Texas Supreme Court Draws Distinction Between Loyalty Agreement and Non-Compete

texasIn many industries, it is common to pay incentives in the form of restricted stock options payable in the future if certain conditions are satisfied. In Exxon-Mobil v. Drennen, decided on August 29, 2014,  the Texas Supreme Court reviewed the question of whether a clause in an incentive plan, which allowed the company to declare a forfeiture if the employee left and went to work for a competitor, constitutes a non-compete or just a loyalty bonus. The Texas Supreme Court concluded: “There is a distinction between a covenant not to compete and a forfeiture provision in a non-contributory profit-sharing plan because such plans do not restrict the employee’s right to future employment; rather, these plans force the employee to choose between competing with the former employer without restraint from the former employer and accepting benefits of the retirement plan to which the employee contributed nothing.”  The employee, who left Exxon to work for rival Hess Corporation, ended up losing 57,200 shares of Exxon stock.

Notably, the Supreme Court also chose to honor a choice of law provision in the agreement which selected New York law. This choice of law provision was respected notwithstanding the fact that the employee worked in Texas and Exxon is headquartered in Texas. The Court instead relied heavily on the fact that New York has well-developed law in the area of stock and securities because the stock exchanges are located in New York, and Exxon’s stated desire to have uniformity in how its employee incentive agreement are interpreted. Although the Court’s decision was ostensibly rendered under New York law, it appears likely the Supreme Court would have no problem reaching the same result under Texas law as the opinion states “the enforcement of these provisions does not contravene any public policy in Texas” and concludes that loyalty agreements are distinct from non-competes under Texas law.

The takeaway from this case is that employers now have another tool in their tool kit in terms of drafting appropriate agreements to discourage key employees from leaving to work for a competitor. One option is the stick – the non-compete – which will be subject to a rigorous review for reasonableness under Texas law. The carrot option – loyalty bonus – will not be subject to the same strict review for enforceability and can be used either alone or in conjunction with a non-compete. Moreover, for any company that is publicly traded on a stock exchange in New York, the Exxon case lays out the roadmap for ensuring the enforceability of such loyalty agreements by bypassing Texas law altogether.

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Posted in Labor & Employment

President Obama Keeps Adding New Labor Regulations for Federal Contractors

It has been a busy year for executive orders, especially if you are a federal contractor.   Although the President cannot unilaterally implement new employment laws affecting private employers, there has been no shortage of new labor requirements for those doing business with the federal government.   Cozen O’Connor just issues an alert entitled “Obama Issues Executive Order Scrutinizing Labor Practices of Federal Contractors,” which can be found here.

This latest executive order, issued July 31, 2014 is entitled the “Fair Pay and Safe Workplaces Executive Order” and contains three parts: (1) requires disclosure to the federal government of all labor law violations over the 3 years preceding the contract; (2) requires written disclosure of certain pay information to employees, including their exemption or independent contractor status; and (3) prohibits pre-dispute arbitration agreements covering claims under Title VII or state law claims related to harassment or sexual assault.  The most concerning part of this new executive order is the requirement to disclose labor law violations (which will supposedly be defined by upcoming regulations from the Dept. of Labor).   This provision opens up the potential for abuse by unions who target a federal contractor and use the threat of lawsuits and unfair labor practice charges as a means to pressure the company into surrender to avoid losing a lucrative federal contract.

This latest executive order also comes on top of prior orders this year  barring employers from discriminating on the basis of sexual orientation or sexual identity, requiring contractors to provide compensation data broken down by gender and race, and also from retaliating against employees who disclose pay information.

Posted in Discrimination, Federal Government, Labor & Employment, Uncategorized, Wage and Hour

Can Employees be Disciplined for Using the Bathroom?

watchEmployees at a Chicago plant are picketing over a new employer policy to time unscheduled bathroom breaks and discipline employees who exceed what the company deems as a reasonable amount of time.   The company even went so far as to install swipe card systems on the bathroom so that it can track the entry and exit times for all employees.  An article providing details of the company policy can be found here.

This case raises the question as to how far an employer can go in punishing employees who would prefer to be in the bathroom than at their work station, and the legal risks associated with such a policy.  In this case, the employees chose to exercise their rights to collectively complain about the policy through a union, and this case serves as a good example of how policies which look like they will save money on paper may result in far more expense in the long run.  Also, some employers have asked why not just dock the employees’ pay for bathroom breaks?  The answer is that federal law (and some states) prohibit deductions for break periods less than 20 minutes where the employee is not completely relieved of work duties (i.e. can leave the facility and use the free time as desired).   Short bathroom breaks therefore must be paid.

Another legal pitfall in disciplining employees for excessive bathroom breaks is the risk for discrimination claims.   It is not hard to imagine that a pregnant employee or one with a bowel disorder might reasonably require an accommodation in this area.  Treating everyone the same might seem like a good idea, but there will likely be the legal need to make exceptions in some cases.

The takeaway from this post is that employee bathroom time can be a risky area to regulate.    A better approach is to discipline based on productivity (or lack thereof) as employees who are in the bathroom likely won’t be meeting measurable work requirements.

