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

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.

 

 

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.

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.

Lessons from the Mavericks Sexual Harassment Scandal: Specific Steps Your Company Can Take to Avoid a #MeToo Situation

Mavericks Presser CH Monday KDFWBCME01.mpg_16.14.49.12_1519684038394.png_5007658_ver1.0_640_360On Wednesday, Mavericks released a 43-page report containing the results of a seven-month investigation into the allegations of a pervasive culture of sexual harassment that permeated the organization over the past 20 years.  The allegations first came to light in an article published by Sports Illustrated in February of this year.  The investigation report largely substantiates many of the facts described in the article and provides many recommendations for changes within the Mavericks organization. 

If your company is worried about the #MeToo movement (hint, every company should be) and is attempting to make sure that it eliminates sexual harassment among its employees, the recommendations from the Mavericks’ investigation report provide a good road map for doing so. 

Ask yourself, is your company doing the following: 

  • Increasing the number of women through the organization including in leadership and supervisory positions. 
  • Improving formal harassment reporting process and creating paths for victims to report misconduct
  • Evaluating, and holding accountable, all executives, managers, and supervisors on their efforts to eliminate harassment and improve diversity of all kinds throughout the organization
  • Conducting anonymous workplace culture and sexual harassment climate surveys on regular basis to understand the culture of the organization and whether problems exist
  • Establishing clear hierarchies and lines of decision-making authority within the organization
  • Strengthening and expanding Human Resources, and implementing clear protocols and processes for evaluating and adjudicating workplace misconduct issues. This should include providing clear communication to employees on the anti-harassment policy and how to report harassment. 
  • Providing “prompt and proportionate” and “consistent” discipline across the organization when harassment or misconduct has been substantiated. 
  • Providing regular training for all employees on sexual harassment (including bystander intervention training), and special training directed at managers and supervisors.  Leaders across the Company should participate in the training and take an active leadership role in providing trust and safety in the workplace. 
  • Adopting clear, transparent, office-wide processes for hiring, on-boarding, promotions, lateral transfers, performance valuations, salary increases, and discipline within the organization. This should include centralizing key employment functions within the Human Resources department. 
  • Collecting and using data to add value to the company and to identify weaknesses. 
  • Requiring that all leaders, managers, and supervisors engage in efforts to improve workplace culture and to ensure a diverse inclusive workplace.

BOTTOM LINE:  Eradicating sexual harassment in the workplace requires commitment from the upper echelons with the company, creation of clear anti-harassment policies, effective training, and consistent enforcement of such policies. If your company is committed to making a change, but not sure where to begin, the above recommendations provide a good starting check list for making such changes. 

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.

 

 

Employers Are Responsible for Stopping Sexual Harassment by Non-Employees

imagesIn the wake of the #MeToo movement, many employers remain unaware that they must investigate sexual harassment allegations and take appropriate measures if sexual harassment is perpetrated by non-employees, such as customers  or vendors.

A recent opinion from the Fifth Circuit Court of Appeals addressed just this issue when the court considered whether a nurse at a nursing home facility who repeatedly complained of sexual harassment by a patient with dementia presented a strong enough claim to go to trial.  The Fifth Circuit found that she did. And although Gardner v. CLC of Pascagoula, L.L.C. involved a rather common and pervasive problem of patient-nurse sexual harassment, the Court’s analysis is usefull for all companies where employees have interaction with customers or third parties on a regular basis.

The Court of Appeals reminded that pursuant to the Regulation issued by the Equal Employment Opportunity Commission (EEOC): 

An employer may [] be responsible for the acts of non-employees, with respect to sexual harassment of employees in the workplace, where the employer (or its agents or supervisory employees) knows or should have known of the conduct and fails to take immediate and appropriate corrective action. In reviewing these cases the Commission will consider the extent of the employer’s control and any other legal responsibility which the employer may have with respect to the conduct of such non-employees. 29 C.F.R. 1604.11(e)

In Gardner, the patient who suffered from a host of mental disorders, had a documented history of grabbing the female nurses’ “breasts, butts, thighs, and trying to grab their private areas,” and asking them to engage in sexual activity with him as well as making lewd sexual comments.  Several nurses routinely recorded this behavior on the patient’s chart and made complaints to their supervisors. Additionally, at least one of the supervisors observed the patient behaving in a sexually inappropriate manner.  

