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

In many states, an employee's accrued, but unused vacation time must be paid on termination of employment.  However, under longstanding Texas law, an employee is not entitled to be paid for accrued, but unused vacation, on termination of employment unless the employee has a written agreement with the employee to do so or employer has a specific written policy that it requires vacation be paid on termination.  

The Texas Payday Act defines "wages", in relevant part as "vacation pay, holiday pay, sick leave pay, parental leave pay, or severance pay owed to an employee under a written agreement with the employer or under a written policy of an employer."  Therefore, vacation pay (and holiday, sick or parental leave pay for that matter) that is not paid under a written agreement or policy of the employer that provides that unused vacation is paid on termination does not constitute wages under Texas law and is not required to be paid on termination.

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In the trial of most employment discrimination, harassment or retaliation cases, the employer's documentation of its actions is critical.  An employer defending against these claims will need to be able to prove to a jury that it was its legitimate nondiscriminatory or non-retaliatory reason that motivated its actions as opposed to unlawful animus.  Contemporaneous written documentation of an employee's performance problems, while not required, can go a long way in persuading a jury what, more likely than not, motivated the decision.  In writing effective performance documentation, here are some tips that can be considered.

• Address the performance deficiencies or misconduct timely.  Rather than waiting for the "last straw" counsel employees on areas where they need improvement contemporaneously when those issues arise.  This provides the employee with fair notice that his or performance is deficient and will generally provide them with sufficient warning and opportunity to improve the performance.  Jurors, many of whom are employees themselves, expect plaintiff-employees will be given notice of their performance problems (unless sufficiently severe) before they rise to the level of terminable offenses.  
• While it sounds simple enough, describe what it was that the employee did that violates the employer's policies or expectations.  Be specific with the dates, times and places of the misconduct or poor performance.  If the employee has only been provided with verbal warnings in the past, describe the dates, times and places of those verbal warnings when it comes time to move to more formal discipline like a written write-up.
• If the employee has received previous warnings or performance improvement documentation for the same or similar violation, include that information along with the date of the previous write-up and the specifics of that incident(s) as well.
• If the employee has been advised of the policy or expectation that has been violated, set forth how the employee was informed of the policy or expectation.  For example, if the policy is set forth in the employer's handbook, note that fact as well as the fact that the employee has been provided a copy of the handbook and signed a written acknowledgment of receipt. 
• Be sure that the documentation advises the employee that improvement is expected and which such improvement must be accomplished.  For example, a warning for insubordination or safety violations might require immediate improvement whereas improvement based on a performance quota might be accomplished over time --e..g, 90 days.
• If there is to be some follow-up by the employer, make sure that follow-up takes place and that the employee is given honest feedback on his or her progress toward accomplishing the improved performance.
• Consider whether you will provide an area for the employee to provide a rebuttal or what the employee intends to do to improve his or her performance.   While this provides the employee with an opportunity to provide an excuse or justification for the poor performance, it also provides employees with an opportunity to give thoughtful consideration to the concrete steps he or she will implement to improve the performance.  This increases the likelihood that the employee will be successful in improving his or her performance.
• Have a place for the employee to sign and date the form (or for a witness to sign that it was presented and discussed with the employee in the event the employee refuses to sign).  In cases where the employee has not signed the performance documentation, there is the possibility that the employee will deny that the events occurred.  Even worse, the employee could accuse the employer of fabricating the performance documentation for purposes of the termination or litigation.  The presence of an employee signature reduces the ability or effectiveness of an outright denial by the employee that he or she was warned of the prior performance deficiencies or misconduct.
• Use a preprinted form for performance issues.  This will assist in ensuring that the information suggested in this post is included.  A sample form is available here.

With these tips, employees can be better apprised of their performance deficiencies and the documentation can be valuable evidence in the event the employer has to defend its actions in court.

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Driving home recently, I was nearly run off the road by another commuter.  This driver appeared to be driving with her knees while text messaging on her phone.  As I avoided the swerving car and slowed to let the other driver proceed on her merry way, it was clear that this driver never noticed that she almost caused a collision.  

According to studies referenced in a recent NY Times article, drivers using cell phones are 23 times more likely to be involved in an automobile accident and drive about as well as drivers having a .08 blood-alcohol level --over the legal limit in most states.  As the Fort Worth Star-Telegram reported today, talking and texting on cell phones account for more automobile deaths each year than drunk driving.

