I subscribe to about 20 very good labor and employment law blogs.  This week, one of the blogs I follow posted a good summary on the employee duty of loyalty and what activities are proper and improper for an employee to engage in who is about to start a venture that competes with his or her current employer.   

Jon Hyman’s post at the Ohio Employer’s Law Blog titled "Do you know?  The duty of loyalty: illegal competition vs. legal preparation" is a good place to start when evaluating an employee’s duty of loyalty and the activities that are loyal and disloyal to an employer.

A trial court’s order granting or denying a temporary injunction in a noncompete case is rarely reversed by the court of appeals.  This week the Fourteenth Court of Appeals took the unusual step of reversing a trial court’s denial of an employer’s application for temporary injunction seeking to prohibit a former employee from engaging in certain competitive activities.

In EMS USA, Inc. v. Shary, EMS brought suit against its former employee (Shary) to enforce the terms of a noncompetition agreement.  The agreement prohibited, in relevant part, Shary from soliciting any of the company’s customers existing as of the date of termination.  The trial court issued a temporary restraining order and later held hearings on EMS’s application for temporary injunction.  At two temporary injunction hearings the trial court did not take evidence but merely heard oral argument.  Shary argued that the noncompete was overly broad as a matter of law because it was not limited to the customers that he actually dealt with but instead included all customers existing on the date of his termination.  Without taking any evidence, the trial court concluded that EMS had not shown its entitlement to an injunction.

On appeal, EMS argued that the trial court abused its discretion in failing to take evidence addressing the reasonableness of the restrictions; whether the agreement should be reformed; and whether the restrictions were ancillary to or part of an otherwise enforceable agreement such as a personal services agreement. 

The Fourteenth Court of Appeals held that the trial court abused its discretion in denying the temporary injunction without first hearing evidence.  The appellate court found that the trial court should have heard evidence regarding the reasonableness of the restrictions; the circumstances surrounding the execution of the contract; and whether the former employee had dealings with all existing customers of EMS or only part of them.  Consequently, the court of appeals reversed the denial of the temporary injunction and remanded the case to the trial court for further proceedings.

A copy of the opinion is available here.

Last week, the El Paso Court of Appeals affirmed a judgment in favor of an employer on an unemployment benefit eligibility issue where the employee, abandoned his job.  The employee was a Nationwide Financed Agent from January 2003 until November 2005.  A Financed Agent is an employee-agent of Nationwide who starts an insurance agency and operates it to the point of economic self-sustainability.  At that point the Financed Agent becomes an independent contractor. 

In June 2005, the employee’s supervisor met with the employee to discuss his poor job performance.  The employee continued to under perform and the employer attempted to meet with the employee on three successive occasions to address the continued poor performance; however, the employee failed to attend those meetings.  Ultimately, the supervisor telephoned the employee and left a message for him to return the call immediately.  The call went unreturned.  Further investigation revealed that the employee had not been to the office in two months and that he had removed computer equipment and all of his personal belongings from the office.  The supervisor wrote the employee to advise that Nationwide considered his employment to have been abandoned. 

The employee filed for unemployment benefits claiming he quit with good cause.  He contended that he quit with good cause because: 1) he was require to work overtime without being paid time -and-a half; 2) he believed he was about to be laid off; and 3) supervisor acted in bad faith to create a record for his eventual discharge.  The appellate court affirmed the judgment for the employer because:

Uranga had been employed by Nationwide from January of 2003 to November 2005. As an agent, Uranga would have a full day but he was able to set his own office hours. Uranga was aware at the time he was hired of the job responsibilities and the required time commitment. When Uranga’s job performance became a problem, Scott met with him to discuss the deficiencies in his operation. Uranga’s job performance did not improve and Scott attempted to meet with him again, but Uranga did not attend the scheduled meetings. Scott subsequently discovered that Uranga had been absent from the office for most of the two previous months and he had removed computer equipment and personal belongings. Scott determined Uranga had abandoned his employment and wrote Uranga a letter notifying him that Nationwide considered his employment at an end.

