Jimmy John's Requires Non-Compete Agreements

Non-competition agreements have been around for a long time. They have usually been used for saelsmen who have access to cloesly guarded customer lists and to doctors. But, now, they have been uased for hourly employees at a sandwich chain. Jimmy John's has been sued because it requires employees to agree they will not work for another sandwich chain for two years after leaving Jimmy John's. The agreements apply to all of the Jimmy John's 2000 locations. See San Antonio Express News report.

That would significantly affect the ability of a worker to find new employment making sandwiches. For some folks, who live paycheck to paycheck, that is a huge burden. All I can say is some employers have no conscience. 

Mandatory Arbitration Used to Hide Sex Harassment

The folks at Public Justice have written a bog post about the pernicious use of mandatory arbitration by American Apparel, a major U.S. clothing manufacturer. Based on an article in the New York Times, the post recounts the story of Dov Charney, long-time CEO of American Apparel. Mr. Charney was known for such witticisms as "Masturbation in front of women is underrated." He was profiled in Jane magazine in 2004. See article. Indeed, he masturbated in front of the reporter during the interview. How compelling. 

American Apparel required mandatory arbitration agreements for all employees and models. There were at least five claims of sexual harassment by American Apparel employees and one claim that he kept a "sex slave." These women sued in court trying to break the arbitration agreement. But, each time, the court upheld the agreement. No one knows how many claims in total were paid or brought in some secret arbitration proceeding. All this was kept from investors, customers, employees and the public for years. The dirty secret about arbitration is that it is not open court. Whatever happens in arbitration stays in arbitration. 

See Public Justice blog post

Vacation Pay Is Not Owed to Departing Texas Employees

Under the Texas Payday Statute, terminated employees are not entitled to their vacation pay when they leave their job.  So explains Russ Cawyer in this post. The same statutory provision applies to sick leave or severance pay.  Such benefits are owed to the employee only if the departing employee has a valid contract providing for those benefits.  You can view the Texas Payday statute here.  


Employee Handbooks Are Not Binding

Most large employers have employee handbooks, those set of policies that explain things like vacation and sick leave, discipline, etc.  Employers will often describe how they are "binding" and must be followed.  But, legally, they are not binding, at all.  They look thorough and professional and provide some comfort to employees in an uncertain world.  

They are generally not binding on the employer.  They are nothing more than a guideline.  If the employer included a phrase providing they are not contractual, then they will not be binding.  And, most, perhaps all employers do include non-binding type language in the handbook.  See Russell Cawyer's post explaining how to be sure they are not binding. 

Physician NonCompete Agreements Require Particular Provisions

A non-compete clause for physicians requires adherence to certain criteria to be effective in Texas. Texas has a state law applicable to physician noncompete agreements.  

  •  A physician noncompete must not impinge on a doctor's access to a list of his/her patients upon his/her departure
  • The departing doctor must have access to the patients' records when authorized by the patient
  • The physician must not be prevented from providing treatment to an acutely ill patient  
  • The agreement must provide for a "reasonable" amount for a buy-out clause, or allow an arbitrator to make a decision on a reasonable amount 

See Texas Business & Commerce Code Sec. 15.50 for additional information.   

Windcrest Seeks Former City Manager's Office Condo

A couple of years ago, Ron Cain was demanding severance pay.  See my prior blog post.  Now, Ronnie Cain and his brother, Gary Cain are facing efforts by the City of Windcrest to seize the office condo they purchased.  Windcrest alleges they purchased the condo with money stolen from the city.  See San Antonio Express News report

The brothers have gone into bankruptcy.  Windcrest is seeking title to the condo, valued at $274,000.  The two brothers have been accused of embezzling $2.8 million given to the city by Rackspace  to upgrade infrastructure.  Ronnie Cain was indicted in 2010, sometime after he"demanded" his severance pay.  I thought it was a "nervy" request then, only more so now. 

Do I Need a Lawyer to Review a Severance Agreement?

My friend, Chris McKinney has written a helpful post about severance agreements.  He answers the question, Should I ask a lawyer to review a severance agreement before I sign it?  Yes, we all should have a lawyer review such an agreement.  Chris lists several good reasons, but he biggest reason is to ascertain whether you have a valid claim or not.  Even if you do not wish to file suit against your employer, you should still understand what bargaining leverage you might have.  Most people do not wish to file suit of any sort.  But, they should still understand what rights they may be releasing in a severance agreement.  Every severance agreement will contain some clause releasing claims against the company.  See Chris' post

As Chris mentions, you would need a lawyer who specializes in employment law or small business issues. 