Most employment and corporate fleet vehicle usage policies prohibit operating company vehicles under the influence of alcohol or other substances likely to have a detrimental effect on the driver's alertness or responsiveness. Many employer policies also prevent the usage of cell phones in company owned vehicles or while on company-sponsored business unless hands-free devices are used. Given that we live in a world where Darwinian principles don't work quickly enough to thin the herd of those too "distracted" to realize that they should not text message while driving, employers should considering adding specific prohibitions against using laptop computers, personal handheld devices, GPS/navigation devices and text messaging while driving to their vehicle fleet usage policies and other policies that govern employees who may drive as part of their duties and responsibilities.

One of the first highly publicized lawsuits dealing with distracted drivers using cell phones involved the case against Jane Wagner.  Ms. Wager was an associate for a large law firm.  On her way home from working long hours she struck and killed a 15 year old girl.  The girl's family not only sued Wagner but also sued her law firm alleging that she was on a business call at the time of the accident.  The lawsuit initially sought 25-30 million dollars.  The law firm settled for an undisclosed amount but Wagner's case proceeded to trial.  The jury awarded the family $2 Million.   In another case, an Arkansas lumber wholesaler, Dykes Industries, paid $16.2 Million to a woman who was severely disabled in a car accident involving one of its employees who was talking on his cell phone at the time of the accident. 

These cases involved drivers who were allegedly only distracted by talking on their cell phones.  Imagine what the verdicts or settlements would have been had the employees been texting while driving.  Employers should ensure that their fleet usage policies are updated to prohibit the types of activities employees may engage in while using company vehicles or on company business and should vigorously enforce those policies.  Failure to do so can give rise to potential tort claims when those employees are involved in accidents and there is an indication that the driver was distracted because of cell phone, PDA or other non-driving activity.  

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This legislative session the Texas Legislature passed, and the Governor signed, amendments that significantly expands the scope of the Texas Commission on Human Rights Act ("Act") as it relates to individuals with disabilities.

The amendment provides that:

• The definition of "disability" is to be broadly construed to the maximum extent possible and shall include impairments that are episodic or in remission that substantially limit major life activities when active;
• Whether an impairment substantially limits a major life activity should be made without consideration of the ameliorative effects of mitigating measures;
• Being "regarded as having [a substantially limiting] impairment" does not include an impairment that is minor and is expected to last or actually lasts less than six months, regardless of whether the impairment limits or is perceived to limit a major life activity.
• No claim exists for non-disabled individuals for reverse discrimination;
• No reasonable workplace accommodation is required if the individual's disability is based solely on being regarded as having an impairment that substantially limits a major life activity.

The new law also adds a definition of "major life activity" that was missing from the Act.  Major life activity under the Act means:

caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating, and working. The term also includes the operation of a major bodily function, including, but not limited to, functions of the immune system, normal cell growth, and digestive, bowel, bladder, neurological, brain, respiratory, circulatory, endocrine, and reproductive functions.

The new law becomes effective September 1, 2009 and is not retroactive to conduct occurring prior to the effective date. 

What should Texas employers do to prepare for the new law?  Since the Texas amendments are identical to the ADA Amendments Act of 2008 (which was effective January 1, 2009), employers that have already taken steps to comply with the federal amendments may need to do very little.  For employers that have not addressed the changes made to the federal law should consider doing the following sooner rather than later:

• Review all policies and procedures to ensure that they comply with the new laws (e.g., if there were definitions or examples of major life activities, conform the definition to the amendment; if there are instructions to consider mitigating measures in determining the severity of limitations, change those provisions to conform to the law);
• Train your supervisors, human resources staff and employees responsibility for assessing requests for reasonable accommodation on the amendments;
• Update Job Descriptions to ensure that capture all of the essential elements of the relevant job;
• Focus in the interactive process --determine what the barriers are that need to be accommodated and then provide an effective accommodation that has the least adverse impact on the business.

With the state law mirroring the post-amendment ADA, there is no incentive for plaintiff-employees to file lawsuits under the ADA or in federal court as there might have been in the absence of the Texas amendments. 

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Texas does not require employers to provide a prospective employee with a formal offer letter.  Many employers chose to do so to avoid misunderstandings and clarify some of the important aspects of the proposed employment.  For employers that use offer letters, here are a few items that an employer should consider including in every offer letter.      

