North Texas Legal News
Original Commentary on Non-Compete and Trade Secrets Law
Enforcing Non-Compete Agreements in Texas – The Issue of Consideration
For an employer to enforce its noncompete agreement in a Texas court, it must show that it gave something to an employee in return for that employee’s promise not to compete. That “something” may differ from state to state. Some states want the employer to pay an employee $$$ for the specific promise not to compete. Other states find that just a simple promise of a employment, even the kind that can be terminated at any time, is an even exchange for an employee’s promise not to compete.
Unlike many other states, Texas requires employers to give something more besides a job offer or money to an employee in order to extract a legally binding promise not to compete. In this state, the consideration must have a “reasonable relationship” to the employer’s interest in restraining the employee from competing. Simply restricting an employee from lawful competition for the sake of preventing competition will almost certainly fail.
BOTTOM LINE: Texas employers should make sure that their non-compete agreements are supported by proper consideration under Texas law in order to enforce such agreements in court.
Leiza litigates non-compete and trade secrets lawsuits in a variety of industries. If you are a party to a dispute involving a noncompete agreement in Texas, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.
New Contact Information
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.
Protect Your Trade Secrets or Lose Them
The first rule of the fight club is you don’t talk about the fight club. The same rule applies to trade secrets. If you talk about your trade secrets – pricing, customer names, vendor relationship, or other aspects of your business, with people who do not have non-disclosure agreements, you are going to lose the “trade secret” status that such information may carry, which means your employees will be able to take that information to your competitor or their new business.
Under the Texas Uniform Trade Secrets Act (TUTSA), an owner of a trade secret must use “reasonable efforts under circumstances” to protects its trade secrets. Depending on how large or sophisticated the business is, those methods may include anything from keeping key files in a locked cabinet to passwords for logging into a customer database, to issuing company computers that have no outside ports, to fingerprint and iris-scan access devices.
Obviously, a mom-and-pop shop is not going to install fingerprint access devices or buy an expensive software that will alert it when an employee downloads an unusually large amount of information, but it can implement simple measures like asking all of its employees to execute a non-disclosure agreement as part of their employment file, make sure that the financial and other sensitive information is accessible only to the owners, and make sure that any confidential information, such as customer lists, is clearly marked as “confidential.”
Larger businesses – those that wield a workforce comprised of dozens, hundreds, or thousands of employees – need to have more advanced trade secrets protection measures, as well as the periodic audits of the effectiveness of such measures.
At a bare minimum, all businesses should have a standard confidentiality (non-disclosure) agreement for its employees, vendors, investors, and anyone else who has access to the business’s trade secrets. They should also look at what protection methods are used by their competitors or are common in their industry and implement those that make sense most for the company.
A little time and expense invested in the trade secret protection on the front end can save thousands of dollars down the road. If you think that providing company computers to your employees is too expensive, imagine how much it will cost in legal fees to retrieve your company’s confidential information from the departed employees’ personal devices.
Leiza litigates non-compete and trade secrets lawsuits in a variety of industries, and knows how such disputes typically play out for both parties. 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.
How to Fire Employees Without Being Sued
Litigation can be expensive, disruptive to business and bad for employee morale. The good news is that there are certain things that an employer can do before, during, and after the termination of an employee that can minimize the chances of a lawsuit arising out of the termination. In the spirit of an old proverb that advises that “an ounce of prevention is worth a pound of cure,” this article provides a list of best practices that can help avoid wrongful-termination types of lawsuits and the business interruption that comes with such litigation.
Have a probation period. A probation period of 60 to 90 days for new employees allows a business to determine whether an employee is the right fit, and makes it clear to the employee that they do not have a guaranteed term of employment or any rights that may come with a longer tenure, such as medical or other fringe benefits. An employer should make sure that any problems with an employee during the probation period are documented. The employee’s file should also clearly show when the probation status changes to regular employment.
Have an employee policy. An employee handbook that clearly outlines the practice’s policies and procedures is key to avoiding disputes over whether the terminated employee is owed unpaid Paid Time Off (PTO) or other compensation upon termination, or whether such employee was terminated for cause or without cause (an important distinction when it comes to the payment of unemployment benefits). If the handbook contains a description of the company’s progressive discipline policy, consistent application of this policy to all employees can establish a defense to a claim that a particular employee was terminated based on a discrimination or retaliation. It should also contain an anti-harassment policy and explain to employees how to report incidents of harassment, discrimination or retaliation.
