The Difference Between Non-Competition and Non-Solicitation Restrictions

noncompeteSome states prohibit these restraints in employment contracts completely. Others allow one but not the other. Texas allows both. These restrictions on employees are meant to protect employers’ investment in their employees and confidential information shared with them during their employment.  A prudent employer will use one or both of these covenants to protect its confidential information from ending up in the hands of a competitor.

A non-compete covenant restricts an employee’s right to engage in a business activity that is competitive with his employer.  Whereas a non-solicitation clause restricts an employee’s ability to solicit the customers or employees of his former employer.  Often, employers will also include a confidentiality clause, which will prohibit their employees from sharing with third parties or using any confidential information they learned while working for the employer.

Whether an employer should include all of the above clauses or only some of them in its employment agreements depends on what role a particular employee will play in its business, how much customer interaction she or he will have, whether she or he will have access to any of the employer’s confidential information, and several other factors. 

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Want to Switch Jobs, But Not Sure if You Can? Do Not Let A Non-Compete Hold You Down.

3d4bc84Many employees sign non-compete agreements without giving it a second thought, but then a time comes when the company starts slumping, they get a new boss that they do not particularly like, receive a better job offer from a competitor of their current employer, or they want to strike out on their own. All of a sudden, the non-compete restraints come out of the shadows looking rather menacing. Should the employee take a new job or open a competing company and risk a lawsuit from the former employer? Should she or he discuss the non-compete agreement with the current employer and see if they’ll agree not to enforce it? Should she or he forego the new job in order to avoid facing the wrath of the former employer and the legal costs associated with it?

Many employees will seek advice from former co-workers, friends, or family, or on the internet. However, seeking information about enforceability or validity of non-compete agreements in Texas on the web is like seeking information about a possible illness from WebMD.  There are many general statements, but no realistic explanation of how it applies to the employee’s particular situation.

This is, of course, because the area of non-compete law in Texas is a gray area. Rarely is an entire non-compete agreement invalid or iron-clad. Most of the time, the agreement’s force depends on the specific language of the agreement, the type of business the employer is involved in, what employee did for that employer, for how long, whether the employee received confidential information, goodwill, or stock options from the employer, whether employees’ duties changed at any time during the employment, whether the employer has “unclean hands,” and many other factors.

So, when you start wondering about whether your non-compete will hold you back in accepting a job offer or opening your own business, do yourself a favor, and after doing online research and talking to your friends or co-workers, consult with an attorney in your state regarding whether your non-compete agreement is enforceable as well as what is the likelihood of the employer enforcing the agreement.  A good attorney will help you structure your departure from the former employer in a way that will minimize the risk of a non-compete lawsuit, will help deflect any bullying attempts from the former employer, and will be able to provide you with a realistic risk assessment of any non-compete-related litigation. When facing a possible non-compete enforcement situation, an ounce of prevention is worth a pound of cure and being proactive about it can save major headaches down the road.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Are Non-Compete Agreements Enforceable in Texas?

kkGenerally, Texas allows non-compete agreements between employers and employees as long as they are reasonable in scope, geographic area, and term, and meet a few other requirements. See my previous posts about those requirements here, here, and here

Practically speaking, however, whether a particular non-compete agreement is valid depends heavily on the exact language used in the agreement.  Just as with any other contract, Texas courts will usually look at the precise language of a particular employment agreement to determine what the parties had in mind when they entered into it. 

Last year, a hospitalist group in Houston learned the above principles the hard way when it attempted to enforce a non-compete covenant against a physician who went to work for a competitor and discovered that the non-compete did not prohibit the physician from doing so. 

In Tummalla et. al. v. Total Inpatient Services, P.A., the non-compete clause between the hospitalist group and the physician stated the following:

6.2 NonCompete. In consideration for the access to the Confidential Information provided by [TIPS] and in order to enforce the Physician’s Agreement regarding such Confidential Information, Physician agrees that he/she shall not, during the term of this Agreement and for a period of one (1) year from the date this Agreement expires pursuant to Section 8.3 or is terminated by Physician pursuant to Section 8.6 (the “Restriction Period”), without the prior written consent of [TIPS], except in the performance of duties for [TIPS] pursuant to this Agreement, directly or indirectly within any Hospital in the Service Area or any other hospital in which the Physician practiced on behalf of [TIPS], in excess of 40 hours, within his last year of employment with [TIPS]:
6.2.1 Provide services as a hospitalist physician to any entity that offers inpatient hospital and emergency department services.
In a separate provision in the same agreement, however, it stated that the physician’s first 12 months on the job were to be considered an “introductory period” during which either party could terminate the employment relationship for any reason. The specific paragraph stated that it applied notwithstanding any other provision in the agreement and it failed to included or mention any non-compete restrictions. 

