Texas Employment Law Update

Texas Employment Law Update

A Resource for Texas Employers

U.S. Supreme Court Invalidates Arbitration Agreements of Interstate Truck Drivers

Posted in Arbitration, Case Summaries, Wage & Hour

Earlier this year, the U.S. Supreme Court invalidated the arbitration agreements that an interstate trucking company had with its independent contractor drivers. That case arose in the context of a class action wage and hour lawsuit brought by a group of independent contractor interstate truck drivers alleging that they were not properly paid.  The company attempted the force the claim into arbitration based on the arbitration agreements it had with its contractors.  The Court held that the Federal Arbitration Act’s (FAA) provision excluding “contracts of employment with seaman, railroad employees or any other class of workers engaged in foreign or interstate commerce” precluded enforcement of the arbitration agreement thereby subjecting the carrier to the wage and hour collective action in court.

The New Prime decision is a good reminder for transportation companies utilizing arbitration agreements that their arbitration programs should consider whether to implement and apply state law rather than the FAA so as to avoid a similar result as in New Prime or to have state law act as a substitute in the event the FAA is inapplicable.

A copy of New Prime v. Oliveira is available here.

Texas Employees Beware: CBD Oil Remains Illegal in Texas

Posted in Human Resources, News & Commentary

With the passage of the 2018 Farm Bill, Congress legalized much, but not all, hemp products containing less than .3 percent THC concentration.  Cannabidiol, or CBD oil, is a hemp product that is touted as having many positive medical and health benefits.  CBD oil may or may not contain THC.  The media reports surrounding the legalization in the Farm Bill and intense marketing efforts of CBD oil distributors has caused some Texas employees to believe that CBD oil and other hemp products are now legal in Texas.  That belief may cause employees to suffer adverse employment consequences and even potential criminal prosecution.

Except for CBD oil having a THC concentration of less than .5 percent prescribed for intractable seizures by a physician licensed and registered to prescribe the oil (and confirmed by a second physician), possession, use or sale of the CBD oil is a felony under state law.  An employee’s reliance on the packaging material of hemp products that they contain little or no TCH is also not something that an individual should place much reliance on.  According to a 2017 Research Letter from the Journal of the American Medical Associations, 78 percent of 84 tested products were mislabeled.

While it is not expected that Texas district attorneys will spend significant resources prosecuting users of these products, the fact that it remains a second degree felony should cause employees to be cautious in purchasing and using these products until Texas law is amended to provide fewer restrictions on their possession, sale and use.

Fifth Circuit Affirms Summary Judgment for Employer in Transgender Title VII Case

Posted in Case Summaries, Discrimination

In Wittmer v. Phillips 66 Company, the Fifth Court of Appeals affirmed a trial court’s summary judgment in favor of Phillips 66 on a claim of employment discrimination based on transgender status.  While affirming the judgment for the employer, the Court wrote to reject the district court’s summary conclusion that Title VII prohibited employment discrimination on the basis of transgender status.  In affirming the trial court’s judgment, the appeals court expressly rejected the district court’s summary holding that Title VII prohibits employment discrimination based on transgender status because the court did not address binding Fifth Circuit precedent holding that Title VII does not prohibit sexual orientation discrimination nor distinguish the Wittmer case from that precedent.  Wittmer leaves open the possibility that a federal court in the Fifth Circuit might properly hold that Title VII prohibits transgender employment discrimination so long as the court distinguishes the binding precedent in this Circuit holding that Title VII does not prohibit sexual orientation discrimination (i.e., that Title VII prohibits transgender discrimination but not sexual orientation).

A copy of the opinion can be accessed here.

San Antonio Passes Ordinance Requiring Private Employers to Provide Paid Sick Leave

Posted in Human Resources, News & Commentary

In a 9-2 vote, the San Antonio City Council voted to require private employers doing business in San Antonio to provide one hour of paid sick leave to employees for every 30 hours worked. The ordinance allows employees to accrue between 48 and 64 hours of paid sick leave to be used if the employee or the employee’s family member is sick or injured; is a victim of stalking, domestic abuse or sexual assault; or otherwise require medical, mental or preventive care.

San Antonio’s ordinance is scheduled to take effect on August 1, 2019 but employers with five or fewer employees will have until 2021 to comply.

A copy of the ordinance can be found here.

Austin Court of Appeals Temporarily Enjoins Austin Sick Leave Ordinance

Posted in Human Resources, News & Commentary

Earlier this year, the City of Austin passed the first local ordinance requiring employers in Austin to provide paid sick leave to its employees.  The law was scheduled to take effect on October 1, 2018.  Late last week, the Austin Court of Appeals issued a temporary stay of the ordinance while the Texas Association of Business’ interlocutory appeal of the trial court’s denial of an application for temporary injunction is heard.  This will likely stay enforcement of the ordinance for several months and could extend past the October 1, 2018 effective date.

Meanwhile, San Antonio recently passed a similar sick pay ordinance.   The Texas Legislature is likely to consider bills prohibiting local municipalities from passing such ordinances when it convenes in Summer 2019.

