Texas Employment Law Update : Texas Employment Lawyer & Attorney : Russell D. Cawyer : Kelly Hart & Hallman Law Firm : Dallas TX Labor Updates

In Physio GP, Inc. v. Naifeh, the Fourteenth Court of Appeals in Houston held, in a case of first impression, that an individual cannot be held personally liable for a Sabine Pilot cause of action.  A Sabine Pilot or public policy wrongful termination claim is a narrow exception to the general rule of at-will employment in Texas.  A claim may arise when an employee is terminated by his employer solely for refusing to perform an illegal act.  This type of claim was named after the first Texas Supreme Court case to recognize the cause of action.   See Sabine Pilots Serv., Inc. v. Hauck, 687 S.W.2d 733 (Tex. 1985).

In Physio, the plaintiff's claim arose after her employment was terminated, according to her, for refusing to sign altered patient medical treatment records showing medical services that were never provided and that would have led to higher insurance payments for the employer.  The employer contended that the plaintiff was terminated for various performance infractions, including unauthorized treatment on a patient and misuse of company time.  At trial, the employer and individual defendants elected not to defend the case further due to a lack of resources to pay their attorney.  The trial court conducted a bench trial and found that the plaintiff was terminated for refusing to perform an illegal act and entered judgment against the employer and individual defendants. 

On appeal the individual defendants raised an issue left open by Sabine Pilots and the lower court decisions applying the doctrine --i.e., whether an individual supervisor may be held liable for this type of claim.   The Court of Appeals, in a split decision, held that individual supervisors (absent a finding that the supervisor was the alter ego of the employer) cannot be held personally liable for a Sabine Pilot cause of action.

Majority Opinion Here

Dissenting Opinion Here

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The Fourteenth Court of Appeals in Houston recently held that it is the date the employee is provided notice of termination, and not the termination date itself, that commences the statute of limitations in a breach of contract case.  You can read the Memorandum Opinion in Malallah v. Noble Logistic Services, Inc. here.

Bader Malallah entered a three year employment contract with Noble Logistic Services, Inc. (“Noble”) that could be terminated earlier, without notice, for certain enumerated acts or omissions. Prior to the end of the three year term, Noble terminated Malallah’s employment. Four years and seven days after Malallah was first advised that his employment was terminated, but less than four years after his termination was memorialized in writing, Malallah sued for breach of contract.

Noble defended the suit on the grounds that the claims was not filed within the four year statute of limitations that applies to breach of contract claims because it was filed more than four years after Malallah was first given notice of his termination. At trial, the jury found that Malallah was terminated without good cause but also found that his termination occurred on March 2, 2001 (the date he was first given any notice of termination) rather than on March 16, 2001 (the date his termination was memorialized in writing). Therefore, despite the jury's finding that Malallah was terminated without good cause, the the trial court found that the claim was barred by the statute of limitations based on the jury's answer as to the date of termination and entered judgment for Noble. The Houston Court of Appeals [14^th Dist.] affirmed that judgment.

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I've written several posts on the potential pitfalls that may befall a company that mistakenly classifies workers as independent contractors.  You can see those posts here and here.  A recent bill introduced in Congress would make it even more difficult to classify workers as independent contractors and would require companies to file more information with the IRS when independent contractor status is claimed.

In summary, the Taxpayer Responsibility, Accountability and Consistency Act of 2009 would:

• Increase the penalties applicable for the filing of a tax return with inaccurate information;
• Provide that a company would only have a reasonable basis for classifying the worker as an independent contractor, for purposes of the safe harbor provision, when the company has classified no other worker holding a substantially similar position as an employee since December 1977; acts based on a written determination addressing the employment status of the individual or an individual holding a substantially similar position; or concluded an examination of whether the individual (or an individual holding a substantially similar position) should be treated as an employee.
• Allow individuals the right to petition the Secretary of Treasury for a determination of their independent contractor status.

The Act, if passed, would apply to all payments that occurred beginning one year after passage.

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The EEOC has released its FY 2009 Charge Statistics and they show a surprising decrease in the number of charges filed with the agency (although FY 2009 is compared against the highest charge filing fiscal year ever).  The total number of charges in FY 2009 dropped from 95,402 in FY 2008 to 93,277 in FY 2009.  While there was a drop in the overall number of charges filed, FY 2009 still recorded the second highest number of charges ever filed.  

The breakdown of the FY 2009 statistics shows that there were small increases in the number of charges alleging national origin, religious discrimination and retaliation.  There was a nearly 2,000 charge increase in disability-related charges.  The categories all saw record high filings.  All other charge categories saw a decrease in charge filings. 

Prediction for FY 2010 numbers --Expect to see continued increase in the number of disability and religious discrimination filings with other categories remaining relatively constant.  You can find full detail on the number of charge filings here.

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Recently I wrote about ADP's 12th Annual Screening Index summarizing employment screening and hiring trends.  Employers using third-party background screening services must remember to comply with the Fair Credit Reporting Act's (FCRA) procedures prior to using consumer reports, in whole or in part, employment taking employment actions.  Moreover, while Texas has no specific statutes governing use of consumer reporting information in the employment context, some states have laws or regulations imposing more restrictive requirements than the FCRA that must also be followed.

In summary, the FCRA requires employers using consumer reports (i.e., information about your personal and credit characteristics, character, general reputation, and lifestyle) to:

• Disclose, in writing, your intent to obtain consumer reporting information before requesting the information;
• Obtain written authorization to obtain the consumer reporting information before requesting the report;
• Prior to taking an adverse employment action, provide the applicant/employee with pre-adverse action notification containing a copy of the report and a summary of rights under the consumer reporting act;
• After taking the adverse employment action, provide the applicant/employee with post-adverse action notification that contains the name and contact information of the consumer reporting agency (CRA) that prepared the report; a statement that the CRA did not make the decision and advising the individual of his or her right to dispute the information in the report with the CRA within 60 days.

