Texas Employment Law Update

Texas Employment Law Update

A Resource for Texas Employers

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.

New Tax Law Limits Deductibility of Sexual Harassment and Abuse Settlements Containing Nondisclosure Provisions

Posted in Harassment, News & Commentary

The #Metoo movement and high profile sexual harassment allegations involving prominent Americans has influenced provisions of the new tax reform law.  The Tax Cuts and Jobs Act signed by President Trump on December 20, 2017, limits the deductibility settlements paid on sexual harassment claims where the settlement agreement contains nondisclosure provisions.  Section 13307 of the Act provides, in relevant part, that:

Payments Related to Sexual Harassment and Sexual Abuse.

No deduction shall be allowed under this chapter for

(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or

(2) attorney’s fees related to such a settlement or payment.

Effective Date.  The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act.

The effect of this new tax law will discourage plaintiffs and companies from including confidentiality or nondisclosure provisions in sexual harassment settlements as those settlements, including the amount of attorneys’ fees received by the employees’ attorneys, will be included in the employees’ gross income and without a corresponding deduction for the employee.  Additionally, it may discourage employers from settling some sexual harassment claims or cause those claims to be valued less by employers who are unable to procure confidentiality or nondisclosure commitments from plaintiffs or are unable to deduction the amount of the settlement as a deduction.

Employers settling sexual harassment or sexual abuse claims should consult with their employment lawyer and tax professionals to evaluate the effect the tax law has on settlements paid or incurred after December 20, 2017.

New Lawsuit Claims Companies Discriminate Against Older Workers in Facebook Job Placement Advertising

Posted in Age, News & Commentary

Facebook ads allow advertisers to target their advertising towards a variety of metrics. For example, you can target an ad to users in a city, state or zip code. You can also target particular professions and users in various age bands. In a recently filed age discrimination lawsuit, several large employers are accused of committing age discrimination by limited their job openings on Facebook to individuals under age 40 (i.e., individuals over age 40 do not see the job openings).

According to the New York Times,

Verizon is among dozens of the nation’s leading employers — including Amazon, Goldman Sachs, Target and Facebook itself — that placed recruitment ads limited to particular age groups, an investigation by ProPublica and The New York Times has found.

The lawsuit was filed by three workers and the Communication Workers of America (a union) against T-Mobile, Amazon, Cox Communications and Cox Media Group alleging that the defendant employers used targeted advertising that systemically excluded older applicants.  The lawsuit intends to achieve class action status on behalf of all similarly situated individuals (i.e., those potential employees who were screened out by the alleged age-based targeted ads) and also intends to add a defendant class of employers to include other employers using targeted job placement advertising that screens out older workers.  You can read the full allegations here.

What sounds elementary, but should not be forgotten in light of the recently filed case, is the fact that employers should not place unlawful restrictions who can view job openings on social media sites like Facebook, LinkedIn and Indeed.

Employers Using Biometric Systems to Track Hours Must Dot Their I’s and Cross Their T’s

Posted in Human Resources, News & Commentary

Many employers have adopted various technologies for tracking employee worktime.  One type commonly used is the biometric timekeeping system (e.g. fingerprint or retina scanners) that employees use to clock-in and clock-out of work.  A recent putative class action filed in Illinois should act as a reminder that such biometric systems may be subject to state disclosure, consent and security laws.

In the Illinois lawsuit, a group of Chicago-area employees filed a class-action suit against their employer alleging that it violated Illinois’ biometric information privacy laws by using their fingerprints to track their work hours.  The employees complain that their employer: (1) failed to inform them in writing of the purpose for which their fingerprints were being collected and the length of time they would be stored; (2) did not provide them a publically available retention schedule and guidelines for destroying their fingerprints; and (3) did not obtain written consent to take their fingerprints.

Starting with Illinois in 2008, states began passing biometric information privacy laws. Violation of these laws can carry high penalties, especially for employers.  Employers that use biometric data should stay up to date on these rapidly changing laws to ensure compliance.

Texas has a biometric information privacy law similar to the one at issue in the Illinois class action.  Under Texas law, an employer may not capture a fingerprint, iris or retina scan or use facial geometry (i.e., using facial recognition software) of an individual for a commercial purpose unless the person: (1) informs the individual before capturing the biometric identifier;  and (2) receives the individual’s consent to capture the biometric identifier.  Additionally, employers that do inform their employees and receive their consent to use their biometric information must comply with regulations on selling or otherwise disclosing the information; how the information is stored and secured; and destroying the information within a reasonable time.  Employers that do no follow these rules could be subject to fines up to $25,000 for each violation.