When the plaintiff-nurse attempted to discuss her concerns about the patient’s behavior, her supervisor and the nursing facility administrators allegedly laughed and told her to “put [her] big girl patients on and go back to work.”  Eventually, after the patient punched her in the breast while she was trying to assist him, she asked to be reassigned.  Her request was denied.  The patient was soon transferred to an all-male facility but only after he had punched a male resident. 

The district court granted the employer’s summary judgment finding that a hostile work environment did not exist because it was “not clear to the court that the harassing comments and attempts to grope and hit [were] beyond what a person in the [nurse’s] position should [have] expect[ed] of patients in a nursing home.”  

The Court of Appeals disagreed, however, ruling that while inappropriate comments from patients with reduced cognitive abilities may not rise to the level of legally-actionable sexual harassment, where a patient crosses the line into physical contact, which progresses from occasional inappropriate touching or minor slapping to persistent sexual harassment or violence with the risk of significant physical harm, the employer must take steps to try to protect an employee. 

BOTTOM LINE: If a company becomes aware that its employees are being harassed by a third party, such a customer or vendor, the company has an obligation to take steps immediately to get the harassment to stop. This may include reassignment of the employee, adding security, conversations with a customer or a vendor, and a host of other measures.  Ignoring the situation once the employer becomes aware of it may result in a liability under Title VII. 

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.

 

 

 

 

 

 

 

Texas Supreme Court Clarifies When Employers are Responsible for Employees’ Negligence

U5drUHKezGhrZZC7zuRZG27Dz7miJyK_1680x8400When are employers liable for negligence of their employees? For example, when an employee is driving a company vehicle and gets in a car accident, when can his/her employer be held liable for the injuries caused by the employee? The legal standard – vicarious liability – has been around for a long time, but last week the Texas Supreme Court added a much-needed clarity to it. 

In Texas, before an employer can be held liable for its employees’ negligence, the following two questions must be answered:

  1. At the time of the negligent act, was the worker an employee (as opposed to an independent contractor) of the employer?
  2. At the time of the negligent act, was the worker acting in the course and scope of his or her employment?

If the answer to both of these questions is “yes,” then the employer can be held liable for that employee’s negligent conduct.   

The “Control” QuestionThe answer to the first question depends on whether an employer has the right to control the details and progress of the worker’s job. The Supreme Court clarified that the “control” question is not evaluated on a task-by-task basis, but is a question of general control over the worker.  If an employer does not dispute that a particular worker is its employee, then the question of control becomes irrelevant and the party seeking vicarious liability can skip to the second question in the analysis. 

In Painter, et al. v. Amerimex Drilling, I., Ltd., the employer conceded that the driller that got into a car accident injuring several people was an employee.  Nevertheless, it argued that because it exercised no control over the details of the driller’s driving at the time of the accident, i.e., the particular task during which the incident occurred, it could not be vicariously liable.  The Texas Supreme Court rejected this argument and stated that once the employer-employee relationship was established, the only remaining question was whether at the at the time of the accident the driller was acting in the scope and course of his employment. 

The “Scope and Course of Employment” Question This question seeks to determine whether an employee committed a negligent act while performing his duties for the employer or while he was doing something unrelated.  A classic law school example would be a driver, who is still “on the clock” taking a detour to run a personal errand and getting into an accident while doing so.  In that situation, his employer would not be vicariously liable because the employee was acting outside the course and scope of the employment. 

