Category: Small Business Help

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In Part II, I will address what salons can do when they find out that a former employees 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.

 

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

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

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

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

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

2. Conduct Confidentiality Training. 

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

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

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

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

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

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

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

 

The Two Steps All Small Businesses Can Take to Protect Their Trade Secrets

by Leiza Dolghih, posted in Confidentiality Agreements in Texas, Intellectual Property Disputes, Small Business Help, Texas Legal News, Trade Secrets

I-Too-Like-To-Live-DangerouslyDoes your business have a client list? A tested marketing strategy? A sales script? A proprietary business process? Those are just a few things that may give your company a competitive advantage over other similar businesses and may  be considered your company’s “trade secrets.”  

Now imagine one of your employees walking out the door and taking that information to a competitor because they offered him or her a slightly better compensation or using it to start their own copycat business. This happens on a daily basis.  Yet, when it does, many business owners are not prepared to deal with it and have done nothing to address it ahead of time. 

So, if your company does nothing else in 2019 to protect its trade secrets, it should do at least the following two things to prevent its competitive information from walking out the door with the next employee who leaves:

Have your employees sign confidentiality and non-competition/non-solicitation agreements. These agreements do not have to be complex, but they have to comply with the laws of the state where your company operates and possibly with the laws of the states where the employees work.  So, for example, if your company is based in Texas, but you have employees in other states, your confidentiality and non-compete/non-solicit agreements must meet Texas-specific requirements for such agreements and may also need to comply with the laws of other states. 

If you think these agreements are not enforceable, check our my prior post addressing the most common misconceptions about non-compete agreements.

Learn about the security features of the document management systems you use and implement them.  Many small businesses use Google, Microsoft 360, Dropbox or some other similar systems to maintain and manage company records.  All of those systems allow the administrator to: (1) set restrictions on which employees can access which information within the company; (2) track what the employees do with that information when they access it; (3) set restrictions on whether the employees can print, download, copy or share the information with other employees or people outside the company; (4) periodically change passwords to access the systems; and (5) many other features that can help business owners prevent their information being shared outside the company. 

Additionally, many other programs, applications, CRM and ERP systems, sales databases, etc., have their own settings that restrict how  the sensitive and proprietary information contained in them can be shared within and outside the company.  Business owners should determine who within the company should have access to which parts of each system, limit such access on the “need-to-know” basis and set the systems to either prevent individuals from downloading, printing, emailing or otherwise exporting the information out of the system, or alerting the company when such actions are taken.  Regardless of whether a business sets the alerts or restrictions, at a minimum, each company system should keep track or log what employees are doing with respect to the sensitive information they use in the course of their work.

Additionally, anytime you consider purchasing a new document management systems, or an ERP, CRM, sales system or databases, consider not only whether it matches your business needs, but also what security measures it offers in terms of tracking and limiting access to the system by the employees.

BOTTOM LINE: Large companies can dedicate a lot of resources to protecting their trade secrets – resources that are not available to small businesses.  However, every small business has the resources to implement the two steps described above.  If you, as the owner of the company, do not take the time to put the proper employee agreements in place and to educate yourself about the security measures available to you and use them, the employees will know the security gaps and will be in position to exploit them when presented with the right incentives. 

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.

The Fifth Circuit Rules Industry-Wide Noncompete Agreements Are Not Enforceable

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

static1.squarespace.comThe Fifth Circuit Court of Appeals recently considered whether a travel agency’s noncompete agreement with its employee was enforceable under Texas law.  It concluded that because the agreement did not have geographic limits, was not limited to the travel agency’s customers with whom the employee actually worked during her employment, and included the entire travel agency industry, the noncompete was unenforceable.

In analyzing the noncompete clause, the court in Karen D’Onofrio v. Vacation Publications, Inc., provided a useful refresher as to what types of noncompete agreements are legal in Texas and what types are illegal and, therefore, not enforceable.   The court confirmed that noncompete restraints that preclude employees from working in any capacity in a particular industry are not enforceable. Thus, when it comes to noncompete agreements, bigger is not always better.

What covenants not to compete are legal in Texas?

First of all, Texas law recognizes that reasonable covenants not to compete serve the legitimate business interest of preventing departing employees from “using the business contacts and rapport established” during their employment to take the employer’s clients with them when they leave.

Thus, a covenant not to compete is enforceable under Texas law if it is “ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.”  Tex. Bus. & Com. Code § 15.50(a).

In the case of personal services occupations, such as sales persons, the employer has the burden of showing the reasonableness of its noncompete agreement.  Thus, for example, an employer who is asking a court to enforce a 20-mile covenant not to compete, will have to establish why the 20-mile – as opposed to a 10-mile – radius is reasonable.

What types of covenants not to compete are illegal in Texas?

