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.

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The Texas Supreme Court has issued an opinion this morning holding that noncompetition agreements supported by stock options and good will are not unenforceable as a matter of law.  I previewed this case here.  As I have time to digest the majority, concurring and dissenting opinions, I’ll provide more thoughts on this case. You can download the majority opinion here. Concurring opinion here. Dissenting opinion here. Follow me on Twitter @RussellCawyer.

The Fifth Circuit held today that a spouse of a successful Title VII plaintiff cannot maintain a legal claim for loss of consortium (i.e., loss of spousal services) under state and federal law.  In Barker, Tracey Barker was a civilian worker employed by Halliburton (aka KBR).  She claimed she was subjected to sexual harassment, retaliation and various other torts while working for Halliburton in Iraq.  She and her husband filed suit in federal district court but the wife’s claims were compelled to arbitration and the husband’s claims were abated pending the arbitration. 

Ms. Barker won $1.23 million from the arbitrator (reduced from $2.93M) on the Title VII claims but the tort claims for assault, battery, intentional infliction of emotional distress and false imprisonment were dismissed.  (Note:  Who says arbitrators don’t render large awards in employment cases?).  Mr. Barker’s claims were dismissed by the federal district court because it held he could not maintain a claim that was solely derivative of his wife’s tort claims where those tort claims had been dismissed by the arbitrator and the only successful claim was under Title VII.

The Fifth Circuit Court of Appeals affirmed reasoning that:

Under Texas law, a loss of consortium claim is derivative of the tortfeasor’s liability to the physically injured spouse.  Thus, when a husband asserts a loss of consortium claim, he must establish that the tortfeasor was liable for the tort claim of his physically injured wife.  Galen Barker’s argument fails for two reasons.  First, Galen Barker’s claim must derive from a successful tort claim.  Therefore, in Texas, a loss of consortium claim may not derive from a spouse’s federal civil rights claim.  The second reason Galen Barker’s argument fails is because the arbitrator dismissed Tracey Barker’s tort claims.  Galen Barker’s loss of consortium claim must derive from his wife’s successful tort claim for her physical injuries.  That is not possible here because the arbitrator dismissed Tracey Barker’s tort claims with prejudice.

Consequently, if a Texas employer is faced with an employee-spouse’s loss of consortium claim that derive solely from violations of civil rights laws, the employer should consider asking the court to dismiss the spouse’s claims. You can download the complete opinion of Barker v. Halliburton here.

The Texas Legislature completed its regular session and is now in special session to address school financing legislation.  The good news for Texas employers is that the Legislature did little damage to employer’s rights during the regular session.  Bills to bring Obama-styled legislation to the Texas Labor Code such as the Lilly Ledbetter Fair Pay Act failed to pass. 

One limitation on employer’s rights that was passed was SB321.  SB321 prohibits employers from restricting concealed handgun license holders and others lawfully possessing firearms and ammunition from possessing those firearms or ammunition in their vehicles on company property.  You can find more on SB 321 here.

As the U.S. Congress and President continue to enact more legislation affecting employer’s rights and the Texas Legislature continues to show restraint in such matters, there are greater differences between the federal and state laws that employees use to bring claims against employers.  This can have a significant effect on whether employees chose to bring claims under state or federal laws and whether they bring those claims in state or federal court.

This week the EEOC held a hearing on whether new or updated regulations and enforcement guidance was needed with respect to providing leave of absence as a reasonable accommodation for disabled employees.  The EEOC has recently been very aggressive in bringing suit against employers that use maximum leave policies or "inflexible" policies that provide no exception for reasonable accommodation.  For example:

  • EEOC v United Road Towing Inc., No. 10-cv-06259 (N.D. Ill.) (failure to provide reasonable accommodations by terminating disabled employees after exhausting 12 weeks of FMLA leave and refusing to re-hire employees after they were released to return to work);
  • EEOC v. IPC Print Services, No. 10-886 (W.D. Mich.) (failure to provide reasonable accommodations by terminating an employee rather than granting him a part-time schedule because he had exceeded the maximum hours of leave under company policy);
  • EEOC v. Princeton HealthCare System, No. 10-4216 (D.N.J.) (failure to provide reasonable accommodations by terminating employees after either seven days or 12 weeks, depending on eligibility for FMLA);
  • EEOC v. UPS, Case No. 09-5291 (N.D. Ill) (failure to provide reasonable accommodations by terminating employee for exceeding 12-month leave policy);
  • EEOC v. Denny’s, Inc., No. 06-2527 (D. Md.) (failure to provide reasonable accommodations by terminating a nationwide class of disabled employees at the end of the company’s pre-determined maximum leave limit).

