Client Non-Solicitation Agreements for Hair Salons, Med Spas, and Others in the Beauty Industry: Writing and Enforcing Them (Part I)

by Leiza Dolghih, posted in Breach of Contract, Confidentiality Agreements in Texas, Employment Agreements in Texas, Employment Law, Non-Compete Agreements, Non-Compete Agreements in Texas, Non-Solicitation Agreements, Non-Solicitation Agreements in Texas, Small Business Help, Texas Business Law, Texas Legal News

GreenTangerineMayKeratineventpageimgLast week, a famous New York tattoo artist, who’s tattooed the likes of Rhianna, Katy Perry, Miley Cyrus, and Justin Bieber, filed a lawsuit against a former staffer, claiming she began stealing his prospects while working at his iconic NYC tattoo parlor “Bang Bang.” The owner claims he fired her after “she’d begun secretly cancelling customer’s appointments and referring them to another unspecified studio, where she’d covertly begun working.” The owner is seeking $153,859 in damages, which given that a single sleeve tattoo at his shop can cost $20,000, is really not a big sum.  

The defendant, who herself is a well-known tattoo artist with more than 600,000 followers on Instagram, said she left Bang Bang because she disagreed with the owner “about the path [her] career should take.” 

The disputes over client poaching between business owners in the beauty industry (med spas, massage salons, hair salons, tattoo parlors, etc.) and their employees are very common.  Most of the time, they do not escalate to the lawsuit level because of one of the three reasons: (1) a business owner does not know the departed employee poached clients; (2) a business owner cannot prove that the departed employee poached clients; or (3) the former employee’s poaching of a few clients is just not worth the cost of litigation. 

The salon owners often feel that their employees benefit from being associated with the salon’s name and brand as well as the marketing campaigns that such salons often implement to attract new customers.  The owners also often train employees either personally or by sending them to various classes. The employees, however, often feel that their clients keep coming back to their salons because of their skills; not because of the brand behind them.  Both are usually right to a degree. In the beginning, a salon’s reputation and marketing can help a fledgling professional get access to a customer base, which they would never be able to reach otherwise. As an employee matures professionally and builds customer relationships, his or her clients are more likely to come back because of that employee’s particular skills rather than the salon brand. 

When an employment relationship terminates between a salon and its employees, a good non-solicitation and confidentiality agreement, combined with other key provisions, and smart business practices, can deter client poaching and preserve the relationship between the salon and its clients even in the face of its employees’ departure.  Some of the contractual provisions that can deter client poaching include the following:

Confidentiality – a strict confidentiality clause that explains to salon employees that certain information about clients is considered confidential and cannot be disclosed or used by the employees for their own benefit and/or after they leave. 

Social Media Ownership – many salons in the beauty industry now use Instagram as ways to market their services and often include the “before” and “after” photos of their clients. An employee agreement should specify who owns such images and what happens to them if the employee who performed the work and/or posted the images, leaves. 

Non-Competition – a classic non-competition clause will prohibit a former employee from working for a competitor within a certain geographic area of the salon. This area should be “reasonable” in light of the salon’s geographic reach and its clientele, and the role of the employee at the salon. 

Non-Solicitation – in addition, or instead of, a non-competition clause, salons should also have an agreement that prohibits employees from soliciting their former clients for a certain period of time after they leave. It may also need to address the social media “indirect solicitation” by former employees.  See my prior post here. 

Repayment of Training Costs – such provision in a contract allows a salon that provides a lot of training to its new hires to recover the training costs if an employee leaves before working for the salon for a certain period of time. 

Buy-Out Agreement – a salon can always include a buy out clause in the employment agreement, which will allow an employee to buy their non-compete and non-solicitation restraints if they wish to leave and continue to work in the area close to the salon or service their former clients. 

They key to drafting the above provisions is to make sure that they are reasonable, not overbroad, and clear to employees. 

In Part II, I will address what salons can do when they find out that a former employee has poached or is attempting to poach clients. 

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.

 

 

Texas Introduces 3 Bills To Curb Application of Anti-Slapp Statute in Non-Compete and Trade Secrets Litigation

by Leiza Dolghih, posted in Non-Compete Agreements, Non-Compete Agreements in Texas, Non-Solicitation Agreements, Non-Solicitation Agreements in Texas, Texas Business Law, Texas Employment Law, Texas Legal News

The Texas Citizens Participation Act (TCPA), enacted by the legislature in 2011, has been wrecking havoc in business and employment disputes due to the statute’s overbroad language, confusing and conflicting interpretation by the various courts of appeals and federal courts, and defendants’ persistence in invoking the statute’s dismissal process in trade secrets and non-compete lawsuits. 