As a general rule, under Texas law, covenants not to compete that extend to clients with whom the employee had no dealings during his or her employment or amount to industry-wide exclusions are overbroad and unreasonable and will not be enforced by the Texas courts.  Similarly, the absence of a geographical restriction will generally render a covenant not to compete unreasonable and, therefore, unenforceable.

Was D’Onofrio’s covenant not to compete enforceable?

D’Onofrio’s noncompete agreement prohibited her — for a period of 18 months after her employment with the travel agency — from, among other things, working “in any capacity” for “any direct or indirect competitor of [the travel agency] in any job related to sales or marketing of cruises, escorted or independent tours, river cruises, safaris, or resort stays” or doing any business with “any person or entity” who had purchased a cruise or other travel product from the travel agency in the preceding 3 years.

According to the court of appeals, this covenant amounted to an industry-wide restriction, which prevented D’Onofrio from working in any job related to the sales or marketing of not just cruises, but also a host of other travel products—and was not limited as to either geography or clients with whom D’Onofrio actually worked during her employment.  Therefore, the Fifth Circuit Court of Appeals concluded that D’Onofrio’s covenant not to compete with her travel agency was unreasonable as written.

When a Texas court finds a noncompete agreement unenforceable, what does that mean for the employer?

If a court determines that a covenant not to compete does not contain reasonable time, geography, and scope limitations, but is otherwise enforceable, then the court shall reform, i.e. rewrite, the noncompete agreement to make it reasonable.  For example, a court can change a 50-mile radius in a non-compete agreement to a 20-mile radius or change an 18-month restriction to a 6-month restriction.  

Texas Bar Association Top TenBOTTOM LINE: In the D’Onofrio case, the court of appeals sent the case back to the lower court directing it to rewrite the agreement.   Texas employers should be aware that any time a court has to rewrite a noncompete because it is overbroad and unreasonable, there are negative consequences for the employer – more attorney’s fees, more time spent in litigation, and an inability to recover damages from the employee.  

Therefore, it is important to make sure that noncompete agreements are written properly from the beginning rather than rely on the courts’ ability to rewrite them during litigation.

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

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

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.

Can an employer require employees to repay training costs in Texas?

by Leiza Dolghih, posted in Employment Agreements in Texas, Employment Law, Executive Compensation, Small Business Help, Texas Employment Law, Texas Legal News

GiveBack-1000x360Earlier this year, the Second Court of Appeals ruled that an employee had to repay 1/3 of his salary to the employer as a reimbursement for training costs when he decided to leave.  The employee argued that the reimbursement agreement contained in his offer letter was unconscionable (legal term for “patently unfair”) and against public policy, but the Court of Appeals rejected both of these arguments in upholding the trial court’s award.

In Sanders v. Future com, Ltd., Sanders signed an offer letter from Future com that stated that he would be responsible for repaying the company for any training provided to him by Future com if he voluntarily left the company within one year after completing such training.  The repayment included travel expenses and “salary paid for study or course time.”  Sanders left Future com within twelve months of receiving certain training but refused to repay $4,003.39 in travel costs and expenses and $34,476.96 in salary that Future com paid Sanders while he was being trained.  The company sued him for breach of the employment agreement.

Sanders argued that the training reimbursement provision was not enforceable for a host of different reasons, but most notably, because it was unconscionable and against public policy.   The Court of Appeals rejected both of the reasons findings that:

  1. The repayment provision was meant to protect the company from the loss of Sanders’ employment before it had the opportunity to recoup its costs from training him.
  2. The company had a legitimate interest in making sure that it was not training employees for its competitors. 
  3. The company did not have to show that it actually suffered loss form Sanders’ departure. 
  4. The repayment provision was clear and understandable and was not hidden so as to create an “unfair surprise” for Sanders.
  5. Since training repayment provisions have been found to serve public good, this provision was not against public policy. 

TexasBarToday_TopTen_Badge_VectorGraphicTAKEAWAY FOR EMPLOYERS: Generally, training repayment provisions in employment agreements are enforceable in Texas.  Employers should make sure that such clauses are written in a clear and understandable manner and are not hidden within employment contracts.   

When determining the parameters of the reimbursement policies, companies should make sure that they comply with the Texas Texas Free Enterprise and Antitrust Act of 1983, which prohibits the restraint on trade.  In the case above, it appears that the company provided significant amount of training that took up to 1/3 of employee’s working time.  In such circumstances,  a reimbursement clause may be more enforceable than where a company provided minimal training.  Thus, when drafting a training reimbursement policy or agreement, it is best to consult with a qualified attorney to make sure that it is enforceable.

