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


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 LDolghih@GodwinLaw.com or (214) 939-4458.

What Should a Company do When it Suspects That an Employee Stole Its Trade Secrets?

preciousEmployees take their employers’ trade secrets all the time. It’s a fact of life.  No matter what systems an employer has in place, sooner or later a key employee will depart and take some trade secret information, data, or documents with them. Most employees take trade secrets because that information will help them land a better job or open a competing business. Some take it because they believe that the information belongs to them since they worked on it or created it. Whatever their reasons may be, the loss of competitive advantage resulting from the disclosure of trade secrets to competitors or release of that information in the open market may cause significant, and often irreparable, damage to the former employer.

So, what should a company do if it suspects trade secrets theft by a former employee?

First, the company should identify and collect all of the employee’s electronic devices in its possession – desktop computers, laptops, tablets, company-issued phones, and any other devices that the employee used during his work and that may contain company information.

Second, the company should have a qualified forensic examiner image the devices to preserve the relevant electronic evidence that may show whether the employee used any of these devices to copy or transfer the trade secret information and then search such devices for relevant evidence.  This should be done pursuant to a protocol devised by the examiner and a legal counsel to ensure that the evidence will later hold up in court.

Third, the company should search the employee’s emails for any evidence of trade secrets transfer.

Fourth, the company should interview its employees and/or third parties who may have relevant information.

** The company must move quickly and have an attorney supervise and coordinate the above efforts to make sure the collected evidence can later be used in court (i.e. is admissible) and to make sure the relevant communications are protected by the attorney-client privilege.

Fifth, if the company discovers evidence of trade secrets theft, it should file a lawsuit and seek a temporary injunction – a court order – prohibiting the former employee and anybody else acting on his/her behalf from using or disclosing the company’s trade secrets.  While this may be costly, this is the only effective way to stop the employee before he or she uses or discloses the trade secrets or does significant damage to the company.

Here is a real-life example where the above steps worked and helped a company stop a former employee from opening a competing business using the company’s trade secrets. 

Earlier this year, I wrote about a case that involved a Texas employer who followed the above steps and was able to obtain a temporary injunction and then a permanent injunction shutting down a competing business that a former employee opened using the gym’s trade secrets.  In that case, a Houston gym filed a lawsuit against its former regional vice president and his wife claiming that they took the gym’s confidential information and opened their own competing gym and medspa.  The gym obtained a temporary injunction against the former employee and his new company within four days of filing the lawsuit because it had emails and other electronic evidence establishing the trade secrets copying and transfer by the VP.

Just recently, the court in that case issued a permanent injunction prohibiting the former VP from opening or operating any new locations of his gym and medspa through September 2017 and from opening any gyms within a seven-mile radius of any of Life Time’s 123 existing locations, as well as employing or attempting to employ any current or former Life Time employees.

Additionally, within 20 days of the court order, the VP and his wife were required to return or destroy all of the gym’s documents and information still in their possession. After no more than 25 days, they had to provide the court with a declaration confirming that all sensitive data has been secured. Finally, between 20 and 90 days after the ruling, a forensic computer specialist “[had] the right to inspect and audit any computer systems” belonging to the VP, his wife, his business associate, and their gym to ensure that they had destroyed or permanently deleted the gym’s trade secrets.  This outcome would not have been possible, had the company  not followed the steps outlined above.

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 LDolghih@GodwinLaw.com or (214) 939-4458.

Texas Non-Competes Soon Will Be Unenforceable in California

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 LDolghih@GodwinLaw.com or (214) 939-4458.

Fox Goes to War with Netflix Over Two Programming Executives Who Jumped Ship

160916165507-netflix-fox-logos-780x439In a move that suggests that Fox might be feeling the burn of Netflix competition, the network Goliath has recently sued the king of online streaming over hiring of its two programming executives.  In the lawsuit, Fox claims that Netflix induced these employees to breach their employment agreements with Fox and thus tortiously interfered with their contracts causing it irreparable harm. It alleges that the conduct was illegal since Neftlix knew about the employment agreements – in fact was warned by Fox about them –  but decided to poach the executives anyways.