• Identify the job title, work location and start date for the proposed employment.
• Add an at-will disclaimer.  If the employment is intended to be at-will, advise employees in writing of that fact and specifically disclaim any intent to create any actual or implied contract.  
• Set forth the manner in which the employee will be compensated.  For example, if the arrangement is an hourly arrangement it may be sufficient to say that the employee will be paid $20.00 per hour. If the compensation arrangement is a salary; state the salary in a weekly or monthly amount rather than on an annualized basis.  If the employee will be paid commissions consistent with a commission plan, make sure that you say so.  Tell the employee that he or she will be paid consistent with the terms and conditions of the employer's commission plan and state when that plan will be provided to the employee.  There is a significant amount of litigation over commission payments when there is no written commission arrangement or the commission plan is vague, ambiguous, or otherwise poorly drafted.
• If the employee is being hired from a competitor,  confirm that the employee is not subject to any restrictive covenants or noncompetition agreements that would prohibit the anticipated employment.  If the prospective employee has no such agreements, have the employee represent, in writing in the offer letter, that he or she is not bound by any covenants not to compete or restrictive covenants.
• Expressly advise the employee not to bring any information from his or her former employer.  Tell the employee that your company doesn't need that information and doesn't want such information.  Furthermore, specifically instruct the employee that he or she is not to use or disclose any confidential, proprietary or trade secret information from the old employer in furtherance of the new employment.
• Have the employee sign, date and return the offer letter.  Under Texas law, a signed acceptance is not necessary to show acceptance (only knowledge of the terms and then the beginning of employment).  However, a signed acceptance is very persuasive evidence that the employee knew and accepted the terms.

These drafting tips may help employers and prospective employees avoid disputes over offer letters and the resulting employment.

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In a recent opinion of the Dallas Court of Appeals, the Court held that an insurance brokerage and consulting service firm’s noncompetition and nonsolicitation agreement obtained in return for an award of stock options to an employee was unenforceable under Texas law. (See opinion here).

Rex Cook was a long-term employee of Marsh USA, Inc. Prior to leaving his employment, Cook was a managing director. Cook was granted stock options in 1996 under Marsh’s Employee Incentive and Stock Option Award Plan. Before he exercised his options, Cook was required to sign a non-solicitation agreement that included a two-year covenant not to compete. In 2005 Cook exercised his options and in 2007 he left the company. Thereafter, he began employment with a competitor. Marsh sued the competitor and Cook. Cook asked the court to render judgment in his favor on the enforceability of the noncompete and the trial court held the agreement was unenforceable under Texas law. Marsh appealed that finding. 

On appeal, the Court explained that:

a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made and it contains reasonable limitations that do not impose a greater restraint than necessary to protect the goodwill or other business interest of the promisee. [citations omitted]. To be ancillary to or part of an otherwise enforceable agreement, a covenant not to compete must meet the following two conditions: (1) the consideration given by the employer in the otherwise enforceable agreement must give rise to the employer's interest in restraining the employee from competing; and (2) the covenant must be designed to enforce the employee's consideration or return promise in the otherwise enforceable agreement.

The Court then turned to whether the award of stock options to an employee “gives rise” to any interest worthy of protection for the employer. The employer argued that it uses stock option awards with its employees as a way to retain valuable employees; thereby protecting its goodwill (i.e., the relationship between the customer, employee and brokerage firm). The Court accepted the proposition that retaining valuable employees benefits a company’s good will but rejected the conclusion that such benefit gave rise to any interest in preventing the employee from competing. Furthermore, the Court reiterated that “financial benefits . . . do not give rise to an interest worthy of protection.”

As a result, the Court of Appeals affirmed the trial court’s grant of summary judgment to the employee that held that the noncompetition and nonsolicitation agreements obtained in return for an award of stock options was unenforceable. Marsh filed a petition for review with the Texas Supreme Court.

The take away from this case is that while covenants not to compete have become easier to enforce in Texas, the consideration that is given to the employee in return for the promise not to compete must give rise to some interest worthy of protection.  Money or other financial remuneration alone is unlikely to be sufficient.  Most frequently, valuable consideration to support a covenant not to compete will be in the form of a company's promise to provide its confidential information and trade secrets to the employee and the employee’s return promise not to use or disclose that information.  In that scenario, the promise to disclose the confidential or trade secret information (and the actual disclosure of that information) to the employee necessarily gives rise to an employer's interest in the noncompetition provisions.  