Follow the policy. If a business has a progressive discipline policy, it must make sure that such policy is applied fairly, neutrally, and consistently to all employees. In other words, if one employee is terminated after receiving three written warnings, then another employee cannot be allowed five such warning before being terminated. Making exceptions to the policy can result in a terminated employee arguing that they were treated differently based on one of the protected categories such as race, gender, religion, and others.
Document problems. Any problems with an employee, especially policy violations, should be documented in their personnel file. Ideally, the problem should be documented in writing, on a form that is signed by the employee, acknowledging that they received the warning. If this is not possible, then a written note should be made by the employee’s supervisor noting what the problem is and that it was discussed with the employee. Most termination lawsuits involve a situation where an employee had no documented problems or the problems were documented poorly.
Know which laws apply to your practice. Before dismissing an employee, an employer should become familiar with the laws that might apply. Often, but not always, that depends on how many employees the business has. Additionally, certain laws, such as the Family and Medical Leave Act, for example, apply only to employees who have worked for the employer for 12 months and a certain number of hours. Thus, such a statute does not protect all employees. Knowing which laws a company must comply with before terminating an employee can save it from an unpleasant surprise in the form of a lawsuit.
Prepare for the termination. Firing on the spot should only occur in extreme circumstances that justify such an action. Rather, a typical termination should be preceded by a few steps that tend to minimize the chances of a lawsuit. The person in charge of termination should know which laws apply. He or she should also review the company’s handbook describing unacceptable employee behavior and the discipline policy and make sure that the company has complied with the policy in documenting the employee’s violations of the rules. The performance appraisals and any disciplinary action records should be consistent with each other.
A pre-termination review of all the records related to the employee should establish that the termination is legal under all applicable laws, is justified by the facts, is consistent with the company’s policies and procedures and is consistent with how the business has handled such terminations in the past.
Be professional during the termination meeting. During the termination, the key is to treat the employee with respect, and to be polite but firm. The discussion should be brief and based on the facts. While an employee may get emotional, the person on the other end of the discussion should remain professional. If a volatile situation is expected, it may be necessary to have security personnel present. At the very least, one other person should be present on the employer’s side during the termination, who can later confirm that nothing improper was said during the termination conversation.
Comply with Texas Payday Law. Many times, employers will take certain deductions from the final check, or will hold the final paycheck until the employee returns company property. These actions may violate the Texas Payday Law statute, which requires employers to follow very specific rules in making the final payment to a terminated employee.
The Texas Payday Law covers all Texas businesses, regardless of size, and applies to all persons who perform a service for compensation, except for close relatives and independent contractors. It covers salary, commission, bonuses, and certain fringe benefits. This statute lays out the rules on how and when an employer must pay the final paycheck, depending on whether the employee resigned or was terminated. It also describes when an employer can take deductions from the final paycheck. Failure to comply with the final paycheck rules under the statute can result in penalties from the Texas Workforce Commission. Therefore, employers should become familiar with this statute and its requirements.
Follow up after the termination. The terminating manager should write down what was said at the meeting in the event of a lawsuit. She or he must also inform the remaining employees on a need-to-know basis about the termination. If a higher-level employee is terminated, have a staff meeting as soon as possible after the termination and tell them what happened and why, but do not provide the specifics. You want to stop the rumor mill, not feed it.
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.
Proving Lost Profits in a Trade Secrets Case – An Expensive Lesson from a Texas Court of Appeals
What the jury giveth, the judge may taketh away. Memes aside, any company that is thinking of filing a trade secrets misappropriation case, must be ready to prove both: that its trade secrets were taken and the amount of damages that the taking caused.
A recent ruling from the Dallas Court of Appeals demonstrates how a company’s verdict can be taken away by the court due to the party not having sufficient evidence of damages.
In Radiant Financial v. Bagby, the company, which structures and sells fractional interests in life insurance policies referred to as life settlements, sued its former sales agent for breaching her non-disclosure agreement and trade secrets misappropriation. Radiant alleged that Bagby persuaded 19 investors who had previously placed money into escrow with Radiant, to take their money out and invest it with a Radiant’s competitor. In the process, she allegedly provided some of Radiant’s proprietary forms and the information filled out by the investors to Radian’t competitor.
