement can be subject to several interpretations, does not make sense, or is not clear as to the precise restraint parameters, an employer may have a hard time enforcing it in court.  Indeed, some courts refuse to order employees not to violate their noncompete agreements where the terms are not clear (an injunction order).  This is why a hastily written non-competition agreement, or one that is not well thought-through, may not be effective when the time comes to enforce it. 

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

 

What Employment Laws is Texas Legislature Going to Consider in 2019?

legislative-sessionExactly a week ago, the Texas Legislature began its bi-annual session during which it will consider and vote on hundreds of bills. Among those are 24 employment-related bills which, if passed, could affect wide swaths of employers in Texas.   

While most of the bills will not make it past the committee stage, they are worth looking into for a number of reasons. First, they signal which of the myriad of issues that have been at the forefront of legislative efforts in other states in 2018 our legislators consider important enough to address in Texas.  Second, the ultimate success or failure to these bills is going to indicate exactly how much difference the 12 additional House seats made for Democrats.  Finally, some of the bills, while failing at the state-wide stage, may end up being adopted in some form or fashion by cities or counties within our state.  So, let’s take a look:

What is NOT on the Menu? 

Notably absent from the current list of bills (which may be supplemented during the session) are any proposals related to non-compete agreements, trade secrets misappropriation or the notorious Texas Anti-Slapp statute.  While various groups are considering introducing some bills amending the Texas Anti-Slapp statute to curb its application, there is no indication that the Texas Covenants not to Compete Act or the Texas Uniform Trade Secrets Act are even on the legislative radar during this session. 

What is on the Menu? 
Bills Affecting Food and Retail Businesses 

HB640 – Requires certain employers in food and retail business to provide advance notice of employee work schedules. 

HB133 – Prohibits employer from receiving tips paid to “tipped employees” and declares such gratuities “property of employee”

Bills Related to #MeToo Movement and Sexual Harassment

SB159/HB618 – Prohibits adverse employment action by employers against employees who refuse to sign arbitration agreements that require employees to arbitrate sexual assault or sexual harassment clams or sign non-disclosure agreement prohibiting discussion of facts related to their sexual assault or sexual harassment claim. 

HB572 – Allows unemployment compensation to employees who left work due to sexual harassment as long as certain conditions are met. 

HB619 – Removes damages caps for employers in cases involving sexual harassment and sexual assaults. 

SB46 – Prohibits sexual harassment by employers with one or more employees.

HB287/SB112 – Defines when discrimination in payment of compensation occurs.  

Bills Expanding Employees’ Rights to Recover Unpaid Wages

HB106 – Prohibits employer retaliation against employees who seek recovery of unpaid wages and procedures in wage claim hearings conducted by the Texas Workforce Commission.

HB399 – Extending the deadline for employees to file a claim for unpaid wages with the Texas Workforce Commission from 180 days to 365 days. 

SB162/HB48 – Creates a public database that lists all employers penalized for failure to pay wages or convicted of certain offenses involving wage theft. 

Bills Related to Equal Pay

SB160 – Prohibits sex discrimination in employment compensation.

Bills Related to LGBT Employment Rights

SB151/HB254/HB244 –  Prohibits, among others, employment discrimination based on sexual orientation or gender identity or expression. 

Bills Setting Minimum Wage 

HB194 – Setting a minimum wage as a greater of: $15.00 or the federal minimum wage. 

SB113 – Setting a minimum wage as a greater of: $10.10 or the federal minimum wage.

SJR22 – Proposing a constitutional amendment increasing minimum wage to a greater of: $10.10 or the federal minimum wage.

Bills Providing Additional Protections for Job Applicants and Employees 

HB393 – Prohibits employers from inquiring about wage history during employment application process or considering such information in making a hiring decision unless an employee voluntarily discloses such information.  

HB495 – Prohibits employers from inquiring about  or considering job applicants’ criminal history prior to making a conditional employment offer. 

HB144 – Prohibits an adverse employment action against an employee or applicant that is based wholly or partly on the employee’s or applicant’s credit report unless certain conditions are met. 

HB504 – Prohibits employers from terminating employees for serving on grand jury. 

And there you have it.  At the end of the legislative session – which will end in May unless a special session is called – I will take a look at which of these bills, if any, became the law in Texas.  

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

 

Brace Yourself, Resignations Are Coming. Is Your Company Ready?

resignationAnyone who has been running a business for a while knows that January is a high turnover month for employees. And while companies cannot prevent employee turnover, they can take four steps this month to prevent employees from walking out the door with confidential documents and company trade secrets. 

