Mad MenLast week’s season finale of AMC’s critically acclaimed series "Mad Men" shows a prime example of how to get involved in big time litigation when leaving a former employer to start-up a competing enterprise or work for a competitor. Mad Men is a made for cable series set in the 1960’s about a Madison Avenue advertising firm.

In the season finale, Don Draper, Roger Sterling and Bert Cooper learn that their New York subsidiary of a London-based advertising firm ("PPL") is being sold to a competitor.  Shackled by noncompetition agreements they signed when their firm was purchased by the London firm and intent on not working for their competition, they evaluate their options. 

The solution –conspire with the office manager (a long-time PPL employee who will be cast aside following the sale) to terminate their contracts (fire them) in return for a partnership interest in the new venture.  To ensure that their plans are not discovered, the office manager strategically waits to advise PPL’s home office of the terminations until the close of business Friday afternoon thereby ensuring that PPL will not learn of the change until Monday morning.  Over the course of the weekend, Draper and company loot client files; take account and marketing materials; and go on a wholesale campaign to solicit firm clients to join the new firm.  This is the season finale and so we don’t yet know whether the 1960’s London-based company response will be to file lawsuits or do nothing. 

In today’s times, I would expect the next season would begin, and end, as follows.  The episode opens in a courtroom where Draper, Sterling and Cooper are about to be sentenced for certain criminal offenses.  The next scene then flashes back to last season’s finale with Draper and company wheeling out boxes and boxes of information from their old employer; making solicitations to the customers of their old firm; and competing fiercely for new business.  Lawyers are engaged; lawsuits are filed.  Draper and company are slapped with injunctions that prohibit them from calling on or doing business with old firm clients and from using the confidential, proprietary information that was misappropriated from the old employer.  Next, a grand jury is summoned by the U.S. Attorney for the Southern District of New York. Our heroes are indicted for theft of trade secrets and a whole host of other misconduct.  Draper files for bankruptcy since his resources are drained by being a partner in an advertising firm that is enjoined from working with clients –not to mention the divorce from his lovely wife Betty.  Finally, our Mad Men plead guilty to criminal offenses and are sentenced to moderately lengthy prison sentences.  Next season’s opener ends up being the series finale because the protagonists misappropriated and used information that belonged to their old employer.

What this episode of "Mad Men" teaches is that if one is going to leave an employer and either work for a competitor or start a competing venture; don’t do it like the Mad Men.  Departing employees should 1) honor reasonable and enforceable contractual agreements regarding competition and nondisclosure of confidential information; 2) not take or use anything from the former employer; and 3) compete fairly.

Let the Festivities Begin.

It’s that time again. The leaves are changing; there is crispness in the air and it’s time to start planning the company’s annual end of year or holiday party. While these events are wonderful opportunities for employees and their families to get together to celebrate the season, they can have unanticipated legal implications and bring with them the potential opportunity to create employer legal liability. 

Not only can the fun and festivities of a company Christmas party lead to employer liability resulting from alcohol related accidents or injuries, but the relaxed environment and the introduction of alcohol can also lead to allegations of sexual harassment. The following ideas are a few suggestions an employer should consider in planning and carrying out a company-sponsored event.

Don’t Require Attendance And Don’t Take Roll.

There are several reasons why an employer does not want to mandate that its employees attend the company party as a condition of employment. For example, if the company sponsors an annual Christmas party, there may be some employees who subscribe to religious faiths that do not celebrate or recognize Christmas. Mandating employees attend these parties, or disciplining employees because they do not attend, could result in charges of religious discrimination. For this reason, many companies have elected to use secular names for their seasonal parties such as “Holiday” or “Winter” party.

Another reason to avoid mandating attendance at the company party is to minimize the possibility of accidents or injuries to employee-guests occurring at the event being compensable injuries and covered by workers’ compensation.

Discourage Overindulgence of Alcohol.

One of the most effective ways of avoiding many of the adverse issues that arise from company sponsored events is to avoid serving alcohol. However, if a company is going to supply or permit the use of alcohol at a company event, it should plan effectively so that alcohol is used responsibly. 