Employers using biometric systems should ensure they comply with the state laws that may restrict the collection, use and retention of such information.


Fifth Circuit Holds That Telecommuting Not a Reasonable Accommodation Because Regular In-Office Work Was Essential Job Function of Litigation Attorney

Posted in Case Summaries, Disability, Reasonable Accommodation

In Credeur v. State of Louisiana, an attorney working as a litigator with the attorney general’s office experienced health issues related to a kidney transplant. The Office of the Attorney General allowed Credeur to work from home temporarily while she was recovering from her transplant surgery. After several months of telecommuting, the Office of the Attorney General denied Credeur’s continued request to work from home and required Credeur to begin spending at least 3-4 hours per day working in the office, as tolerated.

Credeur filed a lawsuit against the State of Louisiana claiming failure to accommodate, harassment and retaliation under the ADA based on the situation regarding her request to continue working from home. The Fifth Circuit upheld the district court’s grant of summary judgment because the record showed that regular in-office attendance was an essential function of Credeur’s job as a litigator, thus working from home long-term was not a reasonable accommodation. In making this determination, the Court noted that an employee’s opinions alone about what are and are not essential function of their job are not enough to create a fact issue to defeat summary judgment.

The Court also found that Credeur’s failed to present sufficient evidence of an ADA harassment or retaliation claim. Credeur’s issues all stemmed from the Office of the Attorney General’s denial of her request to continue working from home and its attempts to come up with a reasonable accommodation for her disability.

Important takeaways from Credeur for management-side employment lawyers include:

  • Providing an accommodation that is not reasonable or not legally required (e.g., work from home) does not obligate the employer to continue that accommodation forever;
  • Regular work-site attendance is an essential function of most jobs;
  • Jobs requiring day-to-day coordination with supervisors and staff; adequate supervision from supervisors
  • Employee’s unsupported testimony that she can perform her job functions from home does not create a genuine issue of material fact to preclude summary judgment;
  • Employee’s opinion about what functions are essential is entitled to little credit from court;
  • Chastisement by superiors does not rise to the level of material adversity that distinguishes an adverse employment action from petty slights, minor annoyances and simple lack of good manners that are not actionably retaliatory conduct;
  • Performance improvement device such as a Last Chance Agreement that do not result in disciplinary action are not materially adverse actions to support a retaliation claim.

You can download the full opinion here.

Employers Using Fluctuating Workweek Method of Overtime Compensation Should Memorialize Understandings in Writing

Posted in Case Summaries, Wage & Hour

In Texas, an employer can satisfy its overtime obligation to nonexempt employees whose hours fluctuate from week-to-week and are paid on a salary basis, by using the fluctuating workweek (FWW) method of overtime compensation.  Under the FWW, a nonexempt employee who has hours of work which fluctuate from week to week may be paid a fixed salary that is intended to compensate the employee for the straight time hours worked each workweek. On occasions where the employee works overtime, the employer is only required to pay one-half the employee’s regular rate of pay for the hours in excess of 40 in the workweek because the employee has already been paid the straight time regular rate under the salary arrangement.  To use the FWW method, there must be a 1) clear and mutual understanding that the FWW will be used and that the employee’s fixed salary is intended to compensate for all straight time hours no matter how many or how few; 2) the salary must be sufficiently high that the employee’s regular rate of pay never drops below the minimum wage; and 3) the hours must fluctuate week to week rather than following a fixed scheduled.

A recent case from the Fifth Circuit Court of Appeals teaches that where an employer wants to use the FWW method to calculate and satisfy its overtime obligation to employees, it is wise to do so in a written document explaining what the salary is intended and having employees accept the terms of the arrangement. In Hills v. Entergy Operations, Inc., the Fifth Circuit reversed a trial court judgment in favor of the employer holding that the trial court’s determination that the FWW method was the proper method for determining the potential overtime liability for arguably misclassified employees was premature and further holding that genuine issues of material fact existed as to whether the employer and employee had agreed to use the fluctuating work week method.  You can read the full opinion here.

The employer’s trial court win was reversed because there was disputed evidence in the record about whether the parties had a clear and mutual understanding that the fixed salary was intended to compensate the employees for all straight time hours and whether the employees’ alternating schedules of 36 and 48 hour shifts constituted fluctuating hours or a fixed schedule. This result might have been avoided had there been a written agreement between the parties clearly outlining the terms of the FWW arrangement or a notification the salary was intended to cover all of the employees’ straight time earnings in the original offer letter.  Employers using the FWW method should review their practices to determine whether sufficient evidence exists to convince a court or jury that the parties have a clear and mutual understanding of what hours the fixed salary is intended to cover.