Posted in Discrimination, Labor & Employment, Wage and Hour

Supreme Court Says Obama Overstepped Authority with Three NLRB Recess Appointments

US Supreme CourtToday, the Supreme Court issued a long-awaited decision addressing the question of whether three recess appointees to the NLRB passed Constitutional muster.   These three NLRB members  were appointed by President Obama during a three-day recess in the middle of a Senate term, while it was still in a “pro forma” session.  For all practical purposes, the recess appointments occurred over a long weekend.   The Supreme Court found this to be an abuse of a procedure that was intended to be used in the rare circumstance where the Senate is out of session and the President needs to quickly appoint an executive branch employee in a position that cannot wait for the Senate to return to work.    Notably, the Supreme Court did not decide exactly how long a Senate recess must be to qualify as a “legitimate” recess, but made clear that three days won’t cut it.

The result of this decision is that any NLRB Order issued during the tenure of these three recess appointees will be instantly called into question and potentially invalidated.  That is a great “get out of jail free” card to the losing party in any Board litigation, and will likely keep lawyers busy for years sorting out the mess.

For more details, Cozen O’Connor’s Labor & Employment Alert on the decision can be found here.

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Posted in Federal Government, Labor & Employment, Wage and Hour

Hurricane Season Brings HR Issues

hurricaneWorking on the Gulf Coast means the annual preparation for the possibility of a hurricane hitting your home or business. For employers, this means preparing a contingency plan for a disaster, and taking proactive measures to address not only the business interruption issues, but also the human resources concerns associated with a storm.  Some of the commonly asked questions include:

1)  Can an employer require an employee to work during a mandatory evacuation? What if the employee does not come back and turns the evacuation into a vacation?

2)  Is an employer required to pay employees who miss work because of weather events like a hurricane? Does it matter if they are exempt or non-exempt ?

3)  Can an employer require employees to use accrued vacation time if the business is closed for a hurricane?

All of these questions, and more, are answered in Cozen O’Connor’s “HR Guide for Hurricane and Disaster Preparation”, which is linked here. It is important to note that this guide is primarily aimed at Texas employers.  If your business operates in multiple states along the Gulf Coast, you should seek legal advice regarding the specific laws in each state which may apply.

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Posted in Labor & Employment, Wage and Hour

New FAQ on Houston’s Anti-Discrimination Ordinance (HERO)

The City of Houston recently joined a number of cities that have passed their own anti-discrimination ordinances in an attempt to add coverage for sexual orientation and trans-gender discrimination, which are not explicitly covered under Texas or federal law. The attached FAQ answers the most common questions about thihoustons law, including coverage thresholds, penalties, and the procedure for filing complaints. It is a must-read for Houston employers.

One important thing to keep in mind is that, although federal and state law does not explicitly outlaw discrimination on the basis of sexual orientation or trans-gender status, there have been many courts who have read such protections into the longstanding prohibition of “sex” or “gender” discrimination. Although Houston’s new city ordinance adds a new layer of workplace regulation, perhaps the most important takeaway is that this ordinance will spotlight the new protected classifications and could prompt increased litigation generally in this area of the law.

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Posted in Discrimination, Labor & Employment, Uncategorized

Use of Non-Compete Clauses Increasing Across Professions

By Shaan A. Rizvi — The New York Times ran a fascinating article about the proliferation of non-competition clauses in employment agreements throughout the country.  As the article correctly notes, non-competition agreements, or non-competes, were traditionally used most often in technology related professions, where employers feared that employees might walk away with company trade secrets and use them for a benefit of a competitor.  More recently, however, all kinds of employers – including summer camps, lawn control companies and hair styling salons – have been using them (the summer camp claims its “intellectual property is the training and fostering of [its] counselors”).  The increasing proliferation of non-competes has, predictably, led to all kinds of backlash from employees, including a proposal in Massachusetts (already signed by Governor Patrick Deval) to ban them outright except in very limited circumstances.  Critics of non-competes argue they stunt innovation and competition, whereas proponents argue that they actually spur economic growth by encouraging companies to invest in their employees.

The full text of the article can be found here signature

The debate isn’t likely to end anytime soon, but non-competes are safe for the time being in Texas.  The Texas Business and Commerce Code states generally that non-competes are enforceable if they contain limitations as to time, geographical area, and scope of activity to be restrained that are (1) reasonable and (2) do not impose a greater restraint than necessary to protect the employer’s goodwill and business interests.  Given the broad legal language, as well as the increasing proliferation of non-competes, savvy employers may want to make it a regular practice to question new hires about whether they’re under a non-compete.  Such a move up-front reduces the likelihood of an employer being dragged into unnecessary litigation by an employee’s former employer who claims the employee is violating his or her employment agreement.

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Posted in Labor & Employment

USCIS Provides Guidance on I-9 Completion for Remote Hires

USCISBy Nelsy C. Gomez – With the existing stringent rules regarding the proper and timely completion of the I-9 form, many employers still find themselves wrestling with the issue of what to do with employees who are hired and work remotely. Until recently, the  (“USCIS”) has provided very little to no guidance on how to handle these remote hires. However, USCIS has decided to address this issue head-on and has given employers direction on how to properly handle these remote hires while remaining compliant with their I-9 obligations.