Given these facts, there is nothing surprising or controversial about about the fact the appellate court affirmed the conclusion that the claimant resigned without good cause.  Similarly, the opinion doesn’t state any new rules of law.  However, the opinion emphasizes a few points about eligibility for unemployment benefits under Texas law including:

  • Leaving a job when work is still available (even when a definite notice of layoff is given) constitutes a voluntary resignation.
  • Claimant working under objectionable conditions for a prolonged period of time weighs against a finding that his eventual resignation was for good cause.

A copy of the court’s opinion is available here.

As a light dusting of snow falls on much of North and West Texas, I thought it was a good time to review the rules regarding deductions from exempt employee salaries for weather-related absences.  Employees qualifying for the white collar exemptions (e.g., professional, administrative and executive exemptions) are generally entitled to receive their entire salary for any workweek where they perform work, regardless of the amount of work performed during the week (like most things, there are some exemptions not addressed here). 

When an employer closes its business for less than a full week due to weather-related conditions such as snow, the employer must pay the exempt employee the full salary for the week.  In this case, while the employer must pay the exempt employee the full salary for the workweek, nothing prohibits the employer from deducting that period of time from the exempt employee’s PTO or vacation bank –so long as the employer’s written policies do not prohibit it from doing so.  If an exempt employee has exhausted all available PTO or vacation, the employer should still pay the full salary for the workweek under this situation.

Conversely, where the workplace is open for business and the exempt employee elects not to report to work for a full day because road conditions are treacherous, the employer may reduce the exempt employee’s salary for the workweek for the period of full day absences caused by weather.  An absence under these circumstances constitutes an absence for personal reasons.  An employer could also pay the employee and deduct the time from the employee’s PTO or vacation balance.  An employer should not, however, deduct from the exempt employee’s salary a partial day deduction (e.g., where the employee reports late for work due to road conditions).  Treating exempt employees’ pay for absences occasioned by weather-related absences is important because failing to do so may jeopardize the employees’ eligibility for exempt status.

DOL Opinion letters here and here.

On February 18, 2010, the EEOC published a proposed rule defining the employer’s "reasonable factors other than age" (RFOA) defense to a claim of disparate impact age discrimination.  A disparate impact theory of age discrimination argues that while the policy or practice challenged does not directly discriminate on the basis of age; it affects older workers in greater numbers.  When a plaintiff can show that an age-neutral employment policy or practice has an adverse impact on workers 40 and over, the burden shifts to the employer to show that the challenged policy or practice is based on RFOA.

The proposed rule defines a RFOA as "one that is objectively reasonable when viewed from the position of a reasonable employer (i.e., a prudent employer mindful of its responsibilities under the ADEA) under like circumstances."  The proposed rule goes on to provide that "to establish the RFOA defense, an employer must show that the employment practice was both reasonably designed to further or achieve a legitimate business purpose and administered in a way that reasonably achieves that purpose in light of the particular facts and circumstances that were known, or should have been known to the employer."

The proposed rule identifies the following non-exhaustive list of factors that may be relevant when examining whether an employment policy or practice is based on a reasonable factor other than age:  

  • Whether the employment practice and the manner of its implementation are common business practices;
  • The extent to which the factor is related to the employer’s stated business goal;
  • The extent to which the employer took steps to define the factor accurately and to apply the factor fairly and accurately (e.g., training, guidance, instruction of managers);
  • The extent to which the employer took steps to assess the adverse impact of its employment practice on older workers;
  • The severity of the harm to individuals within the protected age group, in terms of both the degree of injury and the number of persons adversely affected, and the extent to which he employer took preventive or corrective steps to minimize the severity of harm, in light of the burden of undertaking such steps; and
  • Whether other options were available and the reasons the employer selected its chosen option.

