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

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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