Category: Law

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.

 

Top 5 Non-Compete Cases in Texas in 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Why Stormy Daniels May be on the Hook for $1,000,000 – A Look Beyond the Headlines

by Leiza Dolghih, posted in Law, Texas Business Law, Texas Employment Law, Texas Legal News

stormyLast Tuesday, Stormy Daniels, a porn star, sued President Trump seeking to declare her 2016 confidentiality agreement with him unenforceable and void so that she could tell the world about her affair with the President back in 2006. She even offered to return $130,000 she received in exchange for signing the agreement in 2016.

Did the President’s legal team screw up the agreement? Will she win? Can they make her pay $1,000,000 if she decides to talk about the affair? What about the missing notary’s signature? As the headlines keep pouring in, let’s take a closer look at her lawsuit and the agreement she signed.  #SpoilerAlert the headlines may be misleading.

  1. Why did she file a lawsuit to declare the settlement agreement void? Can anyone do that? Filing what’s called a “declaratory judgment” lawsuit is a common tactic when there is a dispute about what the agreement requires the parties to do, or, as here, whether the agreement is valid.  In this case, Ms. Daniels knew that as soon as she started disclosing information covered by the agreement with Mr. Trump, she was likely to be sued in arbitration by the President’s legal team.  By filing the suit first, she was able to control the narrative like labeling the contract a “Hush Agreement” – a term that has now stuck to it – and was able to discuss the information that would have never seen the light of day had she been sued in a confidential arbitration. 
  2. Is the agreement really invalid because Mr. Trump never signed it?  This argument has a superficial appeal; after all, we are all taught that unless the agreement is signed by both parties, there is no agreement. However, the fact that she had accepted a payment of $130,000 in return for signing the agreement makes the lack of Mr. Trump’s signature largely irrelevant.  Generally speaking, if one party performs his or her side of the agreement, the other party must deliver theirs, even if the original party did not actually sign the contract.  So, the lack of signature allowed Ms. Daniels to plausibly challenge the validity of the agreement in court, but it is not a slam-dunk winning argument by any means.
  3. She is ready to return the settlement payment. Will she be free to talk then?  Her offer is really no different from offering to return a TV or a car a buyer had purchased because he/she changed their mind.  Once a party makes an offer and the other party accepts, a contract is formed and both parties must fulfill their respective promises.  A party cannot “undo” a contract because they changed their mind about the deal.  Try “unbuying” a house after signing a contract and see what happens (hint: you won’t be able to barring some unusual circumstances).
  4. She claims the agreement is against public policy, and it seems unfair to force her to keep quiet.  The enforcement of contracts in our country is based on the basic principle that two consenting adults should be able to enter into whatever contract they want without the government’s interference, i.e. the “freedom of contract.”  Of course, both parties have to be capable of entering into contract, must do so without coercion, and the purpose of the contract cannot be something illegal, i.e. against public policy.  Therefore, an agreement where one party willingly agrees to keep certain information confidential in exchange for payment of money is perfectly allowable under the US law (with some exceptions that do not apply here). So, contrary to Ms. Daniels’ claims, her acceptance of $130,000 for a promise not to disclose certain information about Mr. Trump is not against public policy as it exists currently.
  5. How was the President’s legal team able to “secretly” get an order against Ms. Daniels? It seems unfair and wrong.  Actually, obtaining what’s called an “ex parte” restraining order without notice to the other party to the lawsuit is very common in non-disclosure (and non-compete) disputes and Ms. Daniels’ settlement agreement specifically authorizes this procedure if there is an immediate threat that she may breach it.  The rationale is that if you give someone notice that you are trying to prevent the disclosure of the confidential information, they may hurry up and disclose it before you have a chance to get the court order preventing them from doing so.  Thus, although the President’s legal team obtained the order without allowing Ms. Daniels to present her case or giving her advance notice, there is nothing improper about the procedure they used to do so.
  6. Did the White House really “win” an arbitration against Ms. Daniels? Yes and no. The White House obtained a temporary restraining order from a private arbitrator preventing Ms. Daniels from discussing the information covered by the settlement agreement.  Since the order is temporary it is not a final decision regarding whether the settlement agreement is valid.  However, it is an indication that the emergency arbitrator who granted it believed that the President is likely to win his case against Ms. Daniels, i.e. that the settlement agreement is probably enforceable despite the lack of Mr. Trump’s signature.
  7. Could she be really required to pay $1,000,000 to Mr. Trump for breaching the Settlement Agreement? The settlement agreement says that if Ms. Daniels breaches it by disclosing the information about her alleged affair with Mr. Trump, she will have to pay $1,000,000 for each breach.  This is what’s called a “liquidated damages” clause and it is commonly used in contracts where it is hard to predict the amount of damages that a breach of the agreement can cause.  The amount of liquidated damages cannot be used to penalize the person for breaching the agreement but must approximate the reasonable damages caused by the breach.  If the President’s legal team can provide a reasonable explanation as to why $1,000,000 approximates the damages that the President can suffer from a breach of the settlement agreement, the arbitrator may order Ms. Daniels to pay that sum.
  8. What’s up with the missing notary’s signature? The most recent headlines discuss the fact that although a Texas notary stamped the settlement agreement, she never signed it.  However, while the notary may get in trouble for not following the proper procedure required by her state license,  the lack of her signature does not invalidate the agreement. It is a common misconception in Texas that a contract is not valid until notarized.  In fact, the contract is legal even without a notary’s stamp and signature.  Notaries are simply third-party witnesses whose stamp and signature confirm the identity of the person signing the agreement.  Since Ms. Daniels does not argue that her signature on the settlement agreement was forged, the absence of the notary’s signature is irrelevant. 
  9. What happens if the 60 Minutes Airs? It appears that Ms. Daniels may have already given an interview to Anderson Cooper, which 60 Minutes plans to air very soon. We do not know what she told Mr. Cooper, but if she told him details about her affair with Mr. Trump, she might have already violated her settlement agreement. This means that Mr. Trump’s legal team may seek $1,000,000 payment from her in the arbitration they filed. Luckily for Ms. Daniels, she claims that at least ten people have offered to pay that $1,000,000 on her behalf.  If that is the case, then spilling the beans to Mr. Cooper may not result in any substantive consequences for Ms. Daniels.