1. Make Sure Key Employees Have Valid Non-Competition, Non-Solicitation and Confidentiality Agreements in Their Files. 

Conduct an audit of your employees files to make sure that: (1) all key executives, employees with access to confidential databases or documents, and sales people have signed non-competition, non-solicitation and confidentiality agreements in their files; (2) such agreements meet the requirements of the Texas Covenants not to Compete Act; (3) the agreements are signed by a company representative; and (4) the company has an electronic version of the agreements so that if the hard copy gets lots, there is a back up.

2. Conduct Confidentiality Training. 

Set aside an hour or two to talk to employees about the importance of maintaining confidentiality of certain company information, go over the confidentiality policy, and answer any questions employees may have.  This way, if they leave, the policy will be fresh in thier minds and they will be more cautious in what they can and cannot share with their new employers. 

3. Verify That Company’s Document Management Systems and Databases Have Security Features Turned On. 

Task your IT person or department to look into what ERP, CRM, and document management systems the company is using and make sure all the security setting are turned on.  Such settings often include the following: (1) alerts when a large amount of data is downloaded; (2) restrictions on what can be printed or downloaded; (3) access restrictions for different employees within the system based on the need-to-know basis; (4)  back up features that allow the company to restore any emails or documents deleted by employees; (5) alerts when information is shared by employees outside the authorized company systems, and many others. 

4. Remind Employees During the Exit Process of Their Continuing Obligations to the Company.

Finally, when you do get a resignation notice, as soon as possible, meet with the employee to remind him or her about any non-competition, non-solicitation and non-disclosure requirements in their employment agreement and make sure the employee returns all of the company equipment and documents prior to leaving the company.  If you find out or suspect that the resigning employee might be going to a competitor, preserve their email accounts and devices issued by the company while you analyze whether their move may violate their restrictive covenants. 

Texas Bar Association Top Ten Legal Blogs in TexasAt Lewis Brisbois, we help companies design proper confidentiality procedures and policies, draft enforceable non-competition, non-solicitation and non-disclosure agreements, conduct confidentiality training with employees, and if trade secrets theft is suspected, help investigate it and prosecute it in courts around the country. 

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

 

The Rise in Trade Secrets and Restrictive Covenants Litigation – Live Presentation

screenshot_20190107-093330_instagram-01I will be presenting with Stanley Santire of Santire Law Firm on the The Rise in Trade Secrets and Restrictive Covenants Litigation on January 17th at 2:30 p.m. at the Texas Bar Advanced Employment Law Course in Dallas, Texas.  You can get a copy of our paper by registering to attend the event (registration link here).

This is a fantastic course for employment lawyers in Texas, which offers 15 hours of CLE credit over two days.

Additional presentations will include:

  • State Law Update
  • Anti-Slapp Update
  • Conducting Effective Investigations
  • What Is it Worth? How We Value Employment Cases 
  • Proving Up Attorney’s Fees
  • Structuring Settlement Agreements
  • Practical Applications and Q&A
  • Best Practices in Summary Judgment
  • Defining Harassment: Has it Really Changed in the #metoo Era
  • Effective Training: You Need More Than a Video
  • The Evolving Landscape of LGBTQ Protections
  • FMLA and FLSA Updates 
  • Social Media Evidence and Ethics 

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

A Broken Promise of Whoppers “For Life”: Why the Oregon Man’s Lawsuit Against Burger King Is Going Nowhere

A man wants free whoppers for life after getting locked in a Burger King bathroom and he has filed a lawsuit to get them. He claims that a local manager promised to provide him free hamburgers to compensate for a traumatic experience of being stuck in a bathroom for “well over an hour,” but the regional manager reneged the offer after the man began frequenting the location on the daily basis.

Mr. Brooner wants the court to force Burger King to keep providing him with one free whopper a week for the next 22 years (his projected life expectancy until he is 72) or, alternatively, award him close to $10,000 in damages, which is the price equivalent of the 22-years’ worth of weekly whoppers.

Normally, I would read something like this chuckle and move on, but this particular scenario raised many of the same questions that I get from my clients in some of the most complicated contractual disputes, so I thought I’d address some of them here:

Since the promise to provide burgers “for life” is not in writing, is it even enforceable?*

Probably yes. Certain contracts are enforceable even if they are not in writing. Typically, contracts that can be performed within one year are enforceable even if they are not in writing. Since Mr. Brooner’s life could end at any time, including within 12 months from the promise made by the manager, the contract to provide burgers “for life” could terminate within 12 months.  Thus, an oral contract to provide burgers “for life” is probably enforceable.