Through pre-party meetings or memos, employees can and should be subtly reminded that, while occurring outside of working hours, the party is still a company-sponsored event and to avoid excessive alcohol consumption (i.e., drink in moderation). Employees should also be reminded that while certain workplace conduct policies may be relaxed during this nonworking time, the policies directed at prohibiting harassment (sexual and otherwise) continue to apply at all company-sponsored events. 

Unfortunately, some employees incorrectly believe that the company party is the time and the place to let it all hang out and that there will be no consequences for their conduct occurring outside of regular working hours. Unlike Las Vegas, things that are said and done at the company party don’t necessarily stay there and may have to be investigated by Human Resources after the event. Employees must understand that there can be consequences for their behavior –even at the company holiday party.

Pay To Play Or Distribute Drink Tickets.

Two ways to reduce the alcohol consumption at the company party include offering a cash bar or distributing a limited number of drink tickets to each guest. Many companies have elected to use cash rather than open bars at company-sponsored events. Frequently, when guests have to purchase their own drinks, they tend to consume fewer drinks. If an employer is going to have an open bar at its expense, another alternative is to distribute drink tickets that can be redeemed for a beverage of choice. While there is always the possibility of a guest collecting unused drink tickets from teetotaling guests, drink tickets can help limit or reduce the amount of alcohol consumed by guest employees.

Invite Spouses.

It is important when determining who will be invited to attend the company’s annual holiday party to consider including spouses.  Many sexual harassment claims arising out of the company’s sponsored events would likely be avoided if employee-spouses were invited and attended.  I analogize inviting spouses to annual holiday party in a similar way to this, "Would you jay walk if a policeman were standing on the corner to observe you?"  Probably not, and for the same reasons, spouses served as the policeman on the corner for some bad behavior that might occur in their absence.  Conversely, including spouses can sometimes create conflict such as when an employee perceives that his or her spouse’s honor has been disrespected.  This typically involves an overindulgence of alcohol making use of drink ticket or other limitations on alcohol important.

Location, Location, Location/Hire A Caterer To Operate The Bar.

Another consideration should be the location of the event. It is often appropriate to schedule the event away from the office at an offsite location. This helps protect the employer’s property and assets. It can also be particularly important in preventing unauthorized access to confidential or trade secret information in the workplace or access to hazardous or dangerous equipment that may be used in the employer’s business. 

Employers can also employ the use of a coat check system where guests can check their coats and other personal articles. Guests should also be encouraged to leave their automobile keys with the coat check. Prior to leaving, guests can be individually observed to ascertain their ability to drive home when retrieving their coats and keys. Another alternative is to use a complementary valet system. Most guests will use the valet service. The employer (or its third party valet service) will then have possession of the guests’ keys and can evaluate each guest at the end of the party before returning the car keys. In either situation, it is important to have a responsible person that is trained in identifying the signs of intoxication. Off duty, plain-clothed law enforcement officers can usually be employed for this task.

Finally, hire a caterer or other third party to operate the bar. Ensure that the caterer is instructed verbally (and even better yet in writing) that they are not to serve any guest that appears to be intoxicated and the employer should designate a representative whom the caterer should notify in the event a guest may have overindulged.

Offer Plenty of Food and Non-Alcoholic Beverages.

Be sure that as a part of the event the company offers a variety of food and that it stays well-stocked so that employees can eat plenty with their cocktails. While everyone loves salty, greasy and sweet foods, those kinds of foods make guests feel thirsty and can have the effect of increasing alcohol consumption. Try to include foods that are high in starch and protein which stay in the stomach longer and slow the absorption of alcohol into the bloodstream.

Last Call and No Roadies.

Close the bar long before the party is expected to conclude. After the bar has closed, continue to serve food and other non-alcoholic beverages. This will give guests an opportunity to let some of the effects of any alcohol they may have consumed subside and may give the employer additional time to identify guests who need additional assistance getting home.