The court of appeals analyzed these various clauses in the contract and concluded that because the physician terminated his employment with the hospitalist group within the first year, i.e. the “introductory period,” the post-employment non-compete clause did not apply to him. Thus, he was free to compete with his former employer. 

TAKEAWAY FOR EMPLOYERS: Employers should have a qualified attorney draft and/or review their non-compete agreements.  While there are many forms out there, because non-compete agreements in Texas have to be catered towards each employers’ business and because courts will scrutinize the language when determining whether to enforce the agreement or not, using a standard form may result in the employer not being able to enforce it due to gaps in the language or failure to address specific termination situations.

TAKEAWAY FOR EMPLOYEES:  Signing a non-compete agreement without reading it first can result in a major headache down the road and severely limit employee’s career options.  Therefore, employees should always: (1) read the agreement; (2) request a clarification if something is not clear; and (3) keep a copy of the signed agreement for their records.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Texas Employment Hiring Checklist

startupbusiness_hiregoodpeopleWhether a new business is preparing to hire its first employee or is revisiting its already-existing hiring procedures, making sure that the on-boarding process is done correctly and consistently will result in significant long-term benefits in terms of reducing stress associated with hiring new employees, decreasing legal risks arising out of improper hiring procedures, and ensuring that the business is protected if an employee happens not to work out and must be terminated.  The following guide provides a basic list of forms that any Texas business should make part of its employee files.*

1. Employment Application.  Every employee should fill out and sign an employment application. Make sure to keep an electronic copy of all employment documents and keep them confidential.

2. I-9 Form. Every employer must obtain an I-9 form and the appropriate employment eligibility verification documents from each new employee.

3. Confidentiality Agreement.  Have every employee who has access to confidential information sign such an agreement. Make sure the agreement is enforceable in Texas and contains all the key provisions.

4. Non-Compete/Non-Solicitation Agreement. Have key employees execute non-competition and/or non-solicitation agreements.  Consult with an attorney to determine which agreement will best benefit your business and make sure that the agreement meets all the requirements under Texas law.

5. Criminal Background Check.  Run criminal background checks on employees, but make sure you comply with any “check-the-box” rules that might be in force in your geographic location.

6. Personnel Data Form.  Make sure all employees complete the form upon hiring.

7. Emergency Contact Form.  Have this form easily accessible in case of emergency (i.e. do not include it in a confidential file that only HR or owner may access).

8. W-4 Form.  Have all employees fill out this form required under federal law.

9. Employer Property Form.  If the company provides certain equipment to employees, such as mobile phones or laptops, make sure that employees sign a form acknowledging receipt of that equipment, so that when they depart, the company knows exactly what equipment must be returned. 

10. Employee Handbook Acknowledgement Form.  If a business has an employee handbook or manual, make sure that every employee signs a form acknowledging that s/he read the handbook and understands that s/he must comply with the rules described in the handbook.

11. COBRA Rights Notification.  Employers with 20 or more employees (full- and part-time) that maintain a Group Health Plan must provide the Initial Notification of COBRA Rights to each employee at the time the employee becomes covered by the plan, which is usually at the time of hire.

12. Anti-Harassment/Retaliation Training.  Have employees sign a form acknowledging the date of completion of such training.  If they complete the training online, make sure that the company receives a copy of the certificate of completion and saves it in the personnel file.

* For a complete list of hiring forms or to ensure an up to date compliance, consult with an employment attorney.

Leiza represents COMPANIES and INDIVIDUALS in business and employment litigation. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Erasing Employer Files Costs Employee Severance Pay

vector-hands-with-pen-document-money_146647163The Fifth Circuit Court of Appeals, which presides over Texas, Louisiana, and Mississippi, recently held that an employer could deny employee his severance benefits under an ERISA benefits plan because the employee erased certain files from his computer before returning the laptop to the employer.  

In Gomez v. Ericsson, Inc., Gomez worked for telecommunications company for about three years before being laid off. Shortly after Gomez’s termination, the company presented him with a severance agreement. Under its terms, Gomez was required to waive certain claims against the company and return the company’s property in his possession. In exchange for doing so, the company promised Gomez severance pay pursuant to the terms of both its Standard Severance Plan and Top Contributor Enhanced Severance Plan of 2010.  

However, after the company received Gomez’s laptop, it determined that he had erased certain files from it. Consequently, the plan administrator for the company determined that the employee did not comply with a provision of his severance agreement requiring the return of all company property because work files were missing on the company laptop he returned.  The Court of Appeals agreed with the company. 

TAKEAWAY:    Most companies are not required to pay severance, but will offer it in return for employees agreeing to release their claims against the company and making certain promises to the employer, such as return of property or an agreement not to compete. Signing such agreements without understanding what they require can cost employees their benefits. Thus, before signing any sort of severance documents, employees should carefully read them and, where necessary, consult with an attorney.