In late 2018 and early 2019, at least two Texas Courts of Appeals issued scathing opinions criticizing the statute’s dismissal mechanism being used by defendants in the run-of-the-mill trade secrets and non-compete disputes.  It appears that the legislature heard the complaints from the bench and the business community, which is why in the past week, we have seen three new bills that seek to exempt trade secrets and non-compete disputes from the grasp of the TCPA.  

HB 3547  introduced by Rep. Joe Moody (D) on March 6, 2019:

SECTION 1. Sections 27.001(2) and (6), Civil Practice and Remedies Code, are amended to read as follows: 

(2) “Exercise of the right of association” means a communication between individuals who join together to collectively express, promote, pursue, or defend common interests.  The term does not include a communication that is the basis of a claim asserting a misappropriation of a trade secret or a breach of a covenant not to compete.

SB 2162 introduced by Sen. Angela Paxton (R) on March 8, 2019 and HB2730 introduced by Rep. Jeff Leach (R) seek to amend the TCPA as follows: 

SECTION 8. Section 27.010, Civil Practice and Remedies Code, is amended to read as follows:

Sec. 27.010. EXEMPTIONS. [(a)] This chapter does not apply to:  …

(7) a legal action to enforce:
(A) a noncompete agreement;
(B) a nondisclosure agreement; or
(C) a non-disparagement agreement.

The bills contain many other amendments to the statute that are unrelated to trade secrets and non-compete litigation and they face tremendous opposition from the press. For example, the Reporters Committee for Freedom of the Press issued a press release stating its concern that “HB 2730 and SB 2162  would, if enacted, significantly undermine key parts of TCPA and, therefore, speech protections in Texas.”  Therefore, their passage remains an open question. 

We will continue to monitor their progress through the legislature and will provide an update if they pass. 

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.

Can a “Friend Request,” a “Like,” or a New Job Announcement on LinkedIn Violate A Non-Solicitation Agreement?

by Leiza Dolghih, posted in Employment Agreements in Texas, Non-Compete Agreements, Non-Compete Agreements in Texas, Non-Solicitation Agreements, Non-Solicitation Agreements in Texas, Texas Legal News
linkedin-new-job-announcement

The growth of social media has been raising complex new issues for employers seeking to enforce their non-compete and non-solicitation agreements. For example, if a former employee connects with a company client or a former coworker on LinkedIn, can such connection result in a breach of the employee’s non-solicitation agreement? What if an employee announces on his LinkedIn profile that s/he has a joined a competitor and invites all the followers – many of whom are the former employer’s customers – to check out the new employer’s website? Could that be a violation of that employee’s customer non-solicitation agreement? 

The courts around the country have been grappling with these issues in the recent years and are yet to come up with a bright line rule.  However, they all seem to agree that the more “passive” the social media activity is, the less likely it is to constitute a prohibited solicitation of customers or employees, and the more “active” the posts are or the more akin they are to oral solicitations, the more likely they are to violate non-solicitation restrictions. In this post, I take a closer look at the various decisions from across the country and synthesize common themes. 

1. Employees’ posts about starting a competing business or advertising job openings at their new place of employment on public social media pages. 

In H&R Block Tax Servs., LLC v. Frias, a former H&R Block franchisee promoted his tax services business on a publicly available Facebook page.  No. 4:18-00053-CV-RK, 2018 U.S. Dist. LEXIS 25667 (W.D. Mo. Feb. 16, 2018). 

H&R Block argued that the Facebook posts were made with the intent of soliciting and influencing former H&R Block customers to visit Defendant’s new tax business. The vast majority of Defendant’s Facebook friends were his former H&R Block clients.  Many of the people who “liked” the post and commented on it were H&R block clients from the Defendant’s client list. Thus, H&R Block argued that posting to friends, who were former clients, was akin to sending them a direct message about Defendant’s new business. Moreover, Defendant actively engaged with H&R clients who commented on his post by telling them to call him.

Defendant argued that his posts on Facebook were just an electronic version of an actual physical sign stating “tax preparation,” which H&R Block had admitted would not be a breach of the non-solicitation agreement. 