Arrange alternative transportation.

Despite your best efforts, there may be an employee who needs assistance in getting home. Anticipate this need and make arrangements for some alternative means of transportation such as a taxi or car service. Encourage all employees to make use of this service if they consume any alcohol.

If the event is being held at a hotel, negotiate discounted room rates when booking the event. Some employees might prefer to stay the night after the party rather than travel home. If this is negotiated in advance, it can be advertised to employees with the holiday invitations and they can better plan their evening activities.

Investigate Complaints.

Occasionally, a company sponsored event like a holiday party may spawn an employee complaint such as an unwelcome sexual advance. Some employers incorrectly believe that because the conduct complained of occurred during non-working hours or away from work that such conduct need not be investigated. This can be an expensive mistake. Prudent employers investigate all complaints that they receive from their employees having any nexus to the workplace. Complaints about conduct occurring at the annual party should be investigated like any other complaints as the conduct may affect an employee’s working relationship with co-workers.

Company parties are intended to be fun, rewarding occasions for co-workers and their families to share time away from the stresses of the workplace. With careful planning an employer can maximize the opportunity for fun and celebration and minimize the chances that the event becomes something the company might prefer to forget.

President Obama signed the 2010 National Defense Authorization Act setting the budget for the Department of Defense for fiscal year 2010.  The NDAA amends the Family & Medical Leave Act and is effective immediately.  In relevant part, the NDAA amends the FMLA to extend its military leave entitlements.  The FMLA is amended, in relevant part, as follows:

  • Expands the exigency leave provisions (which had been limited to family members of reservists) to make clear that employees make take up to twelve (12) weeks of unpaid leave for qualifying exigencies to family members of any member of the armed services on active duty.
  • Provides up to twenty-six (26) weeks of unpaid caregiver leave to care for any veteran family member (i.e., child, spouse, parent or next of kin) who is undergoing medical treatment, recuperation or therapy for a serious illness or injury that was sustained or aggravated in the line of duty  and was a member of the Armed Services during the five (5) period preceding the date on which the veteran undergoes the treatment, recuperation or therapy.   

Employers should amend the FMLA policies in their handbooks and procedures to incorporate these changes and train those responsible for administrating leaves of absences on these important changes.

 

Recently I wrote about the risks posed by misclassifying employees as independent contractors.   In an unpublished opinion, the U.S. Court of Appeals for the Fifth Circuit (the federal appellate court that hears appeals from Texas) reversed a summary judgment awarded in favor of a company that had classified two cable splicers who performed post-Katrina telecommunications repair work for an AT&T contractor as independent contractors.  In reversing the judgment for the company, the Court remanded the case to the trial court for a determination of the damages the "employees" are entitled to recover.  A copy of the opinion can be accessed here.

Two cable splicers brought an action under the Fair Labor Standards Act seeking unpaid overtime that they were not paid due to their classification as independent contractors rather than employees.  The individuals worked for the Driftwood Electrical Contractors for 11 months following Huricane Katrina.  Theyworked twelve days on and one day off.  Twelve-hour days were the norm.  They were paid a fixed hourly wage for their work.  Each day they reported to the BellSouth location to receive their assignments unless they had not completed their jobs from the prior work day. They were given prints describing the type of work needed and were instructed by BellSouth supervisors to follow certain general specifications.  Neither cable splicer was trained by BellSouth or Driftwood and the splicers controlled the details of how they performed their assignment.  During this 11 month period, the splicers worked exclusively for the Driftwood Electrical.

To emphasize how fact intensive the independent contractor/employee analysis is, consider the following:  the cable splicers provided their own trucks, testing equipment, connection equipment, insulation equipment and hand tools totaling $16,000 and $50,000 in value.  They were also responsible for their own vehicle liability insurance and employment taxes.  The company, on the other hand, provided workers’ compensation insurance and liability insurance for the cable splicers’ work.