Leiza represents COMPANIES and INDIVIDUALS in business and employment litigation. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Texas Supreme Court Rules Competitors Can be Excluded from the Courtroom

cartoonUntil recently, companies suing for trade secret theft ran a risk of having to disclose to their competitors in open court certain aspects of their trade secrets in order to prove their claim. The companies often argued that they shouldn’t have to give up their trade secrets in order to pursue their legal rights.  On the other hand, defendants argued that they cannot defend against a claim when they don’t know what they are accused of taking. Last month, the Texas Supreme Court clarified how such dilemma is to be resolved. 

The Court ruled that a company suing for trade secret misappropriation may exclude its competitor’s representatives from the courtroom when their trade secrets are discussed, leaving only the lawyers and independent outside experts of the competitor to hear such testimony. This way, a defendant can learn the information it needs to defend against the claims brought against it, but the information cannot be used outside of the lawsuit. 

Under TUTSA, trial courts are required to take “reasonable measures” to protect trade secrets during litigation, including, among other things, “holding in camera hearings” i.e. hearings that are closed to the public because they will involve discussion of trade secrets.  TUTSA does not specifically define the term or explain exactly who may or may not be present during in camera hearings.  Recently, NOV and M-I Swaco battled in court over whether NOV’s corporate representative could be present at a hearing where M-I Swaco offered testimony about what trade secrets its former employee took from it and gave to NOV.

In In Re M-I, LLC d/b/a M-I Swaco, NOV argued that as a party to the lawsuit where it was accused of stealing trade secrets from M-I Swaco, it had a right to be present at a temporary injunction hearing and hear what trade secrets M-I Swaco claimed NOV misappropriated.  The Texas Supreme Court did not buy into this argument finding that in camera hearings could include hearings where a party or its representatives (but not its attorneys) could be excluded.

The Supreme Court explained that when a trial judge is faced with the decision on whether to exclude a corporate representative from the courtroom during testimony about trade secrets, which he might not already know by virtue of misappropriation, the judge must balance (1) the “degree of competitive harm” the party would have suffered from the disclosure of its trade secrets to the other party’s corporate representative and (2)  the degree to which a party’s defense of a trade secrets case might be impaired if its corporate representative is excluded from the courtroom.

To make this determination regarding the degree of competitive harm, the court must consider the relative value of the party’s trade secrets to its competitor as well as whether the corporate representative acts as a competitive decision-maker at his company.  If he does, disclosure of alleged trade secrets would “necessarily entail greater competitive harm” because, even when acting in good faith, the corporate representative would not be able to resist acting on what he or she may learn during the hearing. To determine whether a party’s defense might be impaired, the court should consider whether a corporate representative possess unique expertise that a party may not find in outside experts.

Takeway:  The Texas Supreme Court has made it clear that a company wishing to prosecute theft of trade secrets can do so without having to disclose its trade secrets to a competitor in an open court.  If the disclosure of such information in open court will harm the company, it may ask the judge to remove its competitor’s representatives from the courtroom when critical proprietary information is discussed, leaving it up to the other sides’ lawyers and experts to analyze the testimony or evidence.  While this will certainly increase the cost of trade secrets litigation, it will also ensure that a competitor cannot use the courtroom to get to the “secret sauce.”

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

A Texas Company Loses a Non-Compete Battle Against California Employees

Texas-vs-CaliforniaCalifornia and Texas differ in many respects, including how they treat non-compete agreements.  While Texas enforces non-compete restraints that are reasonable, California has declared such agreements unenforceable.  Recently, a company headquartered in Texas attempted to enforce its non-compete agreements against two California employees.  The agreements specifically stated that they “shall be governed and construed in accordance with the substantive laws of the State of Texas,” that the company is based in Irving, Texas, and that the agreements are to be partially performed in in Irving, Texas. Despite this language, the trial court and then the Dallas Court of Appeals applied California law and ruled the agreements unenforceable in Merritt, Hawkins & Associates, LLC v. Caporicci, et al.

The Court of Appeals explained that in a situation like this, where two states have a relationship with the parties and the transaction, i.e., employment, it will apply the law of the state that has “clearly more significant” relationship to the parties and the transaction. The court then concluded that the relationship to California was more significant than to Texas because: (1) both men interviewed for the jobs in California; (2) completed their employment agreements and the jobs in California; (3) the employees lived in California and traveled to Texas infrequently; and (4) the gist of their employment agreements was performance of services in California.

The Court of Appeals also looked at whether California or Texas had a “materially greater interest” in determining whether the non-compete agreements were enforceable.  Although the company was based in Texas, the two employees performed services in California, and after they left the company, it had to close its California offices.  Based on these facts, the Court of Appeals concluded that while Texas shared a general interest in “protecting the justifiable expectations of entities doing business in several states, that [did] not outweigh California’s interests in this case.”