The Court’s order can be downloaded here.

Supreme Court Enforces Arbitration Agreement that Prohibits Class Action Arbitration

Posted in Arbitration, Case Summaries, Jury Waivers, News & Commentary, Wage & Hour

I’m traveling for work this week but today’s Supreme Court opinion is one I have been waiting for all term. In Epic Systems v. Lewis, the Court held that arbitration agreements between employees and employers that require mandatory arbitration of disputes can also require that all disputes be arbitrated individually and not as a class or collection action.  The impact of this case is significant in managing potential claims arising under the Fair Labor Standards Act and Fair Credit Reporting Act.  More on this case later.

You can read the full opinion here.

Department of Labor Rolls Out Pilot Program for Employers to Correct Inadvertent Wage and Hour Violations

Posted in News & Commentary, Wage & Hour

One of the biggest criticisms I have of the FLSA is that it provides no safe harbor or protection for an employer, who having realized it made a wage and hour mistake, to voluntarily self-report and correct its mistake. Instead, it can encourage employers who learn of a potential FLSA violation that has not otherwise been discovered to continue its current practice hoping that the violation will not be discovered.  This week the U.S. Department of Labor announced its Payroll Audit Independent Determination (PAID) program that takes a step in providing employers with an incentive to voluntarily identify and self-correct wage and hour violations.  The stated purpose of the program is to

to resolve such claims expeditiously and without litigation, to improve employers’ compliance with overtime and minimum wage obligations, and to ensure that more employees receive the back wages they are owed—faster.

The PAID program is similar to the IRS’s Voluntary Classification Settlement Program I wrote about seven years ago. In 2011, the IRS provided a limited safe harbor for employers that had misclassified employees as independent contractors.  The IRS program (with a few modifications) is still in effect today.

Under the new PAID program, the DOL is implementing a six-month pilot program allowing employers who discover potential overtime and minimum wage violations to resolve the violations with the DOL by self-reporting the violations, paying the back wages to employees and committing to future FLSA compliance. According to the DOL, an advantage of self-reporting under the PAID program is that the Department will allow the employer to correct the violation without paying liquidated damages or civil monetary penalties.  The program cannot be used by employers that are currently under DOL investigation or who are involved in wage and hour litigation (or threatened violations) over the same violation.

Many of the same problems I identified in the IRS’s program in 2011 exist with the PAID program. For example, self-reporting and participating in the DOL program does not bar an employee from pursuing his or her own claims for the unpaid wages, liquidated damages and attorney’s fees because it does not require employees to surrender any rights unless the employee accepts the amount calculated to the employer under the supervision of the DOL.  Unfortunately, the employees are not required to accept the amount and can pursue their own individual claim or claims on a collective basis.  Similarly, self-reporting and disclosing the violations to the DOL is tantamount to admitting the employer violated the FLSA.  Any employee, or group of employees, could elect to retain their own private plaintiff attorney to pursue their individual or collective claims and the employer.  The potential violations the employer is reporting are violations that have not yet been identified by the DOL itself or private plaintiff’s counsel and participation in the PAID program may be the catalyst for triggering an FLSA lawsuit.

Because the program is only available for a limited time before undergoing agency review, employers should expeditiously conduct their own payroll audits and, if potential FLSA violations are discovered, seek guidance about whether they should participate in what could be a limited time offer of safe harbor from the DOL.

The DOL’s release on the PAID program can be viewed here.

El Paso Court of Appeals Clarifies Fiduciary Duty At-Will Employees Owe to Employers

Posted in Case Summaries, News & Commentary, Noncompetes and Restrictive Covenants, Trade Secrets

In Texas, absent a valid noncompete, an at-will employee is generally free to compete with the former employer so long as the employee does not take or use the company’s confidential information or trade secrets. Notwithstanding this general rule, employees also have common law fiduciary duties that limit what activities they can engage in prior to resigning employment.  The level of fiduciary duty owed to the company will depend on the duties and responsibilities of the employee and the position within the company.  Employees may generally make preparations to compete while still employed by a company but cannot actively compete while still employed.  What constitutes preparing to compete versus actively competing can often be a blurry line.  A recent case from the El Paso Court of Appeals helps to bring the line into focus.

In Salas v. Total Air Services, LLC, Salas was employed as a crew manager who was responsible to supervising a crew, obtaining city required permits, getting inspections completed by the city, installing air-conditioning systems and occasionally delivering bids to potential customers.   He was a nonmanagerial, salaried employee who was the highest paid employee in the company.  During his employment with Total Air, Salas submitted an application for an HVAC license to the Texas Department of Licensing in the name of Iceland Refrigeration.  He also filed assumed name certificates with the county clerk for Iceland.  Importantly, while employed with Total Air, Salas installed several air conditioning systems for customers collecting tens of thousands of dollars.  These jobs included several jobs that Total Air bid on, but was not awarded.  Salas never disclosed to his employer that he intended to go into business for himself or that he was in business for himself while employed with Total Air.