Leiza represents companies in business and employment litigation.  If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

Staffing Agency Could be on the Hook for Termination of an 83-Year Old Receptionist at Client’s Request

by Leiza Dolghih, posted in Age Discrimination, Employment Discrimination, Small Business Help, Texas Employment Law, Texas Legal News, Wrongful Termination

staffing-agencyThe Fifth Circuit recently addressed an interesting issue – when a staffing agency’s client asks to replace an employee, does the staffing agency have a duty to investigate the reasons for the request?  For example, if a staffing agency’s client calls and says we want you to replace Bob, who is African-American, does the agency have a duty to ask why the client wants to terminate Bob and make sure it is not because of his race? The Fifth Circuit ruled that a staffing agency must follow its usual practices in responding to a client’s desire to have an employee removed, and a deviation from such practices may serve as evidence that the staffing agency knew or should have known of the client’s discrimination. So, in the example above, if the staffing agency typically investigates a client’s complaint about an employee, but in Bob’s case it removes him without confirming that he was unable to do his job, such action may create an issue of fact (and prevent summary judgment in favor of the employer) as to whether the staffing agency knew or should have known that the client’s request to remove the employee was discriminatory.

In Nicholson v. Securitas Services USA, Securitas was asked by a client to replace an 83-year old receptionist due to her not being able to perform new technology-related tasks. Securitas removed Nicholson, without asking her for an explanation and without any investigation, and replaced her with a 29-year old employee. According to at least one of its employees, this failure to “check out” the complaint or investigate the reason for the client’s request, was not a normal procedure at Securitas. The Fifth Circuit, therefore, found that the trial court improperly granted Securitas’ summary judgment because there was a fact issue regarding whether the staffing agency knew or should have known that its client’s request to replace Nicholson was motivated by her age.

Takeway:  A staffing agency is liable for discriminatory conduct of its joint-employer client if it (1) participates in the discrimination or (2) knows or should have known of client’s discrimination but fails to take corrective measures within its control. Moreover, a staffing agency’s deviation from standard evaluation or investigation practices is evidence of discriminatory intent.

Thus, staffing agencies should follow their policies and procedures in a consistent manner when faced with a client’s request to remove or replace an employee. If such request is later found to have been based on a prohibited discriminatory factor, a staffing agency who replaces an employee without investigating the client’s complaint may be liable for discrimination along with its client, if its failure to investigate constitutes deviation from its standard procedures.

Leiza is a business and employment litigation attorney in Dallas, Texas. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

 

The Fifth Circuit Reminds that the Interactive Process Under ADA Is a Two-Way Street

by Leiza Dolghih, posted in Disability Discrimination, EEOC, Employment Discrimination, Small Business Help, Texas Employment Law, Texas Legal News

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The Fifth Circuit recently found in favor of the City of Austin for firing a disabled employee because he did not attempt to perform his new lighter-duty job in good faith.  After the employee was injured on the job, the city offered him an administrative position as an accommodation because he could not perform manual labor required by his prior job.  

The employee accepted the new job, but began missing work, played computer games and surfed internet, slept on the job, made personal phone calls and applied for other positions within the city while at work.  He also refused to participate in any training that would have helped him perform his new job.  

After he was fired, he sued the city alleging discrimination based on disability and failure to provide him with reasonable accommodation. The Fifth Circuit found no discrimination and emphasized that “terminating an employee whose performance is unsatisfactory according to management’s business judgment is legitimate and nondiscriminatory as a matter of law.”  It further explained the boundaries of the interactive process between an employer and an employee who requests an accommodation for his disability.

Once an employee requests an accommodation based on a disability, the employer and employee must work together in good faith, back and forth, to find a reasonable accommodation. The process does not end with the first offer of accommodation but continues when the employee asks for a different accommodation or where the employer is aware that the initial accommodation is failing and further accommodation is needed. Thus, the process is a two-way street.  In this case, once the employee accepted an administrative position, he had to make an honest effort to learn and carry out the duties of his new job with the help of the training that his employer had offered to him. He certainly had an obligation not to engage in misconduct at work.   Once he had shown no desire to try to succeed in that position, the city had no duty to offer him another job. After all, the ADA provides a right to reasonable accommodation, not the employee’s preferred accommodation.

Takeaway: When an employee requests a reasonable accommodation due to disability, the employer must engage in an interactive process with that employee to determine what reasonable accommodation will help the employee perform his or her duties. Employers should always document the process so that they have proof of engaging in it in good faith.  Employees should also engage in the process in good faith, which means that if an accommodation is granted to them, they should try to take advantage of it. At the end of the day, an employer is required to provide a reasonable accommodation, but not necessarily the accommodation requested by the employee.

Leiza is a business and employment attorney in Dallas, Texas. If you need assistance with a business or employment dispute 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.

Texas Employment Hiring Checklist

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

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 in business and employment litigation. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.