Finally, the Court of Appeals concluded that the enforcement of the non-compete agreements would be contrary to a “fundamental policy of California,” which was the final nail in the coffin of the company’s argument that the agreements should be enforced under Texas law.

Takeway:  Although a company may state in its employment agreement that the law of a certain state will apply, Texas courts may choose to apply the law of another state if that state has a more significant relationship with the parties or the employment agreements.  The legal analysis depends on a multitude of factors and will vary depending on where the company is located, where its employees are located, what their job functions are, as well as the public policy of the other states in question.  Texas companies that have employees in other states should keep that in mind when hiring or recruiting executives in other states.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

A Texas Court Enforces an 18-month, 50-mile non-compete against a Texas Veterinarian

noncompeteThe Fort Worth Court of Appeals recently upheld an injunction enforcing an 18-month, 50-mile non-compete against a veterinarian, who accepted a job with a competing veterinary clinic within the 50-mile radius of her former employer.

In Bellefuille v. Equine Sports Medicine & Surgery, Weatherford Division, PLLC (ESMS), the veterinary resident signed a non-compete and non-disclosure agreement with ESMS, which prohibited her from competing with the company within a 50-mile radius within 18 months after her residence ended. The agreement also prohibited her from using or disclosing ESMS’s confidential information.

When Bellefuille was told by ESMS that she would not get a job offer after her residency ended, she accepted a job offer with ESMS’s biggest competitor within the non-compete’s geographic area.  There, she proceeded to treat some of the same animals she had previously treated at ESMS.

After accepting the new job, the vet filed a lawsuit asking a court to declare her non-compete with ESMS unenforceable and/or that her new employment did not violate that non-compete. ESMS counterclaimed and applied for a temporary injunction order, which the trial court granted and ordered Bellefuille not to compete with ESMS or use its confidential information. The vet appealed, arguing that the injunction was overbroad, but the Fort Worth Court of Appeals found that the trial court’s injunction was proper after striking some language as being too overbroad and vague because it did not trace the language used in the non-compete agreement.

Takeaway:  There is no magic formula for enforcement of non-competes in Texas.   The statute simply says that the restraints must be “reasonable” and no greater than is necessary to protect a legitimate business interest.  However, what is a reasonable term or a geographic area for a non-compete varies from case to case and depends on many factors, including, but not limited to, the nature of the business, the industry in which the business operates, the type of job performed by the individual subject to the non-compete, whether other employees have non-compete agreements, and many other factors. In this case, the length of the vet’s employment and the specific language of the restrictions played an important role in the court’s decision to enforce the agreement.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Breaking News: Millions of Employees Will Be Entitled to Overtime Pay Starting This December

24976165_SAUnder a new rule announced by the White House yesterday, anybody making a salary of less than $47,476 ($913 a week) will automatically qualify for overtime pay when they work more than 40 hours a week.

The current threshold is $23,660 (or $455 a week).

The change will go into effect on December 1, 2016.

The new rule is intended to expand overtime pay for those employees who are paid little but are exempt from overtime because they perform some marginal managerial duties.

In determining whether somebody’s salary meets the new threshold, employers will be allowed to include their bonuses and commissions up to 10% of the threshold amount.

The change is expected to affect the retail and restaurant industries the most, but will affect other industries as well.

TAKEAWAY FOR EMPLOYERS: If you have not already done so, you need to analyze all of your exempt positions and determine how to comply with the new rules by December 1, 2016.

TAKEAWAY FOR EMPLOYEES: The new rules will affect only those salaried workers who make between $23,660 and $47,476, have some managerial duties, and are classified as “exempt” from overtime pay. Under the new rules, such positions will be entitled to overtime pay.  This means that your employer might limit your work hours or lower your hourly pay or make another adjustment by December 1, 2016 to meet the federal requirements.

Leiza Dolghih frequently litigates employment disputes, advises employers on regarding employment issues, and assists with responding to EEOC and DOL charges and investigations. For additional information, contact Leiza at LDolghih@GodwinLaw.com or (214) 939-4458.

Breaking News: President Obama Signs Trade Secrets Bill Into Law

Today, President Obama signed into law S. 1890, which will allow companies to sue entities in federal court over allegations of trade secrets theft. Previously, the Senate passed the bill 87-0 on April 4, and the House cleared it by 410-2 on April 27.

“Enacting the Defend Trade Secrets Act is the most significant intellectual property development in years, and it demonstrates that Republicans and Democrats can work across the aisle in seeking to advance important public policies that will benefit the American people and boost our nation’s economy,” Utah Sen. Orrin Hatch (R), the bill’s sponsor, said today in a statement. 

The federal trade secrets statute imposes certain new requirements on  all employers who use non-disclosure agreements with their employees. To make sure that your business is compliant, contact an attorney knowledgeable in this area. 

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

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