The jury awarded Radiant $152,916 in damages, $150,000 in punitive damages, and $600,000 in attorneys fees in response to the question to “[c]onsider the profit that Radiant Financial lost” as a result of Bagby’s failure to comply with her non-disclosure agreement and misappropriation of Radiant’s trade secrets.
The trial court, however, refused to award these damages after concluding that Radiant did not prove that the 19 investors that left would have invested with it but for Bagby’s actions.
During the trial, Bagby introduced evidence that: (1) the 19 investors had specific investment requirements; and (2) at the time when they left Radiant, it offered no policies that met these investors’ requirements. Radiant argued that its track record showed that it “had always been able” to find appropriate policies for its investors. Thus, it would have been able to find appropriate policies had Bagby not taken the investors to a competitor. The trial court rejected Radiant’s lost profits damages model finding that it would require the court to “stack assumption upon assumption,” and took away the jury damages award. The Dallas Court of Appeals upheld the court’s decision.
Bottom Line: Before filing a trade secrets case, the company bringing the lawsuit should always consider the following questions: (1) what damages did it suffer? (2) how does it calculate such damages? (3) how can it prove such damages in court? While the answer might not be obvious in the beginning of the lawsuit, waiting to ask such questions until the lawsuit is well underway can result in the company spending thousands of dollars in attorney’s fees on a lawsuit where the monetary damages are speculative or non-existent.
Leiza litigates non-compete and trade secrets lawsuits in a variety of industries, and knows how such disputes typically play out for both parties. 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.
A Two Day Suspension is Not a Materially Adverse Action – Rules the Fifth Circuit
The Fifth Circuit recently addressed whether an employee who was placed on a two-day unpaid leave suffered a “materially adverse action” by the employer such as to allow him to defeat a summary judgment on a Title VII retaliation claim.
In Cabral v. Brennan, a Mexican-American employee in his mid-40s was placed on unpaid leave after he failed to produce a valid driving license requested by his supervisor. Cabral, who had a history of filing multiple discrimination, harassment and retaliation complaints, claimed that he was placed on leave in retaliation for filing such complaints. The US Post Office, his employer, claimed that he was placed on unpaid leave (and later reimbursed) because his supervisors believed that his license had been suspended for a DWI conviction.
The Fifth Circuit agreed with the US Post Office and explained that not every unpaid suspension qualified as a “materially adverse action” by an employer under Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53, 68 (2006). Unlike the plaintiff in White, whose 37-day probation caused her to fall into a deep depression, Cabral failed to show that his suspension exacted a physical, emotional, or economic toll on him. His conclusory statements attesting to the emotional or psychological harm he suffered because of the two-day suspension, without documentation of any alleged harm, did not provide sufficient evidence of a materially adverse action to defeat summary judgment.
CONCLUSION: Cabral decision clarifies that an unpaid suspension is not a per se materially adverse action. An employee must show that unpaid leave caused him or her physical, emotional, or economic harm via some documentation and not just conclusory statements in order to establish a “materially adverse action” by the employer.
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.
Is a Non-Compete Agreement Without Geographical Restriction Enforceable in Texas?
This exact question is currently being decided by the Texas Supreme Court, which earlier this month held oral arguments in Horizon Health Corp. v. Acadia Healthcare Company, Inc.
Under the Texas Noncompete Act, a noncompete agreement is enforceable in Texas only if it is:
Ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent 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.
The non-compete agreement in Horizon Corp. v. Acadia Healthcare did not contain an express geographical limitation, but barred employees from:
- seeking work in, or independently establishing, a psychiatric contract management company;
- being employed by “company clients, hospital affiliates or hospital joint venture partners,” or
- engaging in any business relationship with those hospitals for 1 year after the end of employment.
Horizon argued that the non-compete agreement is not enforceable because it does not contain an express geographical limitation. Acadia argued that because the agreement is limited to certain identifiable set of companies or clients, it did not need to have a geographical limit to be enforceable under the Texas Covenants not to Compete Act. The parties presented their oral arguments to the Texas Supreme Court on March 1, 2017.