The court did not buy H&R’s argument and denied the portion of the preliminary injunction application that sought to prohibit Defendant from posting on social media, requiring additional briefing from the parties on whether Facebook posts were “solicitations” under the Franchise Lease Agreement with H&R Block.  The case was subsequently resolved without the briefing. 

Similarly, in Enhanced Network Solutions Group, Inc. v. Hypersonic Technologies Corp., a subcontractor posted an open position for an outside sales representative on LinkedIn, which could be viewed by the members of a certain group, which included employees of a general contractor. 951 N.E.2d 265 (Ind. Ct. App. 2011).  The general contractor argued that the subcontractor’s post of an open position in a public group within LinkedIn violated the sub’s non-solicitation clause with the general contractor.  The court ruled that the post itself was not a solicitation even though it resulted in a particular employee contacting the subcontractor about the position: 

“The record clearly supports that Dobson made the initial contact with Hypersonic after reading the job posting on a publicly available portal of LinkedIn. In other words, Dobson solicited Hypersonic . . . . Pursuant to the terms of the Agreement, Hypersonic cannot solicit applications but the language does not prohibit Hypersonic from receiving applications from [general contractor’s] employees.”

2. Employees’ announcements of open job positions or advertising of their competing services in private groups where customers or employees are likely to see them. 

In Pre-Paid Legal Services, Inc. v. Cahill, the employer argued that a former employee’s posts providing general information about his new employer in several private Facebook groups that some of his former colleagues visited and posts about events related to his new employer on his personal Facebook page violated his non-solicitation agreement. 924 F. Supp. 2d 1281 (E.D. Okla. 2013).   Specifically, the plaintiff argued that the defendant’s posts about his new employer were meant to solicit his former co-workers to work at the defendant’s new place of employment because the defendant knew that his Facebook “friends” would see his posts. 

The court ruled in favor of the employee, finding that the posts on his publicly available page touting the benefits of his new employer’s products and his professional satisfaction with his new employer and postings in private groups which could be seen his former co-workers did not violate the employee non-solicitation agreement.   The court noted that: “[t]here was no evidence presented that Defendant’s Facebook posts have resulted in the departure of a single PPLSI associate, nor was there any evidence indicating that Defendant is targeting PPLSI sales associates by posting directly on their walls or through private messaging.”

3. Employees’ announcements of open job positions or advertising of their competing services on their own social media pages which their former customers and co-workers are likely to see. 

In Banker’s Life & Cas. Co. v. Am. Senior Benefits LLC, a former employee posted on his own profile a job opening at his new company and then sent connection requests to several employees at his former company, who would be able to see the job posting on his profile page after they had accepted his connection request. 83 N.E.3d 1085 (Ill App. (1st) (2017).  The court found that his activities did not violate the non-solicitation clause and explained it as follows: 

“The generic e-mails [inviting connection from co-workers] did not contain any discussion of Bankers Life, no mention of ASB, no suggestion that the recipient view a job description on Gelineau’s profile page, and no solicitation to leave their place of employment and join ASB. Instead, the e-mails contained the request to form a professional networking connection. Upon receiving the e-mails, the Bankers Life employees had the option of responding to the LinkedIn requests to connect. If they did connect with Gelineau, the next steps, whether to click on Gelineau’s profile or to access a job posting on Gelineau’s LinkedIn page, were all actions for which Gelineau could not be held responsible. Furthermore, Gelineau’s post of a job opening with ASB on his public LinkedIn portal did not constitute an inducement or solicitation in violation of his noncompetition agreement.”

Similarly, in Eva Scrivo Fifth Ave., Inc. v. Rush, a hairstylist announced on her own Instagram page that she had joined a competing business.  No. 656723/2016, 2017 N.Y. Misc. LEXIS 3075, 2017 NY Slip Op 31699(U), ¶ 12 (Sup. Ct., NY County Aug. 9, 2017) (Slip. Op.).  The former employer argued that her post violated the customer non-solicitation clause because the hair stylist had 94 clients as her Instagram followers, and, therefore, her Instagram posts announcing her new salon were solicitations of such clients.

The hair stylist argued that her Instagram announcement was the “industry standard,” her profile was public so anyone could see or “like” her posts, and she did not solicit salon clients to follow or like her Instagram account.  In her post, she made the following announcement: 

HI ALL MY BEAUTIFUL PEOPLE! I’m proud to announce that I am officially opening my book at Marie Robinson this Tuesday NOV 1st! I’m so excited to be joining such a wonderful team and couldn’t be happier.  I hope you will all join me at the new spot for a step up in luxury and al [sic] around cooler vibes! Thank you for the support! Inbox me or email … or call and book apt today with info in bio! CAN’T WAIT!