Can Burger King be responsible for a promise made by an employee without authority to make such a promise?

Probably not.  An employee of a company can bind the company only if a “reasonable” third party would understand that the employee had the authority to act the way s/he did on behalf of the company.  It is unlikely that a “reasonable” person would believe that a manager of a fast food restaurant had the authority to offer free burgers “for life” to a customer on behalf of the company. While in this case it appears to be a clear-cut issue that is likely to cost Mr. Brooner his claim, an agent’s authority to enter into contracts on behalf of his or her employer is often a hotly-litigated issue in contractual disputes.

What if the manager did not mean to offer burgers “for life” but said something like “any time you come in, the burgers are on us”? 

This is a tough one. For a valid contract to exist, there must be “a  meeting  of the minds,” i.e., both people should be on the same page as to what the terms of the agreement are.  As you can imagine, countless lawsuits arise out of the parties disagreeing over what the contract is  supposed  to  accomplish.  In such situations, a court will  typically  look  at  the words  of  the  contract, first, to determine the meaning.  If  those  are  ambiguous,  then the court will  take  in  evidence  from  both  parties  to  determine  their  intent in entering into the agreement.  Here, if the court determines that the manager’s promise was ambiguous, the  testimony  of  the  manager  about  what  he intended to offer to Brooner will be key.

Since Brooner did not promise anything in return for getting free whoppers, there was no valid contract, right?

Not really. There is an argument here that Brooner gave up his right to sue the restaurant or leave  negative  comments about  it  on  social  media  in  exchange  for getting free whoppers, as giving up a right to do so something in exchange for money or  other  consideration  can  create  a  contract.  Indeed,  employees  constantly  give  up  their  right  to  sue  the  employer  in  exchange  for  a  severance payment.

Can Brooner really get  the  damages  he  wants  on  the  assumption  that  he  will live 22 more years?

Probably not.  Generally speaking, a person seeking contract damages, must prove them with “reasonable certainty.”  In a complicated contractual dispute, expert witnesses would testify about what is reasonably certain.  In this case, Mr. Brooner’s health condition, average life expectancy, his lifestyle, how long this particular location of Burger King is expected to remain open, and many other factors can play a role in whether he can establish that he is reasonably certain to take advantage of free burgers for the next 22 years.

And there you have it.  Next time you get locked in a bathroom of a restaurant, get an executive level person on the phone to authorize a life-time supply of meals, or better, call me to negotiate and paper the deal for you.

*This is a discussion of general legal principles and not a legal advice, as each state has  somewhat different contract laws and exceptions and each contractual dispute involves its own set of facts that may affect claims and defenses available to the parties involved in such a dispute. 

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

Top 5 Non-Compete Cases in Texas in 2018

Top5Unlike many other states around the country, Texas did not see any drastic changes in its non-competition laws in 2018.  However, out of a 100 + cases involving non-competition disputes, the following handful stand out: 

  1. Thoroughbred Ventures, LLC v. Disman, Civil Action No. 4:18-CV-00318, 2018 U.S. Dist. LEXIS 133697, at *10 (E.D. Tex. 2018).*

HeldA non-disclosure agreement that prohibits employees from using, in competition with the former employer, the general knowledge, skill, and experience acquired in former employment is similar to a non-compete clause and must meet the requirements of the Texas Covenants not to Compete Act. 

Why it made the top five list: This is the first case in Texas to hold that certain non-disclosure clauses may have to meet the same requirements as non-competition agreements.  

Quote: “An agreement prohibiting a former employee in this field from disclosing his acquaintances would therefore be a non-competition agreement in disguise, and would be unenforceable as such. Some of the other categories of confidential information-for example, financial information-might present different problems, but the present motion does not accuse the Former Employees of disclosing anything other than information related to Clients and Contractors.’”

2. Fomine v. Barrett, No. 01-17-00401-CV, 2018 Tex. App. LEXIS 10024, at *8 (App.—Houston [1st Dist.] Dec. 6, 2018)

Held:  A non-competition clause that covers a geographic area where an employer plans to extend its business in the future, without any concrete plans to do so (i.e. just the owner saying s/he is going to expand), is geographically overbroad.

