Employers often consider asserting counterclaims against employees who file lawsuits against them.  Most lawyers representing employers counsel against filing counterclaims except in exceptional cases (e.g., an employee’s theft of trade secrets or breach of a covenant not to compete). However, where an employer pays an employee valuable severance benefits in return for a release or a covenant not to sue, the employer may consider avenues to recoup the benefits paid to a former employee who breaches that agreement and sues the employer.  A recent opinion from the Fifth Circuit explains an employer should not generally seek a set-off against damages in a claim seeking unpaid wages or overtime under the Fair Labor Standards Act (FLSA) in the FLSA action. 

In Martin v. Pepsi, Martin was an hourly route settlement clerk for Pepsi for approximately five years. During this time she was paid overtime for the hours she worked in excess of forty hours per week. She was promoted to route settlement supervisor and her manner of compensation was changed to a weekly salary. When Martin was laid off she was provided with nearly $23,000 in severance payments in return for a complete release of claims and a promise not to file any lawsuits or other claims against Pepsi arising from her employment or termination of employment.  After pocketing the severance money, Martin sued Pepsi for unpaid overtime under the FLSA and asserted state law claims for fraudulent misrepresentation and punitive damages under state law. Pepsi moved to dismiss Martin’s claims arguing that the trial court lacked jurisdiction. The crux of the argument was that because Pepsi was entitled to an off set for the severance payments made to Martin due to her broken promise not to sue Pepsi and the amount of the set-off exceeded the unpaid overtime and liquidated damages Martin could recover, there was no controversy for the court to decide. The trial court agreed and dismissed Martin’s case. 

 

In reversing the trial court’s dismissal, the Fifth Circuit held that counterclaims seeking damages or set offs against recovery in FLSA cases are not permitted unless the money being set-off can be considered wages that the employer pre-paid to the plaintiff-employee. In Martin, the money that was sought to be set-off against the FLSA overtime was the severance benefits paid in return for a release of claims.

 

Martin does not appear to foreclose an employer’s ability to maintain a state court lawsuit for breach of contract arising from an employee’s breach of a contract not to sue in return for severance payments. For example, the employer might sue for recession to have the plaintiff return any severance benefits paid to him or for the attorney’s fees and costs incurred in defending a lawsuit the plaintiff promised he would not file. What is clear is that a counterclaim in the FLSA suit or an affirmative defense seeking a set off against FLSA damages is not the proper way to seek a return of the severance benefits paid to a plaintiff who promised not to sue the employer.

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. 

The Texas Workforce Commission has published the unemployment tax rates for 2011.  The minimum tax rate increases from .72 percent to .78 percent.  The maximum tax rate; however, will drop from 8.60 percent to 8.25 percent.  The average unemployment tax rate will increase from 1.83 to 2.03 percent and the average experience tax rate will be 1.96 percent.

The Fort Worth Court of Appeals ruled that the provisions of the federal Lilly Ledbetter Fair Pay Act of 2009 extending the charge filing deadlines for certain pay discrimination claims should not be automatically applied to pay discrimination claims arising under state law.

In Tarrant Regional Water District v. Villanueva, Tamara Villanueva brought suit against the the District for gender-based pay discrimination arising from her failure to receive a five percent pay increase she believed she was entitled.  After being given only a four percent increase in pay, Villanueva hired an attorney who threatened the District  with a gender-based pay lawsuit.  Additionally, immediately after being informed that she would not receive the five percent raise she requested, she started forwarding portions of the District’s employment policies from her work e-mail account to her personal e-mail account. 

More than 180 days after Villanueva began forwarding copies of the employment policies to her personal e-mail account and her lawyer’s transmission of the demand letter to the District, she filed a charge of discrimination with the Texas Workforce Commission’s Civil Rights’ Division.  She admitted in her deposition, which was filed along with the District’s plea to the jurisdiction (similar to a motion to dismiss), that she believed she was being discriminated against on the basis of her gender more than 180 days prior to filing her charge of discrimination.  Ordinarily, this would render her claim under state law untimely.