In Painter, et al., the driller got into a car accident while he was driving the drilling crew from the drilling site to the campsite provided by the employer. Normally, driving to and from work would not be considered to be within the course and scope of employment.  However, in this case, the driller received $50 bonus from his employer for driving the crew between the drilling site and the campsite, the employer was contractually required to pay such a bonus, and there was evidence that the driller was providing the driving services as part of his assigned job duties.  Therefore, when the driller got into an accident while driving the drilling crew from the drill site to their campsite, the Court concluded that he could have been acting within the course and scope of his employment and the employer was not entitled to a summary judgment on this issue.* 

BOTTOM LINE: Texas employers can be held liable for their employees’ negligence as long as the negligent act occurred when the employee was performing his or her duties for the employer.  Where the employer-employee relationship is not disputed, the only question that stands between the employer and the vicarious liability for employee’s actions is whether, at the time of the accident, the employee acted within the course and scope of his employment or whether he deviated from his/her duties.  

Therefore, Texas employers must carefully consider how they structure employment relationships, contractual obligations and risk-shifting provisions, and how they describe and define employees’ duties.  In facing the question of vicarious liability in litigation, employers should carefully analyze the situation using the Painter framework. 

*Justices Green and Brown penned a dissenting opinion arguing that the proper standard for “control” analysis in vicarious liability cases should be on a task-by-task basis. 

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.

 

A Texas Court of Appeals Explains Employees’ Fiduciary Duties in Texas

Employees Duty of LoyaltyThe Eighth Court of Appeals recently analyzed the question of whether regular non-executive level employees in Texas owe fiduciary duties to their employers and answered that question with a resounding “yes.” While the scope of the rank-and-file employees’ fiduciary duties may not be as broad as those of a CEO or CFO of a company, they still owe a duty of loyalty to their employer and may not:

  1. appropriate company trade secrets
  2. solicit away the employer’s customers while working for the employer
  3. solicit the departure of other employees while still working for the employer
  4. carry away confidential information.

Employees can, however, plan to go into competition with their employers and may take active steps to do so while still employed, but cannot cross the line of preparation into actual competition until after they leave (assuming no post-employment restrictive covenants).

In Heriberto Salas, et al. v. Total Air Services, LLC, Salas opened and operated a company that directly and actively competed with his employer – Total Air Services – while still working for the employer.  He submitted bids on the same jobs as his employer through his own company, distributed his company’s business cards while giving out flyers for Total Air Services, and solicited Total Air Services’s customers to do business with his own company.   

Bottom Line:  Even those employees who do not have non-compete or non-solicitation agreements with the employer still owe a duty to the company not to divert business or use the company’s confidential information to benefit themselves while drawing a paycheck there.  

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.

Is Staring at a Coworker / Former Lover During Work Meetings Sexual Harassment? Texas Court says “No”

rosesJust in time for the Valentine’s Day, a recent case involving a workplace romance turning sour provides a good refresher on what constitutes sexual harassment in the eyes of the law (in Texas) and demonstrates how an employer should handle sexual harassment complaints properly.

In Vanderhurst v. Statoil, a senior employee had a six-month extra-marital affair with a co-worker whom he was supposed to mentor. He claimed that after he ended the affair, the woman threatened to physically harm him and his wife and to accuse him of sexual misconduct, so he reported her to the HR. The HR department: (1) told him and the female to act professionally and stay away from each other; and (2) moved the woman to the other side of the floor about 200 feet away and placed her on a different team.  From that point on, the two employees never worked with each other again, and the woman never threatened, touched, or spoke to the male employee.

Nevertheless, the male employee perceived that he was continued to be harassed because (1) the female employee walked past his work station multiple times a day and (2) stared at him during group work meetings.  He complained to the HR again, but shortly thereafter left the company for a competitor.  He then sued his former employer under the Texas Commission on Human Rights Act for retaliation, hostile work environment and constructive discharge.

Hostile Work Environment Due to Sexual Harassment – What is the Standard?

Under Texas law, a hostile work environment claim entails ongoing harassment, based on the plaintiff’s protected characteristic (e.g., in this case, gender), so sufficiently severe or pervasive that it has altered the conditions of employment and created an abusive working environment. Thus, the elements of a prima facie case of hostile work environment are:

(1) the employee belongs to a protected group

(2) the employee was subjected to unwelcome harassment

(3) the harassment complained of was based on the protected characteristic

(4) the harassment complained of affected a term, condition, or privilege of employment; and

(5) the employer knew or should have known of the harassment in question and failed to take prompt remedial action.