Why it made the top five list: Employers will often include in their non-competition agreements areas of future business expansion.  This case demonstrates that unless the plans for future expansion are definite,  the employers should stick with the area where the business currently operates or where its employees currently work. 

3. Ortega v. Abel, No. 01-16-00415-CV, 2018 Tex. App. LEXIS 6690, at *11 (App.—Houston [1st Dist.] Aug. 23, 2018).

Held: The right of first refusal in the asset purchase agreement, which prohibited a party from operating a business without first offering another party the right to be a partner in the business was a “restraint of trade,” subject to the Texas Covenants Not to Compete Act. 

Why it made the top five list:  This case demonstrates that Texas Covenants Not to Compete Act applies to any restraint of trade, not just the plain vanilla non-competition and non-solicitation agreements in the employment or sale of business context. 

4. Accruent, LLC v. Short, No. 1:17-CV-858-RP, 2018 U.S. Dist. LEXIS 1441, at *12 (W.D. Tex. 2018).

Held: A non-competition clause that prohibits employees from competing with their employer anywhere where the employer does business (as opposed to where the employees worked) can be enforceable against those employees who had extensive access to the company’s confidential information.

Why it made the top five list:  Generally speaking, an employer can only prohibit an employee from competing in the area where the employee worked. However, this case creates an exception to the rule where employees have extensive access to and “intimate knowledge” of highly confidential information of their employer. 

Quote: “Because Short was Lucernex’s senior solution engineer, he now has an “intimate knowledge of all Lucernex product functionality.” Short knows about Lucernex’s unreleased software and its roadmap for future product development. He knows the product functionalities requested by Lucernex customers. He knows Lucernex’s business development plans, its market research, its sales goals, and its marketing strategy. . . Given everything Short knows about Lucernex and its products, customers, and prospects, Short can help a competitor take business from Accruent in any state or country where Lucernex did business. It is therefore reasonable for the noncompete provision to extend to every state or country in which Lucernex did business.”

5. D’Onofrio v. Vacation Publ’ns, Inc., 888 F.3d 197, 212 (5th Cir. 2018)

Held: A non-competition clause that prohibits an employee from working for competitors of the former employer “in any capacity,” without geographic or client-based boundaries, is unenforceable. 

Why it made the top five list:  The Fifth Circuit confirmed, yet again, that an industry-wide restraint on a departing employee, which is not limited to a certain geographic area or the clients that the employee dealt with, is unenforceable under the Texas Covenants Not to Compete Act.     

*Keep in mind that any decisions mentioned in this post may be appealed and their holdings may be overruled.  Therefore, employers should always consult with a qualified employment lawyer to determine the current status of the law applicable to their particular dispute.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

Three Key Factors in Enforcing Non-Compete Agreements

What distinguishes those companies that are successful in enforcing their non-compete agreements from those that are not?  Generally speaking, just three “no-brainer” factors:

1. They have good agreements.  A non-compete enforcement lawsuit is a breach of contract case.  Thus, those companies that have good agreements – the ones that set out reasonable restrictions, are clear and unambiguous, are signed by all the necessary parties, and are supported by proper consideration – have an advantage in court.  

The courts around the country scrutinize the language of non-compete agreements before deciding whether to restrict employees’ activities based on that language.  The more vague, incomprehensible, unreasonable the restraints in the agreements are, the less the likely the courts are to order employees to comply with them. 

2. They have evidence of violations.  Suspicions, rumors, or fear that an employee might be violating a non-compete agreement are not enough to support an injunction in court.  Those companies that are successful in enforcing their non-compete agreements usually come to court with some evidence that an employee either has already violated the agreement or intends to imminently do so.  The evidence does not have to be direct, i.e., employee admitting to someone that they are violating the agreement, and it may be circumstantial, but an application to enforce  an agreement must be supported by some evidence and not just a fear or speculation.

3. They move quickly.  Those companies that are successful in enforcing their non-compete agreements do not wait around to see how far an employee will go or what s/he employee might do.  Once they have evidence of a violation, they file a lawsuit within days of obtaining such evidence.  A swift action impresses upon a judge that the business is going to suffer irreparable harm unless the court steps in and enters an order preventing an employee from violating his or her non-compete agreement.

Keep in mind that all is not lost for those companies that do not have signed non-compete agreements with their employees as employees have certain duties to their employers even in the absence of an employment contract restricting their post-employment activities. 

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.