The District challenged the court’s jurisdiction to hear the pay discrimination part of her lawsuit.  The trial court denied the District’s plea to the jurisdiction.  On appeal, the District argued that the trial court lacked jurisdiction over the the pay discrimination claim because Villanueva failed to file her administrative complaint within the required 180-day period  after the District committed the unlawful employment practice.  Villanueva countered that the passage of the federal Lilly Ledbetter Fair Pay Act of 2009 should be automatically read into the Texas Labor Code prohibitions against pay discrimination thereby rendering her claim timely. 

The Fort Worth Court of Appeals rejected Villanueva’s argument for several reasons.  First, the Texas Legislature considered amending the Texas Labor Code during its 2009 session to incorporate the provisions of the Lilly Ledbetter Act.  That bill was never passed.  Second, when Congress has amended provisions of other federal anti-discrimination laws such as the ADA (amended by the ADA Amendments Act), the Texas Legislature passed similar legislation to adopt or incorporate the changes in federal law.  The appeals court summarized the basis for its holding by stating, "while we are guided by analogous federal statutes and the cases interpreting them, we see no reason to write automatic incorporation language into Chapter 21 [the Texas Commission on Human Rights Act] when out legislature has shown that it knows how to amend the chapter when it wants to include specific federal provisions."  Consequently, the court of appeals held that Villanueva’s pay-discrimination claim was untimely and should be dismissed.

The Villanueva opinion sets up a split of authority among the Texas courts of appeals.  This split may find its way to the Texas Supreme Court for resolution.  See Houston Court of Appeals Says Ledbetter Act Applies to Texas State Law Claims.  Without attempting to predict how the Supreme Court of Texas will resolve the case, I believe the Fort Worth Court’s analysis is the proper one.  Meanwhile, the Texas Legislature starts its session in several weeks.  A state law Lilly Ledbetter bill is likely to be reintroduced this Legislative Session.

In less than a month, the Texas Legislature starts its 82nd Legislative Session.  In Texas the Legislature only meets in regular session for 140 days every two years.  The 82nd Legislative Session kicks off on January 11, 2011.  Over the term of the session, I’ll try to identify the bills that, if passed, will impact Texas employment law.  In session prefiling, the following bills have been filed:

HB 223 (Strama) (Relating to unemployment compensation modernization)

HB 276 (Alonzo) (Relating to the minimum wage -would increase the state minimum wage to the greater of $6.15 or the federal minimum wage).

HB 387 (Turner) (Relating to the right of an employee who is a parent of a child enrolled in a special education program to time off from work to meet with certain persons affecting the eduction of the child).

SB 64 (Zaffirini) (Relating to the right of an employee who is victim of a crime to time off from work to attend court proceedings related to that crime).

 

The mid-term elections are approaching.  Today I want to take the opportunity for a brief refresher on the Texas legal requirement for providing employee time off to vote.  Under certain circumstances, Texas employers may be required to give employees paid-time off to vote.  As I wrote about last year:

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). 

Consider yourself refreshed.

Don Cruse at the Supreme Court of Texas Blog, wrote about the first case of the new term on which the Supreme Court of Texas requested full briefing —Hatton v. D.R. Horton, Inc.  that case involves an issue of significant importance to Texas employers.  According to Don, this case

concerns the enforceability of arbitration clauses in employee handbooks. In this case, the employer is alleged to have disclaimed any attempt to bind itself by the handbook, and stated that it reserved the right to change those terms unilaterally and without prior notice.

This is an issue that frequently comes up in Texas.  Employers occasionally include provisions in employee handbooks that purport to constitute binding agreements the employer may want to enforce.  Frequent examples include noncompetition and arbitration agreements.  The problem arises when the handbook also contains an express disclaimer provision stating that nothing the handbook constitutes a contract or other agreement and the employer reserves the right to amend the policies at any time.  Where the noncompetition or arbitration provisions of the handbook are not exempted from the disclaimer provisions, a party wanting to avoid the effect of those provisions, argues that no binding contract was created because the employer reserved the right to alter or amend the policy at any time.  Several Texas courts have refused to enforce arbitration agreements contained in employee handbooks because of the existence of broad disclaimer language.  The fact that the Court has requested full briefing does not mean that the Court will accept the case.   

In the meantime, employers and their counsel, should review their employee handbooks to ensure that broad disclaimers do not undermine important contractual agreements contained elsewhere in the employee handbooks that the employer intends to create and enforce.  You can follow the status of Hatton v. D.R. Horton, Inc. here.