BOTTOM LINE: Until there is a ruling from the Texas Supreme Court resolving the issue of whether noncompete agreements must contain an express geographical limitation, to be safe, companies should include such limitation in the agreements in additional to any limits on client solicitation. Stay tuned to learn how the Texas Supreme Court rules on this issue.
Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. 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.
5th Cir. Update: Employee Lies, Resists During Investigation; Employer Still on the Hook for Retaliation
In a second pro-employee opinion this February, the Fifth Circuit ruled that an employee’s “mild resistance” during an internal investigation does not provide an independent reason for termination when the investigation is spurred by a retaliatory motive.
The facts were pretty simple. An African-American machinist complained of his supervisor racially harassing him. The company investigated but found nothing. A month later, a co-worker and another supervisor decided to conduct a “sting operation” and catch the employee selling pornographic materials on the company premises. When confronted, the employee denied selling the materials, claimed the envelope in his locker had been planted, and refused to allow the search of his car. The next day, he was terminated “for a serious violation of company policy.”
The district court determined that the internal investigation was motivated by the desire to retaliate against the employee for his racial discrimination complaint because: (1) other employees had apparently sold pornography on the premises without punishment; (2) there was no clear rule prohibiting the sale of pornography that would require termination rather than a warning; and (3) several witnesses were unsure about the nature of the employee’s violation and changed their position a number of times. However, the judge concluded that the employee’s termination was justified independent of any other reason because he “resisted the investigation by leaving before [his] car could be properly searched and by lying to his supervisor about his activities.”
The Fifth Court, however, overturned the lower court’s ruling finding that the employee was terminated as the result of his supervisor’s retaliatory actions and the fact that he “mildly” resisted the investigation was not a superseding cause of his termination. The following statement provides a clear look into the Court’s reasoning:
“We decline to … provide an incentive to supervisors motivated by retaliatory animus to initiate groundless investigations with the purpose of causing the targeted employees to resist them, thereby leading to the employer’s adverse actions.”
BOTTOM LINE FOR EMPLOYERS: According to the Fifth Circuit, a supervisor cannot start a groundless internal investigation as a retaliation for employee’s previous discrimination complaint and then, when employee resists investigation, fire him. Thus, a company should always make sure that the person who reports a violation of a company policy by another employee, does not have a self-serving retaliatory motive and that such a person is not in charge of or leading the internal investigation process.
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.
What Employment-Related Bills are on the Texas Legislature’s Plate in 2017?
T
he 85th general session of the Texas Legislature started in January and will end in May 2017. Numerous employment-related bills have been filed during the general session, and while many of them will not become the law of the land, they provide a good insight into what’s on the legislators’ mind. A lot of times, even though a bill won’t pass on the first try, it will be reintroduced and passed during the second or even a third attempt. Here’s a summary of current 2017 employment-related bills filed in the house or senate:*
Discrimination
- HB 192 – Relating to the prohibition of housing discrimination on the basis of sexual orientation or gender identity or expression and to the enforcement of that prohibition.
- HB 225 / SB 165 J – Relating to the prohibition of employment discrimination based on sexual orientation or gender identity or expression.
- HB 228 / SB 223 – Relating to unlawful employment practices regarding discrimination in payment of compensation.
- HB 258 – Relating to a prohibition on the award of a state agency contract to a person in a state with laws allowing or requiring discrimination based on sexual orientation or gender identity or expression.
- HB 290 – Relating to a prohibition on sex discrimination in compensation.
- SB 92 – Relating to prohibition of certain regulations by a county, municipality, or other political subdivision.
- SB 165 – Relating to the prohibition of certain discrimination based on sexual orientation or gender identity or expression.
- SB 296 – Relating to the liability of the state for a violation of the federal Americans with Disabilities Act
Employee / Family Leave
- HB 88 – Relating to an unlawful employment practice by an employer whose leave policy does not permit an employee to use leave to care for the employee’s foster child.
- HB 629 – Relating to leave for certain veterans obtaining medical and mental health care.
- HB 656 – Relating to employment leave for certain family or medical obligations.
- HB 718 – Relating to family care leave for certain employees.
- SB 73 – Relating to leave policy and procedures for state employees.
- SB 191 – Relating to the ability of a nonexempt employee to participate in certain academic, disciplinary, college and career readiness, and developmental activities of the employee’s child or grandchild.