And of course, the EEOC reached a $6.2M settlement with Sears over its use of a maximum leave policy. (See here).  I predicted the demise of "neutral absence control" or "maximum duration leave policies" over a year ago.  (Post here).  Moreover, I discussed how an employer’s inability to rely on such policies will adversely affect an employer’s ability to handle leaves of absence for employees needing leave for non-work-related injuries, workers’ compensation leaves of absence and leaves caused by pregnancy.  

Hopefully the EEOC’s proposed regulations on the use of leave of absence as a reasonable accommodation, optimistically (but probably unrealistically) slated for Fall 2011 publication, will provide employers with needed guidance that will preserve the ability for employer’s to continue to use neutral or maximum duration leave of absence policies.   

What others are saying about this week’s hearing:

EEOC and employers differ on the use of neutral maximum leave of absence policies

EEOC Meeting and Forthcoming Written Guidance Address Leave Policies and Reasonable Accommodations Under the ADA

Earlier this week the Dallas Court of Appeals rejected an employee’s attempt to create a new wrongful termination cause of action.  In Martin v. Clinical Pathology Lab., Joyce Martin sued her employer for terminating her employment after she requested time off to vote in the November 2008 General Election.  According to her petition, Martin alleged that she:

[W]as a loyal and competent employee of Defendant for three (3) years. On November 4, 2008, Plaintiff requested permission to go vote in the general election so she could cast her vote for the President of the United States and other offices. Defendant refused. Plaintiff left work fifteen minutes early (at 5:15 p.m[.] ) to go vote for change in this country before the polls closed at 7:00 p.m. On November 6, 2008, Defendant terminated Plaintiff.

The question presented in the appeal was "whether an at-will employee who leaves work early to vote in an election and who is subsequently terminated has a private cause of action for wrongful termination."  In keeping with the general rule in Texas that common law exceptions to the employment at-will doctrine should be made by the Supreme Court of Texas, and not the intermediate appellate courts, the Dallas Court of Appeal refused to recognize this new wrongful termination cause of action.

You can download a full copy of the opinion here.

Schools are out for the summer and many college and graduate students are looking for experience in what they hope will be their chosen careers.  Employer’s looking to provide that experience through the use of unpaid internships must understand the rules that qualify an internship for "unpaid" status or unwittingly create potential wage and hour liability.  Last summer, the U.S. Department of Labor announced that it would crack down on employer’s improper use of unpaid internships.  There is no reason to believe the DOL’s interest in these kinds of investigations will be lessened this summer and so a refresher course is in order.

The Fair Labor Standards Act requires that employees be paid at least minimum wage for all hours worked.  The FLSA excludes from coverage those persons who work for another for their own advantage such as an unpaid internship.  The DOL has developed a six factor test for determining whether an internship qualifies for unpaid status.  The factors include:

  1. Whether the internship, even though including actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. Whether the internship experience is for the benefit of the intern;
  3. Whether the intern displaces regular employees, and works under close supervision of existing staff;
  4. Whether the employer providing the training derives no immediate advantage from the activities of the inter; and on occasion its operations may actually be impeded;
  5. Whether the intern is entitled to a job at the conclusion of the internship;
  6. Whether the intern understands that he is not entitled to wages for the time spent on the internship.

If the internship meets all six factors, it may qualify for unpaid status.  However, the DOL takes a very narrow view of this exemption and believes that very few "for profit" employers can properly offer these programs.  The DOL has published a Fact Sheet on Internship Programs under the FLSA.  You can download the Fact Sheet here.