It appears that the most significant aspect in the Court’s determination that the individuals were employees rather than individual contractors was the fact that they worked exclusively for the company for 11 months rather than in a temporary, project-by-project, on-again-off-again relationship.  Consequently, the Court concluded that as a matter of economic reality, the cable splicers were economically dependent on the company they worked for and were not in business for themselves.  Therefore, they were employees rather than independent contractors and were entitled to be paid overtime for their work.   

The EEOC recently brought suit against the country’s largest home builder on behalf of a pregnant employee who was denied a period of unpaid leave in addition to the maximum permitted under the employer’s policies.  What is unique about this suit is that the EEOC brought the suit under the Americans with Disabilities Act rather than the Pregnancy Discrimination Act.

According to the Commission’s press release, D.R. Horton, 

denied [the plaintiff] additional unpaid leave time after her doctor placed her on bed rest for over seven months as a result of pregnancy-related complications. Although the company initially provided some leave time, it finally stated it was against company policy to provide the employee any more leave time, even if it was unpaid, and then fired her.

Prior to the passage of the ADA Amendments Act, it is unlikely that the EEOC would have brought this case under the ADA because most courts were reluctant to conclude that pregnancy was a disability.  Instead, the Commission would have had to show under the Pregnancy Discrimination Act that the pregnant employee was treated differently than other nonpregnant employees who were similar in their ability and inability to work (i.e., similar work restrictions).  However, the EEOC is targeting employer leave policies that are perceived by the Commission as rigid.  An example of such policy is one that provides a maximum leave duration of six or twelve months.

One aspect of this tactic that should be troubling to Texas employers is the fact that Texas law uses the enforcement of a neutral absence control policy as a defense to a workers’ compensation claim.  Where an employer uniformly and consistently applies a leave of absence policy with a maximum duration, an employee who is separated from employment for exhausting the available leave of absence, even if the absence is caused by an on-the-job injury, will have no workers’ compensation retaliation claim.  Suits like the EEOC’s suit against D.R. Horton may have the effect of requiring employers to make more frequent exceptions to these neutral absence control policies that might weaken their effectiveness as a defense in Texas workers’ compensation retaliation cases.

 

Texas courts strongly favor the resolution of disputes through arbitration. When parties to a dispute have signed an agreement to arbitrate covered disputes, Texas courts will rarely disregard that agreement.   A recent per curiam opinion of the Supreme Court of Texas continues that trend by conditionally granting mandamus relief in a case alleging national origin discrimination and retaliation for reporting alleged sexual harassment. (Opinion available here).

In In re Polymerica, LLC, a plastics manufacturer hired Angelica Soltero in 1998. In 2002, Polymerica retained Dickason Staff Leasing Company to manage its human resources operations. Soltero signed a Dispute Resolution Plan with Dickason that required all disputes (including disputes over discrimination, wrongful termination and harassment) between Polymerica, Dickason and/or Soltero be submitted to a four-step dispute resolution process. The final stage in that process included mandatory, binding arbitration under the Federal Arbitration Act.

Thereafter, Polymerica distributed an employee handbook that purported to take “precedence over, supersede[], and revoke[] any previous memo, bulletin, policy or procedure issued prior to [the handbook effective date], by [the employer] on any subject discussed in the Handbook.” The handbook included a section on arbitration that discussed the existence of the Dickason Dispute Resolution Plan. At the end of 2005, Polymerica and Dickason terminated their relationship and Polymerica took the human resources functions in-house. Five days later Soltero’s employment was terminated.

Soltero challenged the arbitration agreement first by claiming that the 2003 handbook provisions nullified the Dispute Resolution Plan she signed with Dickason. The court rejected that argument stating that “the Handbook provision, however, does not cover contracts like the Plan’s arbitration agreement” and observing that if the handbook nullified the Plan, the Handbook’s discussion of the Plan’s arbitration procedures and other multiple references to the Plan would be rendered meaningless. The court also made quick work of Soltero’s second claim that the Plan was illusory because the Handbook reserved the right to be modified at any time. Because the Plan, according to its own termination procedures, could only be modified with notice to the employees, and even then, only modified prospectively, the Plan was not illusory.