Total Air sued Salas for breach of fiduciary duty and was awarded $50,000 in lost profits. On appeal, the El Paso Court of Appeals affirmed the judgment.  In its opinion, the court set forth some of the fundamentals in evaluating breach of fiduciary duty claims filed against former employees that include that:

  • At-will employees are free in Texas to leave and form competing businesses in the absence of a valid non-compete agreement;
  • Employees have a fiduciary duty to act primarily for the benefit of the employee’s employer in matters connected with employment during the relationship which includes refraining from:
    • Taking a company’s trade secrets or confidential information;
    • Soliciting the former employer’s customers while working for his employer;
    • Soliciting the departure of other employees while working for the employer; and
    • Using the employer’s funds or employees for personal gain.

Applying these rules to the facts presented to the jury, the court easily affirmed the judgment that Salas violated his fiduciary duty to Total Air. What Salas teaches is that any employee considering leaving his or her present employer to start a competing business must take steps to avoid crossing the line from permissible preparations to compete to breaching a fiduciary duty owned to the employer.

You can read the entire opinion in Salas v. Total Air Services, LLC here.

Austin Passes Law Requiring Private Employers to Provide Paid Sick Leave

Posted in Leave of Absence, News & Commentary

This month the City of Austin passed the State’s first municipal paid sick leave ordinance requiring private employers to provide earned sick time to employees. Beginning on October 1, 2018 (and October 1, 2020 for employers with five or fewer employees), employers with employees working in the City of Austin must provide employees with earned sick time.

The new law will eventually apply to employers of all sizes who pay an employee to perform work and exercise control over the employee’s wages, hours and working conditions. This includes non-profit organizations and temporary or employment agencies.  The law does not apply to unpaid interns or independent contractors and governmental entities.

The ordinance requires covered employers to provide one hour of earned sick time for every 30 hours worked for the employer in the City of Austin. The accruals begin upon the later of the commencement of employment or the effective date of the ordinance.

Employee are permitted to take earned sick leave for the employee’s:

  • own physical or mental illness or injury, preventative medical or health care, or health condition;
  • need to care for a family member with a similar need for leave that the eligible employee could take; or
  • need to seek medical attention, relocation, or to obtain services from a victim services organization (or participate in legal proceedings or court ordered action related to an incident of victimization from domestic abuse, sexual assault, or stalking involving the employee or employee’s family member.

Generally, an employee must make a timely request to use earned sick time before his or her scheduled work time. However, an employer may not prevent an employee from using earned sick time for an unforseen covered absence.  Additionally, employers may adopt reasonable verification procedures to establish that the employee’s request of earned sick leave is for a covered reason if the request is for more than three consecutive working days.

The annual cap on accrued paid sick leave is 64 hours for employers with more than 15 employees and 48 hours for employer with 15 or fewer employees. Employers are not required to provide more earned sick leave in a calendar year than the applicable annual cap and are not required to allow an employee to use earned sick time on more than eight days in a calendar year.  All accrued by unused paid leave is carried over from year to year except for employers than make the annual cap available to the employee at the beginning of each year need not carry over earned sick time to the following year.  Accrued but unused earned sick leave is not expressly required to be paid out on termination of employment.

Employers must provide monthly statements to employees (electronically or in writing) showing the amount of an employee’s available earned sick leave and must make and maintain records of the amount of earned sick time earned and used by employees. Employers with employee handbooks must include a notice of employee rights and remedies under the ordinance in the handbook and must also display signage in conspicuous places where employee notices are customarily posted describing the requirements of the ordinance.  These postings must be in languages appropriate for the employer’s workforce.

The law also prohibits retaliation against employee who request or use earned sick time or who participate in complaints made to the Austin agency that enforce the ordinance.

Enforcement of the new law is done through the City of Austin Equal Employment Opportunity/Fair Housing Office. The Office has the authority to investigate complaints, subpoena documents and assess civil penalties up to $500 for each violation.  Complaints must be filed within two years from the date of the violation.  No private right of action is created by the ordinance and it contains no criminal penalties for violation of its substantive provision although it is a Class C misdemeanor to refuse to comply with a valid subpoena.

A full copy of the ordinance can be accessed here.

U.S. Department of Labor Revises and Clarifies Unpaid Intern Test

Posted in Human Resources, News & Commentary, Wage & Hour

The U.S. Department of Labor recently abandoned its six-factor internship test in favor of the seven-factor primary beneficiary test utilized by most Courts. The primary benefit test adopts a temporal limitation for the internship that was not in the old six-factor test and incorporates two elements linking eligibility to the intern’s education programs and academic commitments.  For employers already using internship programs, they should review their policies, agreements and forms to incorporate the new test elements.  Employers considering whether to implement an internship program should tailor the program to insure the individuals can properly be classified as interns rather than employees using the current factors that the DOL described as follows:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. A promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The analysis remains a fact specific inquiry and is intended to be a flexible test.  You can review the DOL’s Fact Sheet on internship programs here.