UPDATE:  On June 24, 2011, the Texas Supreme Court reversed the Dallas Court of Appeals and held that a covenant not to compete based on stock options given to a key employee to increase the company's goodwill were not per se unenforcable.  You can read more about the reversal and Supreme Court's new opinion here and here.

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The U.S. Supreme Court completed its 2008-09 term. On the docket were five cases of interest dealing with employment law.  Here is a summary of the holdings in those cases.

• Crawford v. Metropolitan Gov’t of Nashville and Davidson County, Tenn., (2009) An employee’s participation in an employer’s internal harassment investigation by responding to the employer's questions may constitute protected oppositional activity under Title VII that would support a retaliation claim. 
• 14 Penn Plaza LLC v. Pyett, (2009) Provisions in collective bargaining agreements that clearly and unmistakably require union members to submit statutory discrimination claims to the grievance and dispute resolution provisions of the agreement are binding and enforceable on the bargaining unit members.  More detail here.
• AT&T Corp. v. Hulteen, (2009) An employer does not necessarily violate the Pregnancy Discrimination Act when it calculates and pays pension benefits based on an accrual rule that applied only pre-PDA, and gives less retirement credit for pregnancy leave than for other medical leave.
• Gross v. FBL Financial Services, Inc., (2009)  A plaintiff asserting an age discrimination claim under a disparate (i.e., intentional) treatment theory must prove that age was the “but for” cause of the challenged employment action and the burden of proof never shifts to the employer to show that it would have taken the same action regardless of the age of the plaintiff.  More detail here.
• Ricci v. DeStefano, (2009)  An employer can avoid Title VII disparate-impact liability related to a promotional exam having a disparate impact on minorities if the employer can show a strong basis in evidence that, had it not certified the results, if would have been subject to disparate-treatment liability.  More detail here.

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On July 24, 2009, the federal minimum wage will increase to $7.25 per hour.  All Texas employers covered by the Fair Labor Standards Act --i.e., employers engaged in any industry affecting commerce, must pay at least the new minimum wage beginning on July 24, 2009.

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In this post I want to outline a series of steps an employer can implement that may decrease its unemployment tax rate and taxes.  The state unemployment tax rate is the only tax rate that an employer can effectively control.  Because the tax rate is calculated over a three year rolling average, it may take a year or two to start realizing these savings.  Here are the steps. 

• Document employee problems and rule violations at the time those issues occur.  Keep thorough, accurate records of these issues in the employee's personal file.  An even better record is one where the employee signs, at the time the performance is documented, that he has had an opportunity to review the documentation.
• Make solid hires and don't over hire.  Turnover can dramatically increase your unemployment tax rate.  Consequently, make sure that you take all reasonable steps to ensure you are hiring good, qualified candidates for employment.  Do background checks (but comply with the Fair Credit Reporting Act) and check references.  Don't hire more employees than you think you will need for the foreseeable future. 
• Designate a specific person to receive and review unemployment claims.  Ensure all employees responsible for receiving and distributing company mail know where to route correspondence from the Texas Workforce Commission.  Ensure that when the designated person is away from work for vacation or leave of absence that another person is responsible for timely receiving and reviewing claims.
• Review every claim immediately.  Ensure that all information on the claim form is correct.  Errors in the employee's stated compensation or termination date can result in the Texas Workforce Commission paying at incorrect rates or for improper periods.  
• Timely respond to the TWC's requests for information.  This seems obvious, but the deadline for opposing unemployment benefit claims is jurisdictional and it is difficult to convince the Commission that good cause exists for a late response.  Moreover, keep in mind that the deadline for the response runs from the date of mailing; not the date you receive the claim or determination.
• Timely appeal determinations that incorrectly award benefits.  Some reasons for benefit ineligibility include: 1) misconduct connected with the work (this includes policy violations and intentional acts --not general poor performance); 2) voluntarily leaving work (i.e., a resignation that is not a constructive discharge or due to injury, illness or pregnancy); 3) aliens not authorized to work in the United States; 4) failure to apply for, accept or return to work; 5) leaving work pursuant to a labor dispute (i.e., union strike); 6) any periods where the employee is receiving wages in lieu of notice or is receiving workers' compensation benefits for temporary or permanent disability.
• Attach evidence to support the reasons for benefit disqualification.  For example, in a resignation case, attach the letter of resignation.  In misconduct cases, attach copies of the policies the employee violated; evidence that the employee received notice of and/or training on those policies (e.g., handbook acknowledgments signed by the employee); and any copies of written warnings the employee received related to the ultimate reasons for termination.
• Appear at the telephone appeal hearing.  Provide supporting evidence to the hearing officer several days prior to the hearing and bring witnesses that can testify and support the reasons that the employee should be disqualified from the receipt of benefits.