BOTTOM LINE:  If we ignore the fact that this dispute is between the President of the United States of America and an adult entertainer, the underlying issues surrounding her confidentiality agreement and the related lawsuit are very common in employer-employee lawsuits over breach of non-disclosure agreements.  Arbitration clauses, ex parte orders, liquidated damages provisions and employees arguing that they were unfairly forced to enter into the agreement by their powerful employer – are very typical in these types of lawsuits. 

However, whether a particular non-disclosure agreement is enforceable, fair, etc., depends on the actual language of that agreement.  Therefore, relying on media coverage of legal disputes to figure out whether a particular NDA is valid is like relying on WebMD to diagnose a medical problem.  One might find a lot of generally useful information, but it won’t help determine whether they have a particular condition or problem.

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

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

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.

 

 

New Contact Information

by Leiza Dolghih, posted in Law

Starting May 15, 2017, I will be joining Lewis Brisbois as a partner in their labor and employment law group and continue to focus on non-compete and trade secrets disputes. 

As I am in the process of updating this blog to reflect the change, please note my new contact information will be:

Leiza.Dolghih@LewisBrisbois.com

tel: 214-722-1708 ext. 108

2100 Ross Ave., Suite 2000

Dallas, Texas 75201

Lewis Brisbois is a national law firm with over 1100 attorneys in 41 offices across 26 states.  The firm is the 20th largest law firm in the country, the second largest law firm in the State of California, and the largest law firm in the City of Los Angeles. 

In Texas, Lewis Brisbois has offices in Dallas and Houston. 

 

White House Calls on States to Ban or Limit Non-Compete Agreements

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


us-whitehouse-logoOn Tuesday, the White House issued a call to action to state policymakers to do the following:

1.  Ban non-compete clauses for categories of workers, such as workers under a certain wage threshold; workers in certain occupations that promote public health and safety; workers who are unlikely to possess trade secrets; or those who may suffer undue adverse impacts from non-competes, such as workers laid off or terminated without cause.

2.  Improve transparency and fairness of non-compete agreements by, for example, disallowing non-competes unless they are proposed before a job offer or significant promotion has been accepted (because an applicant who has accepted an offer and declined other positions may have less bargaining power); providing consideration over and above continued employment for workers who sign non-compete agreements; or 2 encouraging employers to better inform workers about the law in their state and the existence of non-competes in contracts and how they work.

3.  Incentivize employers to write enforceable contracts, and encourage the elimination of unenforceable provisions by, for example, promoting the use of the “red pencil doctrine,” which renders contracts with unenforceable provisions void in their entirety.

This “State Call to Action on Non-Compete Agreements” comes on the heels of the White House and Treasury reports issued earlier this year that highlighted the fact that non-compete agreements impact approximately 30 million – nearly one in five – US workers, including roughly one in six workers without a college degree. 