And finally, the Court rejected Soltero’s argument that Polymerica could not avail itself of the arbitration procedures of the Plan because it was a nonsignatory to the Plan. The Court noted that it has never required that an employer be a signatory to an arbitration agreement before it may insist on arbitrating a dispute with its employee. Because the arbitration agreement was enforceable and the scope of Soltero’s claims fell within its scope, the Supreme Court conditionally granted the writ of mandamus and directed the trial court to stay the proceedings and compel arbitration of all of Soltero’s claims.

The EEOC issued a new poster that incorporates provisions of the Genetic Information Nondiscrimination Act (GINA).  The new poster also includes updates from the Department of Labor.  A copy of the poster can be printed here.  Covered entities are required to post GINA notices not later than November 21, 2009.   Covered entities include, among others, employers with 15 or more employees.  

According to the EEOC, there are several ways to comply with the new posting requirement by November 21, 2009.

  • Print the supplement (download here) and post it alongside EEOC’s September 2002 “EEO is the Law” poster or OFCCP’s August 2008 “EEO is the Law” poster.
  • Print and post the EEOC’s November 2009 version of the “EEO is the Law” poster.  (here)
  • Order a new poster through the EEOC Clearinghouse.  The new posters is currently on backorder and will be shipped when available. 

Of course, employers can also order new posters from their vendor that provides multiple required employer posters in a single poster. 

 

The EEOC recently published proposed regulations designed to implement provisions of the ADA Amendments Act (ADAAA). The proposed regulations incorporate significant changes to the law and provide numerous illustrative examples. A full copy of the proposed regulations can be accessed here.  The following sections summarize some of the significant points.

Presumptively Disabling Impairments

The proposed regulations provide a list of impairments that the EEOC believes will consistently qualify as disabilities. These include: deafness, blindness, intellectual disability (formerly termed mental retardation), partially or completely missing limbs, mobility impairments requiring the use of a wheelchair, autism, cancer, cerebral palsy, diabetes, epilepsy HIV or AIDS, multiple sclerosis, muscular dystrophy, major depression, bipolar disorder, post-traumatic stress disorder, obsessive compulsive disorder, or schizophrenia. 

Conversely, the proposed regulations also identify several impairments that, when temporary or of short duration and having little residual effects, will not normally constitute disabilities. These include: common cold, seasonal or common influenza, a sprained joint, minor and non-chronic gastrointestinal disorders, or a broken bone that is expected to heal completely).

Substantially Limiting Impairments

The regulations suggest that whether an individual has a disability should not demand extensive analysis. In determining whether a physical or mental impairment substantially limits a major life activity, the proposed regulations direct that ameliorative or other mitigating measures (e.g., medication, medical supplies, learned behaviors, assistive technologies, surgical interventions or reasonable accommodations) should not be considered in determining whether the impairment is substantially limiting. Furthermore, for episodic or impairments in remission, the inquiry is whether the impairment would limit a major life activity when active.

Major Life Activities

The proposed regulations expand the definition of “major life activities” through two non-exclusive lists. The first list includes activities such as caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing, sitting, reaching, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating, interacting with others, and working.

The second list focuses on the body systems and functions and includes functions of the immune system, special sense organs, and skin; normal cell growth; and digestive, genitourinary, bowel, bladder, neurological, brain, respiratory, circulatory, cardiovascular, endocrine, hemic, lymphatic, musculoskeletal, and reproductive functions.

With respect to working as a major life activity, the proposed regulations jettison the concept that an individual must be substantially limited in the ability to perform a broad range and class of jobs for working to constitute a major life activity. Instead, the proposed regulations direct that the ability of the individual to meet the qualifications for the type of work at issue is the proper inquiry.

Regarded As Disabled and Reasonable Accommodations

The proposed regulation eliminate the requirement that an individual demonstrate the employer regarded the individual as disabled. Rather, if the individual is subjected to an action prohibited by the ADA because of an actual or perceived impairment, that alone will be sufficient to establish the individual is regarded as disabled. 