One final word of caution.  If you think the former employee is likely to file a lawsuit or charge of discrimination against the company and the employee shows up at the appeal hearing with a lawyer (Remember: appeal hearings are recorded testimony under oath), the employer should seriously consider whether it might be prejudiced by moving forward with the hearing in the absence of counsel.  Stated another way, consider whether it is worth winning an unemployment benefit hearing only to give the employee's lawyer a preview of the company's defenses that might be used in later litigation.  Some plaintiff's lawyers use unemployment benefit hearings as opportunities to conduct early free discovery and they know that most employers use nonlawyers to appear and attend these hearings.

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In one of the most anticipated employment discrimination cases in years, the U.S. Supreme Court held that the City of New Haven discriminated against non-minority firefighters when it chose to ignore the test results of a racially-neutral promotional exam because too few minorities scored high enough on the test to be considered for promotion.  I previously wrote about this case and outlined its facts.  (See here for post).

In Ricci v. DeStafano, a majority of the Supreme Court began with the premise that the City's decision to ignore the results of its promotional testing because too few minority fire fighters scored well on the test, constituted intentional discrimination against the firefighters that scored well on the test.  There was no dispute that the City disregarded the test results because of the race of the test takers and the fact that no minorities scored high enough to qualify for promotion.  Concluding that this conduct constituted intentional discrimination, the Court examined whether the City had a legitimate justification for ignoring the test results. 

The City's sole justification for the ignoring the test results was that if it recognized the results it would face litigation from the minority firefighters who took, and scored poorly, on the test.  The minority firefighters, the City predicted, would sue the City claiming that the racially-neutral test had a disparate impact on minority firefighters and therefore discriminated against them.  The City argued that it was faced with a Hobson's choice where no matter what it elected to do it would be faced with a discrimination lawsuit (i.e., either being sued by the white firefighters who scored well and were denied promotional opportunities because the test results were ignored or by the minority firefighters who claimed the test unintentionally discriminated against them by recognizing a test that had a disparate impact on minorities).

The Court explained that if the City had a "strong basis in evidence" that its recognition of the test results would subject it to disparate-impact liability in the absence of it taking the race-conscious, discriminatory action --not necessarily that it would lose an disparate impact case.  To make this showing, there would need to be a showing of a significant statistical disparity; and the tests were no job related and consistent with business necessity; or there existed an equally valid, less-discriminatory alternative that served the City's needs that it refused to adopt.  Applying this standard to the Ricci case, the Court concluded that City lacked a strong basis in evidence that it would be subjected to disparate-impact liability if it recognized the test results.  Therefore, it found that City discriminated against the non-minority firefighters when it threw out the test results.    

The lesson from Ricci is that when an employer is faced with qualification or promotional exam that may have a disparate impact on a protected class, the employer must build a strong record and attempt to ferret out the reasons for the disparity before deciding whether to ignore the results.  A strong case would begin with a test that was designed in such a way as to avoid a disparate impact as was the case in Ricci.  The Court's opinion makes clear that it is not intended to prohibit an employer from considering (before test administration) a way to design a test that provides a fair opportunity for all individuals, regardless of their race.  Instead, the legal analysis encourages employers (and gives them broad latitude) at the test-design phase to invite comments to ensure the test is fair.  This would tend to help to identify aspects of the prospective test that might not be job-related and consistent with business necessity or other equally effective, less discriminatory alternatives.  

With a strong record in this regard, an employer assert and prevail with the new defense announced by the Ricci court when it faced with the prospect of being sued for disparate treatment (i.e., intentional) or disparate impact (i.e., unintentional) discrimination.   

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