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

In Part 1, I covered some thoughts on enforcing noncompetition agreements in Texas following the Texas Supreme Court's new decision in Marsh USA.  Today I'm addressing some tips that employees (and their representatives) who are asked to sign or are attempting to bust a noncompetition agreement might consider.

Prior to signing the agreement, negotiate everything you can.  For example:

• Carve out customers or clients the employee serviced before becoming employed by the employer requesting the noncompete.
• Seek very specific scope of activity restraint rather than a very generalized restraint (e.g., employee shall not engaged in any business that competes with any of the products or services of the company).
• Negotiate a garden leave provision (i.e., the employee will receive some amount of money during the term of the noncompete period)
• Ask for a buy-out clause where the employee (or his new employer) can buy out of the noncompetition agreement.
• Ask that the noncompete be automatically waived if the employers ends the relationship through no fault of the employee (e.g., the employee is laid off).

When joining a new employer, the employee should seek an agreement the new employer will indemnify, defend and/or advance defense costs if the employee is sued over an alleged violation of the noncompete.  The employee should also try and ensure that his employment will not be terminated by the new employer in the event he is enjoined over a restrictive covenant with a former employer (Don't laugh, I've seen an new employer provide this protection in an offer letter when it expected the former employer would sue the new hire).

When litigating over the terms of a noncompetition agreement:

• Emphasize to the Court how limited the holding in Marsh USA is.  Marsh USA just ruled out a per se rule that noncompetes tied to stocks are unenforceable.
• Emphasize the lack of imminent, irreparable harm.
• Determine the primary purpose of the agreement and emphasize to the Court that the real purpose is to stifle competition rather than protecting goodwill or confidential information.
• Identify lesser restrictions that will protect the employer's interest.
• Distinguish your client from the long-term, highly valued Managing Director in Marsh USA.

Follow me on Twitter @RussellCawyer.

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Yesterday, Ryan Miller and I were invited to speak at the Tarrant County Bar Association's Labor and Employment Section luncheon.  Our topic was the recent changes to Texas noncompete jurisprudence.  A copy of the Power Point presentation we jointly presented can be accessed here.

For my contribution, I presented some thoughts on the practical effect the Marsh USA decision will have for employers and employees that dealing with noncompetes.  Here is a summary of thoughts:

REPRESENTING THE EMPLOYER USING NONCOMPETES

• Employers should continue to tie noncompetes to promises to provide confidential information and trade secrets to the employees and the employees' return promises not to disclose that information to third parties.  Trial courts are familiar with this concept and will expect it Marsh USA notwithstanding;
• Consider linking the noncompete to some financial benefit provided to the employee that is reasonably related (Marsh USA eliminates the "gives rise to" requirement of Light) to encouraging the employee to generate goodwill for the company.  Who knows how far courts will take Marsh USA, but bonuses, salary, for cause termination provisions, favorable parking spaces, fancy job titles, business expense accounts to entertain clients are a few examples of financial benefits that might be reasonably related to encourage employees to create goodwill that come to mind.
• Resist the urge to make the restrictions broader than necessary.  Courts have a statutory obligation to reform overly broad covenants, but any damages that accrue prior to reformation aren't recoverable.  Remember, reformation kills damages.
• Marsh USA isn't a magic bullet.  Marsh USA doesn't change the standard to obtain a temporary injunction (and there is where the battle often lies).  Employers still have to show probable right of success on the merits (arguably easier post-Marsh USA) and imminent irreparable harm.

In the next post, I'll cover my thoughts on what employees who may be subject to a noncompete might consider.

Follow me on Twitter @RussellCawyer.

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Governor Perry signed SB 1024 eliminating a loophole that previously existed for a criminal theft of service charge.  Under prior law, a party obtaining services from another under a promise to pay could avoid a criminal charge of theft of service so long as the party was making minimal payments.  According to the bill's analysis:

Theft of wages occurs when employers fail to pay workers their promised wages. This is a frequent occurrence in Texas. In certain industries, such as construction, one in every five workers experiences wage theft. In addition, 50 percent of day laborers have experienced wage theft. The impact of this theft is widespread and has caused many workers to be unable to meet their family's basic needs. 