The proposed regulations also clarify that individuals who are solely disabled under the “regarded as” prong are not entitled to reasonable accommodations.

Employers have long been challenged by a variety of wage and hour litigation such as misclassification cases and off-the-clock overtime cases.  One of the latest trends in wage and hour litigation is attacking a company’s classification of its workers as independent contractors instead of employees.  Because independent contractors are not entitled to certain aspects of benefits provided to employees, misclassification can result in liability in several forms., including:

  • Potential tax exposure from federal and state taxing authorities (i.e., unemployment tax, FICA, FUTA);
  • Claims that misclassified contractors should be entitled to participate in employer benefit plans covering employees (e.g., stock option plans, health and benefit plans);
  • Claims that misclassified contractors are entitled to overtime compensation.

In Texas, the test for determining independent contractor status is a multifactor analysis that centers around the economic realty of the relationship.  The focus is on whether the worker is, as a matter of economic reality, dependent on the alleged employer in business for himself.   This inquiry includes whether the employer has the right to control the progress, details, and methods of operations of the work.  A nonexclusive list of factors that are usually considered in this analysis include: 

  • the degree of control exercised by the alleged employer;
  • the extent of the relative investments of the work and the alleged employer;
  • the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer;
  • the skill and initiative required in performing the job;
  • the permanency of the relationship.

No one factor is determinative. If a court or taxing authority determines that the independent contractor was misclassified, the employer may be responsible for failing to provide the benefits the employee would have otherwise enjoyed had he been properly classified as an employee (e.g., participation in certain employee benefit plans and unpaid overtime).  Depending on the size of the workforce and the work it engages in, these sums can be significant.  Consequently, companies making extensive use of independent contractors should review these relationships carefully to ensure that the workers are properly classified and incorporate changes in the relationships that enhance the ability to defend that classification.

Since the Texas Supreme Court’s Sheshunoff and Mann Frankfort opinions, Texas appellate courts have, with increasing frequency, enforced covenants not to compete in the employment context.  Gone are the days when noncompetition agreements were difficult to draft and enforce in Texas.

In Gallagher Healthcare Insurance Services v. Vogelsang, the First District Court of Appeals in Houston reversed a summary judgment to a former employee and rendered judgment in favor of the former employer on a breach of contract claim involving noncompetition obligations.  In Gallagher Healthcare, the former employee was employed as an insurance broker.  Her primary job was to renew existing business and secure new business.  After working for Gallagher Healthcare (or its predecessor) for twelve years, Vogelsang resigned and began working for a competitor.  Gallagher Healthcare sued to enforce its noncompetition agreement with Vogelsang that prohibited her from soliciting the clients she worked with during her last two years of employment with Gallagher Healthcare for two years.  The trial court found for Vogelsang and held that the covenant not to compete was not enforceable.  In reversing the trial court and rendering judgment in favor of Gallagher Healthcare, the court of appeals made the following significant conclusions.

  • Two year prohibition from doing business with the 80 customers the employee dealt with during last two years of employment was a reasonable limitation.
  • A customer limitation prohibiting contact with customers the employee did business during employment is an adequate substitute for a geographic limitation.
  • Information given to the employee during employment was sufficient to give rise to interest worthy of protection and included:  financial information, customer information, employee salary information, client specific insurance information (e.g., insurance proposals, coverages, loss histories, exposures, limits, renewal dates, premiums, commissions and fee revenue), team related income and budgets, account retention strategies, at-risk accounts, strategic prospecting and selling, niche strategies, 2004 financial results, 2005 quarterly financial results, new and lost business summaries, professional standards audit results and related analysis, multiple types of prospect lists, premium volume comparisons, budget reviews, production reviews, internal committee lists and 2006 compensation plan.

The take away from Gallagher Healthcare, and other recent opinions, is that Texas courts are increasingly willing to enforce noncompetition agreements that are reasonably limited.