Other posts about unpaid internships:

Unpaid Internships May be a Problem:  Are they Employees or Not?

Unpaid Internships:  Do they Violate the FLSA?

When to Pay Summer Interns:  FLSA Guidance You Need to Know

6th Circuit Tosses DOL’s Internship Test (Cautionary Note:  The Fifth Circuit (which includes Texas) has not tossed the DOL’s internship test).

The Texas Legislature passed SB 321 and sent it to the Governor for approval.  The bill restricts public and private employers from prohibiting employees who are concealed handgun license holders, or otherwise lawfully possessing firearms or ammunition, from transporting or storing firearms or ammunition in the employee’s privately-owned, locked car on the employer’s premises. This bill does not apply to an employer owned or leased car; most school districts, chemical manufacturers and oil/gas refiners.

Because the bill prohibits employers from banning firearms in most employee’s cars, it also provides employers with immunity from civil liability for injury, death, property damage or other damages arising out of an incident involving a firearm or ammunition that the employer is required to allow on its property.

The law, if signed by the Governor, is effective September 1, 2011.  You can download the text of the bill here. 

The Supreme Court of Texas has agreed to hear the case of In re Frank Kent Motor Co. d/b/a Frank Kent Cadillac, No. 10-0687.  In that case, the Fort Worth Court of Appeals denied the employer’s application for writ of mandamus and refused to overrule the trial court’s decision not to enforce/honor an agreement between the employer and employee to resolve all disputes in with a trial sitting without a jury (i.e., a bench trial). 

I’ve advocated the use of jury waivers by Texas employers because I think they can provide many of the advantages of arbitration at less cost (see posts here and here).  However, the thing I found most interesting about this case is that it involved the same agreement that only six months after the Fort Worth Appellate Court order effectively denying enforcement, the Fort Worth Appeals Court enforced by way of mandamus.  See post here.  The only meaningful differences in the two cases are the identity of the plaintiff-employee and the members of the Court that decided the two cases.  Two of the three Fort Worth Justices participated in both cases.  Justice Meiers, however, wrote the opinion conditionally granting mandamus relief and thereby effectively enforcing the agreement.  He was not on the panel that denied the application for mandamus in the case accepted by the Supreme Court.  Oral argument at the Supreme Court will be scheduled in Austin later this year and an opinion expected in the next 12 months. 

If you are a Texas employer and want to learn more about effective use of jury waiver, feel free to drop me an e-mail.

Texas is known for its business/employer-friendly legal climate.  In a bill passed by the Texas Legislature, the climate just got friendlier.  HB 274, sent to the Governor for signature, requires the Supreme Court of Texas to adopt rules providing for the early dismissal of causes of action that have no basis in law or fact and provide for the shifting of litigation expenses to the losing party filing such cases.

The bill requires the Supreme Court to create procedural rules to create a state court motion to dismiss.  The motion to dismiss is to be considered without the production of evidence.  Presumably, this will be similar to Federal Rules of Civil Procedure 12(b)(6) (dismissal for failure to state a cause of action) and 12(c) (for judgment on the pleadings).  Trial courts will be required to rule on the motions within 45 days of filing and to award to prevailing parties their costs and attorney’s fees.  The bill does not define "prevailing party."  The bill also provides that a trial court’s granting or denial, in whole or in part, of a motion to dismiss shall award a prevailing party its costs and reasonable attorney’s fees.  Unanswered is the question of "who is a prevailing party?"; "who is a prevailing party when the motion is granted in part and denied in part (i.e., both parties prevail on parts of the motion)?" and "whether a plaintiff who prevails on the motion to dismiss (i.e., the defendant’s motion is denied) is a prevailing party entitled to fees and costs?"

The bill passed by the Legislature also creates appellate jurisdiction over certain appeals of controlling questions of law prior to a final judgment.  This is similar to a federal statute that provides for interlocutory appeals of controlling questions of law where a substantial ground for difference of opinion exists and the immediate appeal of the trial court’s order may result in the termination of the litigation.

The bill is effective September 1, 2011 and applies to most civil actions filed on or after that date.  You can access the text of the bill here.