S.B. 1024 addresses instances when workers receive periodic or partial payment of wages. The bill also amends current law to maintain that a person commits theft of service if, with intent to avoid payment, that person fails to make full payment after receiving notice demanding payment if the compensation was to be paid periodically. The intent to avoid payment for a service may be formed at any time during or before a pay period, and the partial payment of wages alone is not sufficient evidence to negate the actor's intent to avoid payment for a service.

SB 1024 creates a criminal offense when the actor fails to make "full" payment after rendition of the services and further clarifies "that partial payment of wages alone is not sufficient evidence to negate the actor's intent to avoid payment for service."

The law takes effect September 1, 2011.

Follow me on Twitter @RussellCawyer.

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I've had a chance to reread and digest the Marsh USA opinions over the weekend.  For those looking for easy ways to set aside or void noncompetition agreements in Texas, Marsh USA is strike three.  (Strike 1, Strike 2).  The Texas Supreme Court has, in the past five years, taken Texas from one of the more difficult states to enforce a noncompete to one of the easiest (so long as its reasonably limited).

Important Takeaways from the Opinions:

• Confirms that goodwill is a protectable interest worthy of protection through noncompetition agreement.
• Identifies contact with employer's "key customers" as a component of goodwill worthy of protection.
• Personal relationships and contact between customers and employees is goodwill of the employer that is protectable.
• Newly holds that nonsolicitation of employee provisions are subject to the Texas Covenant not to Compete Act.
• No requirement that employee receive the consideration for the noncompete prior to the time the employer's interest in protecting goodwill arises.
• Suggests that other financial incentives such as raises, bonuses or even a salary might be adequate consideration to support a noncompete if it can be established that such incentives enhance or protect employer goodwill.
• Recommends that trial courts conduct searching inquiries to determine whether the purpose of the agreement is improper protectionism or protection of goodwill (concurring opinion).

More from BusinessInsurance.com  Stock Options Offer Valid in Marsh Noncompete Dispute: Texas High Court.

Follow me on Twitter @RussellCawyer.

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Its getting near the end of the time to sponsor bills for consideration during this Texas legislative session.  Here are the most recently enrolled bills potentially effecting Texas employers.

HB 2609 (Guillen) (relating to employment at or by certain facilities serving the elderly or persons with disabilities)

HB 2695 (Davis) (relating to acquiring Human Health and Services Agencies to give preference to certain persons and making hiring decisions)

HB 2681 (Hartnett) (relating to the protection of trade secrets)

HB 2720 (Pitts) (relating to unpaid furloughs for state employees)

HB 2755 (Fischer) (relating to unemployment compensation, eligibility and charge backs regarding certain persons through victims or whose immediate family members or victims of sexual assault and family violence)

SB 1305 (Rodriguez) (relating to a prohibition of school districts’ retaliation against an employee for filing a grievance)

HB 2579 (Davis) (relating to relief for certain employers from penalties and sanctions under the Texas Unemployment Compensation Act)

HB 2549 (Crownover) (relating to the authority of a state employee to authorize a deduction from the employees salary or wage payment for a charitable contribution to certain agencies)

HB 2463 (Reynolds) (relating to access to service records regarding unemployment discrimination claim)

HB 2454 (Zedler) (relating to prohibiting discrimination by public institutions of higher education against faculty members and students based on the conduct of research relating to intelligent design)

HB 2450 (Jackson) (relating to the creation of an offense of employing an individual not lawfully present in the US)

SB 1268 (Whitmire) (relating to right of sheriff’s departments of certain counties to maintain local control over wages, hours and other terms of conditions of employment)

SB 1254 (Carona) (relating to the creation of the offense of employing an individual not lawfully present in the US)

HB 2227 (Coleman) (relating to an offense committed against a person because of bias or prejudice on the basis of gender identity or expression)

HB 2219 (Davis, Y) (relating to a prohibition placed on an open enrollment charter school against the employment of a person determined under certain circumstances to have engaged in misconduct that presents a risk to the health, safety and/or welfare of the student or minor)

HB 2306 (Alvarado) (relating to certain health and safety matters regarding appropriate places of employment in places that are accessible to the public)

SB 1216 (Estes) (relating to the determination of the validity and enforceability of a contract obtaining an arbitration agreement)

HB 2380 (Shelton) (relating to employment by school districts of certain persons under probationary contracts)