Background checks and pre-employment screening are effective tools to use in hiring qualified employees.  Doing so,  however, without understanding an employer's obligations under state and federal law, can give rise to liability. The Federal Trade Commission enforces the FCRA.  For more information on an employer's rights and obligations under the FCRA, click here.

Earlier: Annual Survey of Employment Screening and Hiring Trends Released.

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This month ADP released its 12th Annual Screening Index report summarizing its evaluation of employment screening and hiring trends.  The summary was gleaned from nearly 5.5. million individual background checks and 1.7 million criminal background checks performed during calender year 2008.  The Screening Index:noted several interesting data points:

• Nine percent of background checks contained an adverse record (concerning criminal history, credit and driving records).
• Forty-six percent of reference and credential verifications revealed a discrepancy between information provided by candidates and what the screening revealed on employment, education and/or reference checks.
• More than one-third (37 percent) of driving record checks showed “one or more violation(s) or conviction(s).”
• Approximately six percent of the criminal record checks revealed a criminal record within the last seven years (out of 1.7 million checks performed).  

Because employers utilize background screens to identify appropriate candidates for employment; confirm the veracity of information provided on employment applications and as part of a comprehensive strategy of maintaining a safe workplace, the ADP summary provides interesting information about the American workforce --on a macro level. A copy of the full report can be downloaded here (must provide ADP with some identifying information prior to download).

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The Texas Supreme Court held that unilateral contracts can be formed with at-will employees when employers make promises to employees and those employees perform based on that promise.  In Vanegas v. American Energy Services, Inc. the Supreme Court was asked to decide the enforceability of an employer's alleged promise to pay five percent of the proceeds of a sale or merger of the company to employees who were still employed at the time of the merger.  The alleged promise arose in the context of a period when the company was performing poorly and the employees were complaining about working long hours with antiquated equipment. 

According to the Court's opinion, a vice-president of the company, in an effort to encourage employees to stay with the company, promised those original employees (of whom there were eight) that if they stayed with the company, they would be paid five percent of the value of any sale or merger.  When the company was sold, the seven remaining employees demanded their share of the proceeds.  The company refused and the employees sued.

The company argued that because the employees were at-will, any promise to pay those proceeds to the employees was illusory and unenforceable because the employer could have avoided the promise by firing the employees at any time.  The employees argued that the promise represented a unilateral contract that, once performed, became a binding enforceable obligation on the part of the employer.

The Court agreed with the employees and held that where an employer makes a unilateral promise to an at-will employee and the employee performs, a binding contract is formed upon that performance.  

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In an unpublished opinion, the San Antonio Court of Appeals held that a former employee cannot avoid the effects of a noncompetition agreement under the doctrine of unclean hands, as a matter of law, when the inequitable conduct the employee complains of is separate from the issue in dispute.  (Opinion available here). 

In Central Texas Orthopedic Products, Inc. v. Espinoza, CTOP sued Espinoza after he resigned his employment and went to work for a direct competitor in violation of a noncompetition agreement he signed with CTOP.  Espinoza contended that the noncompetition agreement could not be enforced against him because CTOP had violated a separate Compensation Agreement by failing to pay all wages and commissions owed to him.  The trial court agreed and granted summary judgment for Espinoza.

The San Antonio Court of Appeals reversed the judgment for Espinoza and held that since CTOP's alleged failure to pay Espinoza did not grow out of the obligations outlined in the Noncompetition Agreement, the alleged breaches of the separate Compensation Agreement could not, as a matter of law, constitute an unclean hands defense to the noncompetition agreement.

Employees frequently try to avoid the effects of restrictive covenants claiming that the employer violated some obligation to the employees; thereby precluding the enforcement of the restrictive covenant under the doctrine of unclean hands.  CTOP continues the Texas judiciaries' trend of making it easier to enforce noncompetition agreements in the state of Texas.

Earlier:   Texas Supreme Court holds that Covenants Not to Compete that Contain Implicit Promises to Provide Confidential Information are Enforceable.

Texas Appellate Court Continues Trend of Enforcing Noncompetition Agreements.

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Manpower has published its most recent research on jury verdicts and the news is not good for employers.  According to a summary of the full report:

• Employers won the lowest percentage of discrimination jury trials this decade; only 39 percent.  Employers won on 33 percent of age cases and 52 percent of disability discrimination cases.  Expect employer's winning percentage to decrease in disability discrimination cases in the next years as post-ADAAA cases make their way to juries.
• Age discrimination cases result in the largest verdicts followed by disability, sex and race.
• Employers are better off in federal court than state court.  Employers won 43 percent of the cases in federal court versus only 37 percent in state court.  The median federal jury award was also lower at $164,925 v. $270,000 in state court.
• Median settlement rose to the highest this past decade at $90,000.

Several reasons may explain Manpower's most recent findings.  First, the economy, and juror attitudes may be affecting outcomes.   In my two most recent jury trials this year, there was a significant number of potential jurors who were either out of work or had a close family member who was unemployed.  With the national unemployment rate topping 10 percent, the increase in the unemployment rate may signal that there are more prospective jurors who may sympathize with an unemployed plaintiff-employee. 

Second, in a poor economy, some employers may choose to try cases they might have settled in the past.  Some employers may elect to try those cases that can be tried to verdict for less than they can be settled.   This may be a fiscally sound decision only in the short term or if the employer prevails at trial.

Finally, the results may reflect the fact that employers are having to try tougher cases to defend.  In any event, Manpower's research suggests that juror attitudes in employment discrimination cases are swinging in favor of plaintiff-employees and against employers.

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