An employer is not required to adopt an employment practice that has the least severe impact on the older workers; however, the availability of other options is one factor relevant in determining whether the practice was reasonable. Of course, the RFOA defense only applies to those employment practices that are facially age-neutral.  The proposed rule explains that its analysis will most often apply when the practice is based on an objective non-age factor and the only question is the reasonableness of the factor.  However, in considering whether the practice is based on a "factor other than age", the EEOC suggests analyzing:

  • The extent to which the employer gave supervisors unchecked discretion to assess employees subjectively;
  • The extent to which supervisors were asked to evaluate employees based on factors known to be subject to age-based stereotypes; and
  • The extent to which supervisors were given guidance or training about how to apply the factors and avoid discrimination.

Following a sixty (60) day public comment period, the EEOC will review comments and potentially make revisions to the proposed rule before publishing a final rule that would go into effect ninety (90) days after publication.   A copy of the proposed rule and the EEOC’s preamble can be accessed here.

Companies using independent contractors to perform work normally performed by employees beware; state and federal governmental taxing authorities are challenging those classifications in an effort to increase tax revenue on wages that are not properly reported.  According to a recent article by the Associated Press, "the Internal Revenue Service and 37 states are cracking down on companies that try to trim payroll costs by illegally classifying workers as independent contractors rather than as full employees." 

In September 2009, the IRS announced that it would (beginning in February 2010) audit at least 6,000 randomly-selected companies to investigate employment tax compliance.  Among other things, one of the areas targeted is worker misclassification as independent contractors. Companies may misclassify workers for a variety of reasons.  Companies have greater tax withholding obligations and employment tax liabilities with respect to employees.  Moreover, independent contractors are not entitled to overtime compensation, unemployment insurance and other employee benefits.  It is estimated that classification as an employee rather than independent contractor may add up to 30 percent to the labor cost of the worker.  The Government Accountability Office estimates that employee misclassification results in an estimated underpayment of $2.72 billion in social security, unemployment insurance and income taxes by companies annually.  

The 2011 federal budget proposes up to $3.8 trillion in spending measures to eliminate legal incentives for employers to misclassify employees, such as using budgeted funds to investigate, prosecute and penalize employers misclassifying employees as independent contractors and provide states with competitive grants to boost enforcement initiatives targeting misclassification.  There is also legislation introduced in Congress, the Taxpayer Responsibility, Accountability and Consistency Act of 2009, designed to make it more difficult to classify workers as independent contractors and to increase penalties for such misclassification. 

Secretary of Labor Hilda Solis also announced that her Department will hire more than 90 new wage and hour investigators and enforcement personnel to target worker misclassification.  According to Secretary Solis:

When employees are misclassified as ‘independent contractors,’ they are deprived of benefits and protections to which they are legally entitled. For example, independent contractors do not receive overtime and are ineligible to receive unemployment benefits. The FY 2011 budget includes an additional $25 million for a Misclassification Initiative to target misclassification with 100 additional enforcement personnel and competitive grants to boost states’ incentives and capacity to address this problem.

With heightened Executive and Legislative enforcement efforts, companies using independent contractors should be sure their relationships have been vetted and are in strict compliance with the labor and tax laws.  The Departments of Labor and Treasury will surely be watching and scrutinizing those relationships.

Other Related Links:

Bill Would Make it Harder to Qualify Workers as Independent Contractors

Proper Classification of Workers as Employees or Independent Contractors May Reduce Litigation Exposure

For more than 15 years Texas employers have used the application of uniformly enforced neutral absence control policies setting a maximum duration an employee can be away from work as a defense to workers’ compensation retaliation claims.  The defense was first solidified by the Supreme Court of Texas in in its 1996 Continental Coffee Prod. v. Casarez case.  See 944 S.W.2d  (Tex. 1996).  Employers who end the employment relationship with a worker’s compensation claimant for violating reasonable absence control rule will not normally be liable for workers’ compensation retaliatory discharge claims if rule is uniformly enforced (i.e., it is applied to all types of absences and not just those arising from on-the-job injuries).  Following Casarez Texas employers routinely included neutral policies setting forth neutral absence control policies that set maximum durations of time for employees to be away from work (excepting from the maximum duration certain types of statutory protected leaves like FMLA and USERRA leave).