Some states have already passed legislation limiting the use of non-compete agreements. For example, Hawaii banned non-compete agreements for technology jobs last year; New Mexico passed a law prohibiting non-competes for health care workers; and Oregon and Utah have limited the duration of non-compete arrangements.  Other states, like Massachusetts, have tried to implement similar measures this year but were unable to do it (yet). 

Does this mean that non-compete agreements in Texas will soon go away? There is no indication of that happening in the near future, however, the 85th legislative session in Texas will begin on January 10, 2017, and we will monitor introduction of any bills that may curtail or ban non-compete agreements in light of the trend. 

TexasBarToday_TopTen_Badge_VectorGraphicOf course, since the above call of action comes from the current White House, the outcome  of the national elections will probably affect whether this call will carry over to the new administration.  Given Trump’s affinity for non-compete agreements, should he be elected, the current White House policy regarding such agreements may experience a 180-degree turn.  

Stay tuned for further developments in Texas in 2017 . . .

Leiza litigates unfair competition, non-compete and trade secrets lawsuits on behalf of companies and employees, 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 Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Texas Non-Competes Soon Will Be Unenforceable in California

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

shutterstock_102117535With so many companies moving their headquarters from California to Texas in the recent years, non-compete disputes involving employees and employers who have ties to both states have multiplied.  

In these types of cases, one of the first questions the courts ask is which state’s law applies to the non-compete agreements in dispute – California’s or Texas’s?  You can find an example of such a case here.  Under California law, non-compete agreements are largely unenforceable.  To the contrary, Texas law recognizes reasonable non-compete agreements and will enforce them. 

Last month, California governor signed into law Senate Bill 1241, which, effective January 1, 2017, will restrain the ability of employers to require employees to litigate or arbitrate employment disputes (1) outside of California or (2) under the laws of another state. The only exception is where the employee was individually represented by a lawyer in negotiating an employment contract.

This new Section 925 of the California Labor Code states the following:

(a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:

(1) Require the employee to adjudicate outside of California a claim arising in California.

(2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

The only exception to the application of Section 925 appears in subdivision (e):

(e) This section shall not apply to a contract with an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.

Takeaway:  Texas employers with California employees need to recognize that an attempt to enforce Texas non-compete agreements against their employees who primarily reside and work in California may backfire after January 1, 2017, resulting in employer having to pay employees’ attorney’s fees related to the dispute.  

Additionally, for those employees who might have dual residences in both states and might regularly perform work in both states, the question of whether they “primarily reside and work” in California or Texas may become a pivotal issue to the enforceability of their Texas non-compete agreements. 

Most importantly, employers should take advantage of the exception in the statute as well as identify other legally allowed restrictions under California law that would serve to protect the company’s interests even against California employees. 

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 Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Are Non-Compete Agreements Enforceable in Texas?

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

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 Non–Compete. 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 employer’s 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 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 Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Breaking News: President Obama Signs Trade Secrets Bill Into Law

by Leiza Dolghih, posted in Law, Texas Legal News, Trade Secrets

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 Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Trade Secrets Litigation is About to Change with the Passage of the Federal Defend Trade Secrets Act

by Leiza Dolghih, posted in Confidentiality Agreements in Texas, Law, Texas Business Law, Texas Legal News, Trade Secrets

trade secrets label on folder

The federal Defend Trade Secrets Act (DTSA), that has been subject of rigorous debate over the past few years, is just days away from becoming the law of the land. 

On April 4, 2016, the Senate passed the DTSA bill with a vote of 87-0 (S-1890). Yesterday, the House passed the bill by a vote of 410-2. The bill will now move to the White House, but given that the Obama Administration has already voiced strong support in its favor, it is expected that President Obama will sign the bill into law in the next several days. 

The DTSA amends the Economic Espionage Act of 1996 to create a federal civil remedy for stealing trade secrets.  Currently, trade secrets are governed by a patchwork of 50 state trade secrets statutes.  The DTSA will provide an additional uniform federal statute that trade secrets owners may use to protect themselves and fill the perceived gaps in the state statutes. 

One of the most salient features of the DTSA that has received a lot of attention is a provision that allows a plaintiff in a trade secrets lawsuit to obtain an ex parte seizure order “only in extraordinary circumstances” of the “property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”  I foresee many litigants in the future arguing over what constitutes “extraordinary circumstances” that justify seizure of somebody’s phone, computer, or other property, in order to prevent further dissemination of trade secrets. 

Stay tuned for a detailed analysis of the statute once it becomes the law…

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 issue. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.