The court denied a preliminary injunction against the hair stylist and noted that “questions remain[ed] about whether [the hair stylist] engaged in any active solicitation” when she made the two Instagram posts in question and that this issue would have to be resolved at trial. In reaching that decision, the Court pointed to two factors: (1) that the hair stylist “advertised” her new job without referencing her old employer and (2) the only persons who received the information on Instagram were those who pro-actively and voluntarily followed the stylist’s personal Instagram site, only some of whom may have been her former clients.

However,  a district court in Minnesota in Mobile Mini, Inc. v. Vevea reached a different conclusions when it reviewed similar posts by an employee announcing on his page that he had moved to a competitor and encouraging customers to contact him about the new products.  No. 17-1684 (JRT/KMM), 2017 U.S. Dist. LEXIS 116235, at *13-14 (D. Minn. July 25, 2017). 

In this case, a former employee – a sales representation for a portable storage company violated – posted the following messages on LinkedIn six months after she had left Plaintiff’s employment:

I’m excited to have joined the City-Cargo Sales Team! We lease and sell clean, safe, and solid storage containers and offices.  We are locally owned and operated, with local live voice answer.  We offer same day delivery to the Metro, and have consistent rental rates with true monthly billing. Give me a call today for a quote. 651-295-2982, and 

Call me today for a storage container quote from the cleanest, newest, safest and best container fleet in the State of Minnesota.  Let’s connect! 651-295-2982.

The former employer argued that the defendant’s LinkedIn posts were visible to her 500-plus connections, including one or more of the employer’s customers, and at least some, if not all, of these connections may have received an email notification about the new posts. The employer also pointed out to the court that when the defendant worked for the plaintiff, her branch manager specifically discussed using LinkedIn to advertise the company’s products and services. 

The Court granted the plaintiff’s request for a preliminary injunction against the defendant explaining it decision as follows: “Instead of merely announcing a job change, the language of the posts here demonstrates that Vevea’s purpose was to entice members of Vevea’s network to call her for the purpose of making sales in her new position at Citi-Cargo.”

4. “Friending” of customers after leaving employment. 

In Invidia, LLC v. DiFonzo,  a hair salon owner argued that a hair stylist violated non-competition and customer non-solicitation covenants in her employment agreement when she made a “public announcement” on her Facebook page, noting her new employment and “friended” at least eight clients of Plaintiff after she began working at the new hair salon. No. MICV20123798H, 2012 Mass. Super. LEXIS 273, 2012 WL 5576406 (Mass. Super. Ct. Oct. 22, 2012).  The defendant argued that being Facebook friends with customers did not qualify as a solicitation of such customers.  The plaintiff argued that Facebook was a significant channel of communication between plaintiff and its customers and the defendant’s posts meant to reach those customers.

The court ruled in favor of the hairstylist and explained its reasoning as follows: “[O]ne can be Facebook friends with other without soliciting those friends to change hair salons, and Invidia presented no evidence of any communications, through Facebook or otherwise, through which Ms. DiFonzo has suggested to these Facebook friends that they should take their business to her [new place of employment].”

5. Social media posts inviting the readers to check out the new employer’s website. 

In BTS USA, Inc. v. Executive Perspectives, LLC, a webpage designer, updated his LinkedIn account to reflect his new job after he had joined a competitor and authored a post  encouraging his contacts to “check out” his new employer’s website.  No. X10CV116010685, 2014 Conn. Super. LEXIS 2644, 2014 WL 6804545 (Conn. Super. Ct. Oct. 16, 2014) (unpublished order). His former employer filed a lawsuit alleging that the defendant’s LinkedIn activities violated the non-solicitation clause in his employment agreement.

The court rejected the employer’s argument nothing in the employee’s employment agreement with his former employer prohibited him from using social media and that “[i]t would be difficult indeed to find liability for such incidental contacts, when the parties to whom they are directed can choose to receive them or not.”  The court further emphasized the importance of addressing social-media solicitation prohibitions in employment agreements:

The court notes that the use of social media, whether it is Facebook, LinkedIn, Twitter, or some other forum, has become embedded in our social fabric.  Absent an explicit provision in an employment contract which governs, restricts or addresses an ex-employee’s use of such media, the court would be hard pressed to read the types of restrictions urged here, under these circumstances, into the agreement. Indeed, such an expansive interpretation of the employment contract would likely render it unenforceable as overly broad.