HB 2405 (Chisum) (relating to discrimination and restraint of trade against certain persons regulated under the Occupations Code)

SB 1001 (Carona) (relating to discrimination and restraint of trade against certain persons regulated under the Occupations Code)

SB 1042 (Haggar) (relating to the eligibility of an employees convicted of certain offenses that provide services under a contract with the public school)

HB 1888 (Miller, S) (relating to requiring employers to participate in the Federal Electronic Verification Work Authorization Program)

SB 1006 (Lucio, Ellis) (relating to unemployment compensation modernization)

HB 1827 (McClendon) (relating to the ability of a non-exempt employee to participate in certain academic extracurricular developmental activities of the employee’s child)

HB 1747 (Veasey) (relating to retaliation as unlawful employment practice)

HB 1700 (Coleman) (relating to employment of physicians by certain hospitals)

HB 1659 (Davis, Y) (relating to conditions of employee for certain sheriff departments)

HB 1565 (Coleman) (relating to the unemployment of physicians by hospital districts)

HB 1513 (Dutton) (relating to hearings on certain public school employees employment decisions before the Board of Trustees of the school district)

HB 1506 (Christian) (relating to unemployment compensation eligibility and charge backs regarding certain persons who are victims who whose immediate family members are victims of sexual assault)

HB 1447 (Dukes) (relating to the right of certain municipalities to maintain local control over wages, hours and terms and conditions of employment)

SB  761 (West) (relating to employment of physicians by certain hospitals associated with non-profit fraternal organizations)

HB 1490 (Naishtat) (relating to the accumulation of payment of sick leave for employees in certain sheriff departments)

HB 1488 (Gudeaires) (relating to examinations for hiring certain municipal fire departments)

HB 1166 (Zerwas) (relating to tobacco sensation program for certain public employees and their dependants and to assessment to a fee for certain public employees who use tobacco)

SB 314 (Zaffiri) (relating to unemployment compensation and eligibility and charge back regarding certain persons who are victims or whose immediate family members are victims of sexual assault)

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According to the New York Times, Texas will consider whether to adopt a "loser pays" rules for civil cases.  The rule, similar to the English Rule, would  that require the losing party in a civil case to pay the attorney's fees and costs of the prevailing party.  It is unclear whether this rule, if passed, would have any effect on the number of employment discrimination, retaliation or harassment suits filed against Texas employers. 

Employers shouldn't get excited about a loser pays rule; however, because I think the likelihood of that legislation passing this session is remote.  

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The following employment-related bills were enrolled for consideration in the Texas Legislature over the past two weeks.

HB 1178 (Flynn) (Relating to employment protection for members of the state military forces).

HB 1219 (Miles) (Relating to the right of an employee to time off from work if the employee and/or the employee’s child is the victim of family violence or a violent felony offense).

HB 1272 (Miller) (Relating to the requiring of employees to participate in the Federal Electronic Verification of Work Authorization Program or E-Verify; establishing an unlawful employment practice and providing criminal penalties).

HB 1275 (Harless) (Relating to the suspension of certain licenses held by employers for knowing employment of persons not lawfully present in the United States).

HB 1202 (Riddle) (Relating to the creation of the offense of an employing or contracting with an unauthorized alien).

HB 1166 (Zerwas) (Relating to the tobacco sensation program for certain public employees and their dependents and to the assessment of the fee on certain public employees who use tobacco).

SB 545 (Seliger) (Relating to employment records for law enforcement officers, including procedures to correct employment termination reports; providing an administrative penalty).

HB 1057 (Anchia) (Relating to business leave time for certain municipal fire fighters and police officers).

SB 439 (Van de Putte) (Relating to the exclusion from unemployment compensation charge back for certain employers of uniform service members).

HB 954 (Lozano) (Relating to an employee’s transportation of certain firearms or ammunition while on certain property owned or controlled by employee’s employer).

HB 884 (Howard) (Relating to a limited waiver of sovereign immunity for state and local governmental entities and certain employment lawsuits filed by nurses).

HB 878 (Howard) (Relating to the participation of governmental entities and other employers in a Federal Work Authorization Verification Program; establishing an unlawful employment practice).

HB 681 (Kleinschmidt) (Relating to an employee’s transportation of certain firearms or ammunition while on certain property owned or controlled by the employee’s employer).