The continuing viability of the neutral absence control policy is in jeopardy with the passage of the ADA Amendments Act.  The ADA Amendments Act substantially expanded the number of employees who can claim disabled status and are therefore entitled to reasonable accommodation.  Reasonable accommodation may include modification of employer policies that might enable the employee to be able to return to work –including, perhaps, an extension of a leave of absence past the maximum set forth in the employer’s written policies.

The EEOC has been targeting inflexible leave of absence policies as violating the ADA with greater frequency.  Last September the EEOC sued UPS challenging the company’s policy of allowing a maximum 12 months of medical leave claiming that the policy does not adequately accommodate employees with disabilities.   The EEOC also sued Supervalue, Inc./Jewel-Osco over their leave of absence policies that limited the amount of leave an employee could take and challenged another policy that limited participation in the employer’s light duty program to only those employees recovering from a work-related injury –something court’s had previously held was permissible.  The EEOC also challenged another leave of absence policy it characterized as "inflexible" on behalf of a pregnant employee against D.R. Horton by using the ADA rather than the Pregnancy Discrimination Act.  Indicating that the EEOC’s efforts are having some success, the EEOC recently obtained a consent degree against Sears and a $6.2 million settlement of ADA claims arising from Sear’s use of an inflexible workers’ compensation leave of absence policy that terminated the 235 employees upon the exhaustion of the leave of absence period. Clearly, inflexible neutral leave policies having setting forth maximum durations for leaves of absence are in the cross-hairs of the EEOC.

The ADA Amendments Act and challenges to neutral absence control and maximum duration of leave policies put Texas employers to a Hobson’s choice.  The uniform, mechanical application of such policies provide an employer a defense to a Texas workers’ compensation retaliation claim.  Now, however, the policy might give rise to a claim of failure to reasonably accommodate an employee with a disability who needs an extension of the maximum leave period to return to work.  Employers should reevaluate their leave of absence policies to make sure they are sufficiently flexible as to provide reasonable accommodation to qualified individuals with disabilities.  By making exceptions to neutral absence control or maximum duration of leave policies, the exceptions may dilute the protections those policies once provided against workers’ compensation retaliation claims.  

Photo courtesy of Sharon Ellman, Ellman Photography.

 

There has been a significant amount of litigation against employers over the compensability of work time for putting on and taking off safety-related clothing and equipment prior to the start of a shift but necessary for the work to be performed.  For example, Pilgrim’s Pride Corporation recently agreed to pay $1 million in back wages to settle a donning and doffing case with the U.S. Department of Labor.  

The U.S. Court of Appeals for the Fifth Circuit (the federal appellate court hearing appeals from Texas, Mississippi and Louisiana) recently affirmed a trial court judgment in favor of McWane, Inc. (a cast iron pipe and fitting manufacturer) in a Fair Labor Standards Act collective action filed on behalf of 2,100 employees. The lawsuit sought unpaid wages for time spend putting on and taking off safety gear before and after employees’ scheduled shift (i.e., hard hats, steel-toed boots, safety glasses and ear plugs). This is commonly referred to as donning and doffing pay. 

Employees at McWane worked at ten different plants. Three of the plants had collective bargaining agreements (CBA) that expressly excluded donning and doffing time from compensable time. The remaining seven plants had CBAs that were silent on the issue of donning and doffing pay. Employees were paid based on “line time,” which measures shift working time as starting when the first item hits the processing line and ends when the last item leaves the processing line. None of the plants had ever paid (in over 40 years) employees for pre-shift donning and doffing time and the issue had never been previously discussed at union meetings or during contact negotiations (and union officials and employees admitted that they never knew pre- and post-shift changing time was potentially compensable under the FLSA). 

 

The Fair Labor Standards Act generally requires that employees receive overtime pay for all hours worked in excess of 40 hours per week at one and one-half times the regular rate of pay. An exception exists for time spent changing clothes if it has been excluded by custom or practice under a bona fide collective-bargaining agreement. The McWane employees argued that donning and doffing was subject to exclusion as time worked only when it has been affirmatively bargained away in the labor contract, and therefore no waiver existed in this case because the union representatives did not have knowledge of the right to compensation for this changing time nor any knowledge of or agreement to a policy of nonpayment for that time.