6. Announcements by sellers of their companies about their new competing businesses. 

As a general rule, the courts are more inclined to enforce non-compete and non-solicitation restraints that accompany a sale of a business (as opposed to an employment agreement).  In Coface Collections N. Am. Inc. v. Newton,the court entered a preliminary injunction enforcing non-compete and non-solicitation clauses in the asset purchase agreement and prohibiting the seller of the business from posting on LinkedIn about a competing business he formed subsequent to the sale. 430 F. App’x 162, 164-5 (3d Cir. 2011)

In this case, the seller of the company agreed to a non-compete and non-solicit covenants with the buyer, but formed and began operating a new company prior to the covenants’ expiration. He updated his LinkedIn profile with his position at a newly-formed competing business, and posted on Facebook to announce that his “non-compete ends on 12/31/2010″ and “I have decided that the USA needs another excellent, employee oriented Commercial Collection Agency,” and invited “experienced professionals” to apply for a job.  He also sent friend requests on Facebook to current employees of the new owner of the company, asking to view the posted notice of job openings at his competing business.  The court found that such activities violated his restrictive covenants with the buyer of his previous company. 

Similarly, in Joseph v. O’Laughlin, after defendant sold his veterinary clinic to plaintiff and agreed to a non-competition and non-solicitation covenants, he formed a limited liability company with named “O’Laughlin Veterinary Services,” created a Facebook page, and posted a link that advised followers that the clinic was “coming soon” and, when activated, directed users to the business’s location on a map. 175 A.3d 1105, 2017 Pa. Super. Unpub. LEXIS 3191 (Pa. Super. Ct. 2017).  Although the defendant argued that his Facebook post about the clinic “coming soon” and announcement of its location was merely “preparatory,” the court entered a permanent injunction prohibiting him from operating a veterinary clinic within the non-compete radius and engaging in any activity that would violate the asset purchase agreement.  Notably, the Court explained its ruling as follows: 

“Upon review of the [fifty-six page exhibit that memorialized the three-month of entries on the Facebook page], it is obvious that, collectively, the posts, “coming soon” announcement, and map directions, are tantamount to a solicitation of [] clients in contravention of the non-compete clause. . . . There is but one reason for O’Laughlin to create the O’Laughlin Veterinary Services Facebook page and maintain contact with former clients: to solicit their business.”3

BOTTOM LINE:   Employers who are concerned about their employees’ ability to solicit customers or employees on social media after they leave should write express prohibitions on such activities into their non-compete and non-solicitation agreements and explain and define how and when the restraints will apply.  Absent such express language, the courts are not likely to enforce non-solicit or non-compete clauses absent aggravating circumstances such as repeated and aggressive client solicitation, social media posts aimed solely at the customers of the business, or a combination of social media posts with other evidence of direct and in-person customer or employee solicitation. 

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

by Leiza Dolghih, posted in Employment Discrimination, Employment Law, Sex / Gender Discrimination, Texas Employment Law, Texas Legal News

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)

by Leiza Dolghih, posted in Non-Compete Agreements, Non-Compete Agreements in Texas, Non-Solicitation Agreements, Non-Solicitation Agreements in Texas, Texas Employment Law

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?

by Leiza Dolghih, posted in Non-Compete Agreements, Non-Compete Agreements in Texas, Texas Employment Law

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)

by Leiza Dolghih, posted in Employment Agreements in Texas, Non-Compete Agreements, Non-Compete Agreements in Texas, Non-Solicitation Agreements in Texas, Texas Business Law

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?

by Leiza Dolghih, posted in Law

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?

by Leiza Dolghih, posted in Confidentiality Agreements in Texas, Employment Agreements in Texas, Employment Law, Intellectual Property Disputes, Non-Compete Agreements, Non-Compete Agreements in Texas, Non-Solicitation Agreements, Non-Solicitation Agreements in Texas, problems with former employees, Small Business Help, Texas Employment Law, Texas Legal News, Trade Secrets

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

by Leiza Dolghih, posted in Anti-Raiding Agreements in Texas, Confidentiality Agreements in Texas, Employment Law, Non-Compete Agreements, Non-Compete Agreements in Texas, Non-Solicitation Agreements, Non-Solicitation Agreements in Texas, Texas Employment Law, Texas Legal News, Trade Secrets

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.