To satisfy the fourth element of a hostile environment claim, a plaintiff must show that the workplace was permeated with discriminatory intimidation, ridicule, and insult sufficiently severe or pervasive to create a hostile or abusive working environment.  The plaintiff’s “work environment must be both objectively and subjectively offensive . . ..” That is, it must be “one that a reasonable person would find hostile or abusive AND one that the victim perceived to be so.”

In Vanderhurst, the Court of Appeals clarified that when courts consider hostile-work-environment claims, they look at “the totality of the circumstances,” including:

(1) the frequency of the discriminatory conduct;

(2) its severity;

(3) whether the conduct was physically threatening or humiliating, or a mere offensive utterance; and

(4) whether it unreasonably interfered with the employee’s work performance.

What did the Court of Appeals Rule in this Case?

Considering the totality of the circumstances, we hold that there is no evidence that plaintiff’s work environment was objectively offensiveone that a reasonable person would find hostile or abusive.”  Basically, it agreed with the trial court that “the conduct described by Vanderhurst may have been annoying, but it [did] not constitute an objectively offensive work environment sufficient to support a hostile-work-environment claim.”

BOTTOM LINE:  There is a difference between workplace behavior that a reasonable person would find annoying or awkward and the behavior that crosses into sexual harassment.  Sometimes, the line is rather clear – as it was in this case – and a lot of times, it is not.  For companies to avoid lawsuits related to sexual harassment it is important to: (1) provide quality sexual harassment training; (2) make sure employees know how and where to report any complaints; (3) investigate all complaints of sexual harassment; (4) take an appropriate action when necessary and not ignore the situation.

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.

 

 

 

Trump’s Tax Reform Affects Settlements of Sexual Harassment Claims, But Training Remains the Best Answer

sexual harassmentJust days before we rang in 2018, in the wake of the #MeToo movement, the Tax Cuts and Jobs Act became the law, including the special clause titled “Denial of Deduction for Settlements Subject to Nondisclosure Agreements Paid in Connection with Sexual Harassment or Sexual Abuse.”

Prior to this statute, the law allowed companies to claim tax deductions for settlements of sexual harassment and abuse claims and for attorney’s fees incurred in defense of such claims, even if the settlement agreements were confidential, which they usually were. 

Now, if a settlement agreement prevents a harassment or abuse victim from publicly sharing details about the claim, then the company paying the settlement cannot deduct from taxable income the amount of the settlement or the attorney’s fees incurred in reaching the settlement agreement. 

However, while the title of the section declares a lofty goal, its implementation and the practical effect remain less than clear.  In particularly, the following questions remain:

  1. Where the settlement agreement settles more than just a sexual harassment or sexual abuse claim, can the company still claim the deduction?
  2. Will this law encourage the companies to segregate attorney’s fees between sexual harassment allegations and other types of discrimination or claims alleged by the settling employee?
  3. Will this law incentivize employees to add a sexual harassment/sexual abuse claim to other claims simply to put additional pressure on the company?
  4. Will this law drive the companies to misclassify the types of claims that are being settled or seek a general release of all employment claims (without specific mention of sexual harassment/abuse claim) in order to get the deduction?
  5. Will a general release of all claims against the employer result in its inability to get a deduction because sexual harassment and abuse claims are included in such a release?
  6. Will this law result in more companies attempting to litigate the sexual harassment / sexual abuse claims rather than reach settlement agreements, especially on those claims that are weak and/or not supported by evidence – the so-called “nuisance claims”?

This law goes into effect on January 1, 2018 and will not affect the 2017 taxes.  Until the implications of this statute come into focus, companies should consult with their attorneys regarding whether to include a non-disclosure provision in a settlement agreement if any claim of sexual harassment or sexual abuse was made by the claimant.

While the uncertainty of the answers to the above questions remains, the best course of action for companies is to keep investing into quality anti-discrimination and anti-harassment training so as to avoid the sexual harassment claims in the first place. 

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.