 

The Fifth Circuit rejected these arguments and sided with other courts of appeals to hold that “even where negotiations never included the issue of non-compensation for changing time, a policy of non-compensation for changing time that has been in effect for a prolonged period of time, and that was in effect at the time the CBA was executed, satisfies the [FLSA’s] requirement of ‘ a custom or practice under a bona fide’ CBA.” The Court further held that burden of establishing the absence of a custom or practice under a CBA is on the plaintiff employees and is not an affirmative defense on which the employer bears the burden of proof.

 

Access the opinion here: Allen v. McWane, Inc., No. 08-41037 (5th Cir. 2010)

Last night CBS launched its new series "Undercover Boss" following the Super Bowl.  The premise of the semi-reality series is the president of a large company goes undercover as a rank-and-file employee to work for the company and get a bottom-to-top look at how the company operates.  [Spoiler Alert –Don’t read further if you have the show DVR’d to watch later].  Last night’s episode exemplified a situation where appropriate and legal policies formulated at the corporate level sometimes get contorted or twisted at the tactical level.

In last night’s episode the President and COO of Waste Management (Larry O’Donnell) went to work undercover as a new employee in various operations of his company over the course of a week.  At a recycling plant operated by Waste Management, the company apparently had a policy requiring employees to take exactly a thirty minute meal period.  It was unclear from the show whether the policy was required by state law, but an employee had to clock-out for exactly thirty minutes.  If the employee clocked in a minute late, local management, docked the employee for 2 minutes of pay.  Presumably, if the employee clocked in 5 minutes late, she would be docked 10 minutes of pay.  In any event, it is unlikely that Waste Management’s Human Resources or Legal Departments encouraged or condoned the application of the policy in this manner given the potential that such docking of work time (depending on the state and whether the total time docked is de minimus) could result in a wage and hour violation . 

The lesson employment lawyers and human resources personnel can take away from "Undercover Boss" is that there is often a difference in how a policy is designed to work and how it actually works in practice.   When investigating a potential legal claim to answer a complaint or draft a statement of position to the EEOC, it is often important to talk to the people who are actually responsible for implementing company policies to determine how they really operate in the field rather than relying on middle or senior management who may only know how the policies are supposed to work.  Failing to do so can cause employers to make misrepresentations to governmental agencies or courts and can lead to accusations that the employer either doesn’t know what is going on in the workforce or to claims that the stated reasons for taking some action against an employee are pretextual or false. 

In Physio GP, Inc. v. Naifeh, the Fourteenth Court of Appeals in Houston held, in a case of first impression, that an individual cannot be held personally liable for a Sabine Pilot cause of action.  A Sabine Pilot or public policy wrongful termination claim is a narrow exception to the general rule of at-will employment in Texas.  A claim may arise when an employee is terminated by his employer solely for refusing to perform an illegal act.  This type of claim was named after the first Texas Supreme Court case to recognize the cause of action.   See Sabine Pilots Serv., Inc. v. Hauck, 687 S.W.2d 733 (Tex. 1985).

In Physio, the plaintiff’s claim arose after her employment was terminated, according to her, for refusing to sign altered patient medical treatment records showing medical services that were never provided and that would have led to higher insurance payments for the employer.  The employer contended that the plaintiff was terminated for various performance infractions, including unauthorized treatment on a patient and misuse of company time.  At trial, the employer and individual defendants elected not to defend the case further due to a lack of resources to pay their attorney.  The trial court conducted a bench trial and found that the plaintiff was terminated for refusing to perform an illegal act and entered judgment against the employer and individual defendants. 

On appeal the individual defendants raised an issue left open by Sabine Pilots and the lower court decisions applying the doctrine –i.e., whether an individual supervisor may be held liable for this type of claim.   The Court of Appeals, in a split decision, held that individual supervisors (absent a finding that the supervisor was the alter ego of the employer) cannot be held personally liable for a Sabine Pilot cause of action.

Majority Opinion Here

Dissenting Opinion Here