- SB 285 – Relating to the right of an employee to time off from work to obtain an election identification certificate.
Human Resources – General
- HB 252 – Relating to the requirement that certain employers provide advance notice of employee work schedules.
- HB 317 / HB 334- Relating to the consideration by certain employers of the consumer credit reports of certain employees and applicants for employment.
- HB 329 – Relating to breast-feeding policies of state agency worksites.
- HB 334 / HB 317 – Relating to the consideration by employers of the consumer credit reports or other credit information of employees and applicants for employment.
- HB 548 – Relating to the consideration of criminal history record information regarding applicants for employment.
- HB 568 – Relating to authority for certain state employees to work flexible hours and to work from home or other authorized alternative work sites.
- HB 577 – Relating to the authority of a political subdivision to adopt or enforce certain regulations regarding whether a private employer may obtain or consider an employment applicant’s or employee’s criminal history record information.
- SB 75 – Relating to the requirement for parental consent for a minor to join a labor union.
- SB 279 – Relating to expression of breast milk in the Capitol and other public buildings.
Immigration / E-Verify
- SB 23 / SB 254 – Relating to requiring state contractors to participate in the federal electronic verification of employment authorization program, or E-verify.
- SB 85 – Relating to the verification of employment authorization by state contractors and state grant recipients, including the use of the federal E-verify program, and to authorization for the suspension of certain licenses held by private employers for the knowing employment of persons not lawfully present in this state; authorizing a fee.
Pay / Benefits / Wages and Hours
- HB 202 – Relating to a database of employers penalized for failure to pay wages or convicted of certain offenses involving wage theft.
- HB 253 – Relating to the period during which an employee may file a claim for unpaid wages with the Texas Workforce Commission.
- HB 285 / HB 475 Relating to the minimum wage. ($15/hour or federal minimum wage, whichever is higher)
- HB 326 – Relating to the payment of gratuities to certain employees.
- HB 373 – Relating to administrative penalties assessed by the Texas Workforce Commission against certain employers for failure to pay wages.
- HB 510 / SB 13 – Relating to payroll deductions for state and local government employee organizations.
- SB 70 – Relating to the required earnings statement provided by employers.
- SB 229 – Relating to the minimum wage. ($10.10/hour or federal minimum wage, whichever is higher)
Employment – Miscellaneous
- HB 92 – Relating to the entitlement of spouses of certain veterans with disabilities to a veteran’s employment preference.
- HB 108 – Relating to the creation of the Recruit Texas Program to facilitate the relocation to or expansion in this state of employers offering complex or high-skilled employment opportunities.
- HB 148 – Relating to electronic benefits transfer cards used for recipients of benefits under certain assistance programs.
- HB 436 / SB 268 – Relating to the drug testing of certain persons seeking benefits under the Temporary Assistance for Needy Families (TANF) program.
- HB 595 – Relating to a franchise tax credit for entities that employ certain students in certain paid internship or similar programs
- HB 230 – Relating to the eligibility of school bus drivers for unemployment compensation benefits.
- HB 463 – Relating to the disqualification from receiving unemployment benefits of certain individuals who are terminated from employment after giving notice of resignation.
- HB 563 – Relating to whom certain violations of the law by a state or local governmental entity may be reported.
- HB 665 – Relating to the requirement that contractors verify compliance with wage payment laws in contracts with public bodies.
- SB 283 – Relating to the offense of unlawfully prohibiting an employee from voting.
* The information was originally compiled by the Texas Workforce Commission and all bills have an effective date of September 1, 2017 unless otherwise noted.
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.
5th Cir. Rules No Pain & Suffering, Punitive Damages For ADEA Retaliation Claims
The Fifth Circuit has previously ruled that employees suing for age discrimination under the Age Discrimination in Employment Act (ADEA) may not recover damages for “pain and suffering” or punitive damages.
Last week, the Fifth Circuit ruled in Vaughan v. Anderson Regional Medical Center that ADEA retaliation claims also do not allow for recovery of pain and suffering damages or punitive damages.
The Fifth Circuit specifically pointed out that it is aware that the Equal Employment Opportunity Commission (EEOC) believes that the ADEA permits pain and suffering and punitive damages recoveries, but stated that it found such position unpersuasive.
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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.