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There continues to be a substantial increase in the number of unemployment claims filed by Texas employees. This increase has the potential to raise the unemployment tax rate for employers that do not take proactive steps to manage their Texas unemployment tax rates.  The state unemployment tax rate is the only business tax an employer can control.

To understand how to manage the unemployment tax rate, an employer first must understand how the tax rate is calculated. Texas employers pay state unemployment tax on the first $9,000 of wages paid to each employee.  For calendar year 2011, the unemployment tax rate is composed of four components. The unemployment rate ranges from a minimum of .78 percent to a maximum of 8.25 percent.  An employer’s state unemployment tax rate is the sum of four components: Replenishment Tax Rate (RTR); Employment and Training Investment Assessment (ETIA); Unemployment Obligation Assessment Rate (OA) and the General Tax Rate (GTR).  The effective tax rate is calculated by adding the ETIA, RTR, OA and GTR.

The RTR is a flat tax rate assessed to all Texas employers to replenish ½ of the unemployment trust fund payments made to claimants that were not charged back to (i.e., assessed against) a specific employer. The RTR is calculated by dividing ½ of the unemployment benefits paid, but not charged to a particular employer, by the total taxable wages for the year. The rate is then spread across all experience-rated employers.  An individual employer has no meaningful way to reduce its RTR. 

The second component of the Texas unemployment tax rate is the ETIA. It is a fixed rate of .10 % which is taxed to fund the Skills Development fund.  The ETIA is fixed and applies to all Texas employers, so there is no way to manage or reduce this tax rate. 

The third component of the unemployment tax rate is the OA. The OA is used to collect amounts needed to pay bond obligations due in 2011 and interest due on loans from the federal government. The OA is the same for all Texas employers during 2011 and is .26 percent.          

The final component, the GTR, is based on the employer’s individual responsibility for repaying unemployment benefits to its former employees.  The GTR is the employer's only opportunity to reduce Texas unemployment tax by lowing the employer's experience rating.  Experience ratings can be reduced by limiting the unemployment benefit claims paid to former employees. This is principally done by limiting employee turnover and timely challenging claims for unemployment benefits filed by former employees who are not eligible for benefits. The GTR is calculated by multiplying the RTR by the ratio of three years of chargeback by three years of the employer's taxable wages.    

To see how an employer can lower its unemployment tax rate, read the following article: Lower Your Texas Unemployment Taxes. 

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Employees occasionally sue Texas employers for breach of contract claiming the employer violated its handbook policies in taking some action against the employee.  Texas law precludes most breach of contract claims premised on violations of an employee handbook where the handbook contains a provision expressly disclaiming any intent to create binding or contractual rights --whether express or implied.  

John Hyman at the Ohio Employer's Law Blog recently wrote a post explaining the importance of handbook disclaimers.  (See post here).  While John is an Ohio practitioner, the seven vital elements he explains should be included in a comprehensive handbook disclaimer apply equally to Texas employers.  John's seven vital elements include:

1. A specific statement that employment is at-will, without exception.
2. An explanation, in plain English, of what at-will employment means.
3. A statement that no one can create a contract contradictory to the provisions of the handbook.
4. A statement that the handbook is merely a unilateral statement of rules and policies which creates no rights or obligations.
5. A statement that the handbook is not a contract and not intended to create an express or implied contract.
6. A statement that the employer has the unilateral right to amend, revise, or eliminate policies and procedures as needed.
7. A statement that employees should not rely on any statement in the handbook as binding on the company.

One word of caution.  If the handbook contains some provisions where the employer does intend to create binding, enforceable contractual rights, such as an arbitration provision or waiver of right to jury trial, those provisions should be specifically carved out of the disclaimer.   Including an effective handbook disclaimer can provide a powerful defense to any breach of contract claim based on handbook provisions. 

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As we approach local elections, it is good to remember that Texas law may require an employer to provide an employee with paid time off to vote.  The Texas Election Code makes it a Class C misdemeanor for an employer to refuse to allow an employee to be absent from work on election day for purpose of attending the polls to vote.

An employer is not, however, required to allow time off to vote if the polls are open on election day for voting for two consecutive hours outside of the employee's working hours.  For example, if you have an employee that regularly works 8:30 a.m. to 5:30 p.m. with a one-hour lunch break, an employer may have to give that employee time off from work on election day to attend to the polls and vote. In Texas, the election polls are generally open from 7:00 a.m. until 7:00 p.m. 