Coming out swinging, Fox described Netflix’s actions in the complaint as follows:

Netflix is engaged in a brazen campaign to unlawfully target, recruit, and poach valuable Fox executives by illegally inducing them to break their employment contracts with Fox to work at Netflix.  This action is necessary to enforce Fox’s rights, to hold Netflix liable for its wrongful conduct, and to prevent Netflix from continuing such illegal conduct.

Fox did not sue the two executives, who are now working on drama programming development for Neftlix. However, it seeks injunctive relief against Netflix to restrain it from interfering with the executives’ employment agreements claiming that Netflix’s conduct caused it “great and irreparable harm, including loss of Fox’s ability to contract for a stable workforce, the disruption to Fox’s corporate planning, and the injury to Fox’s business reputation and goodwill.”  Thus, while the executives are not named as defendants in the lawsuit, should the court grant Fox’s injunction, the order will necessarily affect the executives’ employment with Netflix. 

Takeaway:  2016 has been the year of high-profile non-compete battles in several industries. Nike, Fitbit, Lyft, and now Fox, have all been involved in lawsuits arising out of departure of key employees who ended up working for a competitor. Given the uptick in such litigation, companies should approach the process of hiring from competitors with caution and conduct their factual and legal homework before extending offers to such hires.  

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

Breaking News: Texas and 20 States Sue the Department of Labor Over the Overtime Rules


TexasBarToday_TopTen_Badge_VectorGraphicA group of 21 states, including Texas, filed a lawsuit today in the
Eastern District of Texas challenging the U.S. Department of Labor’s new overtime exemption rules that are supposed to go into effect on December 1, 2016, arguing the agency unconstitutionally overstepped its authority to establish a federal minimum salary level for white collar workers.

Back in May, the White House announced that the new overtime rules would go into effect on December 1, 2016.  As I have previously written, the new rules would raise the threshold salary requirements for administrative, professional and executive exemptions from $23,660 to $47,476 annually. They would also raise the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test from $100,000 to $134,004.  Needless to say, many businesses have opposed such a drastic change.  It appears that the states have a problem with it as well.

In the lawsuit, the States argued that they employ many employees who are currently classified as exempt and who would have to be reclassified under the new DOL rules because their salaries do not meet the new DOL salary threshold of $913 per week. Thus, the federal government “could deliberately exhaust State budgets [] through the enforcement of the overtime rules.” 

Raising the question of states rights under the U.S. Constitution, the States argue that the federal government cannot “dragoon and, ultimately, reduce the States to mere vassals of federal prerogative” and that the new overtime rules would do just that by forcing the States to shift resources from other important priorities to increased payroll for certain employees and “effectively impose the [federal government’s] policy wishes on State and local governments.” 

Specifically, the States seek: (1) a declaratory judgment declaring the new overtime rules unlawful and arbitrary and capricious; (2) a temporary injunction preventing the DOL from enforcing or implement the new overtime rules; and (2) a permanent injunction preventing the DOL from enforcing or implement the new overtime rules. 

If the District Court grants the states a temporary injunction prior to December 1, 2016, the DOL might not be allowed to start the enforcement of the new overtime rules on that date.  However, employers should continue to prepare for the new overtime rules as if they are still going into effect on December 1, 2016.  Stay tuned for updates regarding this case . . . 

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 LDolghih@GodwinLaw.com or (214) 939-4458.

The Difference Between Non-Competition and Non-Solicitation Restrictions

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

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

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

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

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

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

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

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

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

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

Are Non-Compete Agreements Enforceable in Texas?

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

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

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

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

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

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

TAKEAWAY FOR EMPLOYERS: Employers should have a qualified attorney draft and/or review their non-compete agreements.  While there are many forms out there, because non-compete agreements in Texas have to be catered towards each 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 on behalf of COMPANIES and EMPLOYEES in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Texas Employment Hiring Checklist

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Erasing Employer Files Costs Employee Severance Pay

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

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

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

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

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