According to USCIS, employers can designate an authorized representative to complete the I-9 forms with their remote hires. The authorized representative can be a personnel officer, a foreman, an agent of the employer, or even a notary public. When using a notary public for purposes of the I-9 form and its completion, the notary public is viewed as an authorized representative of the employer, not as a notary. Therefore, the notary would complete the I-9 form with the employee as would any agent of the employer and should not provide any notary insignia on the form.

While the authorized representative does not need to have any written agreement regarding the ability to complete the Form I-9 on behalf of the employer, it would be prudent to have some memorandum indicating the person has been designated as such. This will prove to be helpful if ever faced with a government audit where this kind of arrangement for remote hires has been made. It is also important to remember that the authorized representative is still required to comply with the rules regarding proper completion of the form, which includes a physical examination of the employee’s employment eligibility documentation while the employee is physically present. Webcam review of the documentation is still not permitted. Employers should keep in mind that the employer is liable for any violations committed in connection with the form, even when the form is completed on behalf of the employer by an authorized representative. Therefore, employers are responsible for ensuring that any authorized representative is properly trained and well-versed on the proper completion of the Form I-9.

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Posted in Federal Government, Immigration, Labor & Employment, Wage and Hour

Houston Passes Controversial Anti-Discrimination Ordinance

Late in the evening on May 28th, the Houston City Council passed a city ordinance that prohibits discrimination against employees on the basis of sexual orientation or trans-gender status.   The ordinance also prohibits discrimination on the basis of race, sex and other already protected classifications, but the real point of the measure was clearly to add to (not duplicate) the already existing federal and state laws.  The ordinance applies to virtually all employers with more than 15 employees who operate within the city of Houston, although it does have an exception for religious institutions and private clubs.

Violators can be fined up to $5,000 but there is no private right to sue under the law, like there is for other types of discrimination under state and federal law.  Importantly, violators may be prosecuted criminally for discrimination, which is a Class C misdemeanor.  Complaints must be filed with the city within 180 days and can be investigated by the City’s Inspector General.  The full text of the ordinance can be found here.

My take on the ordinance is that it does not add very much to existing law.   Although sexual orientation was not already a protected classification, many federal courts (including some in Houston) have allowed cases to be brought by homosexual employees under Title VII for sex discrimination.   Such cases apply a “gender stereotyping” analysis to bring sexual orientation discrimination under the umbrella of sex discrimination.  Further, many other cities in Texas, such as Austin, Dallas and Fort Worth already have such ordinances, so most large Texas employers have already modified employment policies to comply.   That said, adding another level of bureaucracy to employment law is never a good thing, and we will have to wait and see exactly what impact the ordinance actually has in the Houston area.

Posted in Uncategorized

IRS Says It Will Penalize Employers Dumping Employees into Obamacare

Internal_Revenue_Service_logoBefore the ink on the Affordable Care Act was dry, prudent employers were analyzing the law to identify ways to save money and avoid many of the punitive aspects of the law. One question which has repeatedly been asked of myself and other employment lawyers is whether it would be lawful for employers to simply “get out of the healthcare business,” i.e. allow employees to take the tax-free funds which would otherwise be spent by the employer, to use themselves in the healthcare exchanges to purchase their own insurance plans. This week, the Internal Revenue Service (IRS) answered that question with a resounding “No.”

The IRS ruled that it would consider such a reimbursement plan to be a “health care plan” subject to all of the requirements of health care reform. Since those requirements would be impossible to meet, the plan would be subject to an excise tax of $100 per day per applicable employee (which is $36,500 per employee, per year). The IRS’ opinion on the matter can be found here.  

The takeaway is that the IRS has effectively made it impossible to dump employees off an existing health care plan and instead offer pre-tax money towards purchasing health insurance on an exchange. Of course, an employer can always just pay employees higher wages, and discontinue insurance, but both the employer and employee will have to pay additional taxes. Moreover, it is a lot easier to convince employees that their salary includes a payment for insurance, if it is accounted separately. Once the money is included as wages, it will likely simply be seen as an entitlement.

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Posted in Federal Government, Healthcare Reform, Labor & Employment, Wage and Hour
About HR Headaches
HR Headaches is a blog for Human Resources professionals, business owners, and in-house counsel to get the latest news, analysis and tips in the area of labor and employment law. Every day there are new court decisions, agency interpretations, and regulations which affect the workplace, making it difficult, if not impossible, for many employers to keep current. HR Headaches is dedicated to providing information in a practical, no-nonsense manner to help employers avoid legal disputes and keep policies up to date.
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The Editor

David L. Barron is a Board Certified labor and employment attorney from the law firm of Cozen O’Connor and part of the firm’s national labor and employment practice group. David brings a practical approach to solving workplace problems and is a sought after speaker by business and industry associations, media outlets and companies looking to provide training for its managers and supervisors.