Because the term "penalty" means a loss or reduction in wages, an employer should provide paid time off for the employee to attend the polls to vote if the polls are not open on election day for at least two consecutive hours outside the employee's working hours.

An employer can avoid this interruption and the payment for otherwise nonworking time by rescheduling work schedules on election day so that employees have two consecutive hours off while the polls are open (e.g., reschedule the employee to work 8:00 a.m. to 5:00 p.m. on election day). 

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On March 20, 2009 I posted an entry about several leave of absence bills pending in the Texas Legislature.  Today I want to highlight a few other bills that will effect Texas employers if passed.

• HB 32  Prohibiting discrimination against employees of workers' compensation nonsubscribers who sustain an injury in the course and scope of their employment.
• HB 183  A bill to link the Texas minimum wage to the federal minimum wage.
• HB 226 Prohibits an employer from discriminating against an employee that has refused to participate in an employer's charitable deduction campaign.  
• HB 978  To amend, and greatly expand, prohibited disability discrimination under the Texas Commission on Human Rights Act.
• SB 730 prohibits an employer from implementing policies prohibiting employees from keeping legal firearms and ammunition in locked vehicles on the employer's parking lot.
• SB 986 To extend the statute of limitations for discrimination claims alleging discrimination in the payment of compensation.  State law equivalent of the Lilly Ledbetter Fair Pay Act.

There are also a number of immigration bills pending this session.  Michael Fox has detailed those bills on his blog.

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There are several pending bills in the Texas legislature that could effect the leaves of absence private employers must make available to their employees.  Some of these types of leaves have already been passed in more liberal states such as California and Massachusetts.  Pending leave of absence bills in the Texas legislature include:  

• HB 615 Permitting employees with a child enrolled in a special education program and having at least one year tenure with the employer take 10 hours per year of unpaid leave to meet with certain school officials.
• HB 1005 Requiring employers to provide employees employed at least 90 days to take up to 40 hours per year unpaid leave to meet with teachers or attend to certain school events, ceremonies or meetings. The bill also contains anti-retaliation provisions.  (See also SB 649)
• HB 1057 Permitting employees with at least 6 months service to take not less than 2 weeks accrued paid leave for the birth or placement of adoption of a child.  Employees of employers that do not provide paid leave, who have insufficient paid leave or are ineligible for leave are entitled to between 2 and 6 unemployment benefits.  The bill does not mandate the creation of any leave programs but does provide a right to reinstatement for employees that utilize leave under this proposed law.  (See also SB 692)
• SB 60   Requires employers to provide for unpaid time off to employees who are the victims of certain violent crimes to attend court proceedings.  The bill also provides a civil cause of action, damages and anti-retaliation provisions for violations.

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Since at least 2004 Texas law has permitted Texas employers to enter into predispute agreements with their employees to waive a right to a jury trial. The predispute waiver of the right to jury trial can be a desirable option for employers that would prefer to avoid the potential jury trial of a civil rights or employment dispute but also dislike the disadvantages that accompany the mandatory arbitration of disputes.

Last month the Supreme Court of Texas reinforced the enforceability of predispute contractual waivers of the right to a jury trial. In re Bank of America, N.A., --- S.W.3d --- (Tex. Feb. 27, 2009). The Court’s opinion should remind Texas employers of the availability of this option and of the advantages that such agreements may have over arbitration programs. For example, advantages that the wavier of the right to jury trial may enjoy over arbitration include: having a Texas state or federal judge decide the dispute; no expenses incurred in employing the decisionmaker (i.e., judge); and full rights to a meaningful appeal of an adverse decision.

Moreover, despite the current legislation in Congress that is intended to invalidate the predispute arbitration agreements between employers and employees to resolve employment disputes through arbitration, it is unlikely that contractual waivers of the right to a jury trial will be affected by any version of the Arbitration Fairness Act of 2009. Texas employers utilizing mandatory arbitration programs may want to consider adopting a policy or program to make use of contractual waiver of jury trial if the Arbitration Fairness Act of 2009 passes and invalidates the predispute agreements to arbitrate civil rights and employment disputes.

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