San Antonio Court of Appeals Finds No "Just Cause" Requirement

An employer can modify the at-will relationship.  An employer can agree to terminate an employee only for "just cause."  Many employers agree to do so so for key employees.  But, how does an employer modify the at-will status of an employee?  in Crystal City v. Palacios, 2012 WL 1431354 (Tex.App. San Antonio 201012) (not for pubication), the employer made "just cause" one of its policies.  The just cause policy appeared to apply to all employees.  The policy provided that an employee would only be fired for just cause.  The San Antonio Court of Appeals, found that language was not binding on the employer.  The policy was too general, said the court.  The court relied on another decision, Montgomery County Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex. 1998).  But, the Brown decision was different.  In Brown, the Texas Supreme Court found that an oral promise to terminate for just cause could not modify the at-will doctrine.  In the Palacios decision, the policy is in writing. 

Indeed, the Palacios decision conflicts directly with County of Dallas v. Wiland, 216 S.W.3d 344 (Tex. 2007), where the Texas Supreme Court found that a written policy of Just cause would modify the at-will status of an employee. 

The San Antonio Court of Appeals designated its decision as not for publication.  That designation is supposed to mean the court believes the decision only applies to this one specific fact situation and should not apply to other situations.  The decision will not appear in the official reporter of court decisions.  But, in these days of ready access to Westlaw, not appearing in Southwestern Reporter does not mean much.  See the Palacios decision here

Workers Fired for Wearing Orange

I often tell clients or potential clients that in an at-will state, like Texas, your employer can fire you for anything.  They can, for example, fire because you wear a blue shirt to work.  Well, the law firm of Elizabeth R. Wellborn, P.A. in Ft. Lauderdale did just that . . . almost.  They fired 14 employees for wearing orange shirts to work.  See Ft. Lauderdale Sun-Sentinel report.  

According to four workers, they were wearing orange on Fridays simply because they would go to happy hour after work and wanted to easily find each other.  But, an executive called 14 workers into a conference room last Friday and said he understood they were wearing orange as part of some protest.  The executive asked if anyone had an innocent reason for wearing orange.  A worker then mentioned the happy hour plan.  The executive conferred outside with other managers.  He came back in the room and said they were all fired. 

Later, one woman complained she was a single mom with four kids at home and she just got fired for wearing orange to work. Other workers were quoted as saying they wore the orange for the happy hour.  They were not aware of any protest.  There was no company policy regarding orange. The workers were not issued any warnings before the firing about wearing orange.  

It is ironic, because if the employees were wearing orange as some sort of protest, then their conduct might be covered by the National Labor Relations Act which allows workers to discuss conditions at work.  But, regardless of their motivation, I think the law firm of Elizabeth R. Wellborn, P.A. is not a happy place to work. 


Arbitration Results in Suit for Fraud

I first wrote about this case here.  An arbitrator failed to disclose his relationship with the attorney for one of the parties.  The arbitrator, Robert Faulkner, a former US Magistrate, had long standing ties with the lawyer for one of the parties, Brett Johnson.  The arbitration went well for Mr. Johnson of Fish and Richardson in Dallas.  Arbitrator Faulkner awarded $22 million to Mr. Johnson's client and $6 million in attorney fees.  

The Fifth Court of Appeals in Dallas overturned the award last June, finding that Mr. Faulkner failed to disclose his prior relationship to Mr. Johnson and that Mr. Johnson deliberately concealed his prior relationship to the former Magistrate.  The court noted that at the outset of the arbitration hearing, both Faulkner and Johnson pretended to be meeting each other for the first time. 

Now, the losers in the arbitration have sued Fish and Richardson, Brett Johnson and the former opposing party for fraud.  See Texas Lawyer report.  The suit appears to be based on a Rule 11 agreement entered into by the parties early in the arbitration process.  In the Rule 11 agreement, Brett Johnson's client, Jonathan Cooke agreed to arbitrate his dispute and to take the dispute to a neutral arbitrator with JAMS.  A Rule 11 agreement simply describes an agreement between opposing parties which is filed or capable of being filed withe the district clerk. 

As I have stated before, the problem with arbitration is the web of connections between all lawyers and law firms.  In the arbitration world, those connections are not apparent.  If the matter remained in a court of law, where it belongs, there is much greater transparency.  How many more connections are out there of which consumers and employees have no knowledge?  Yet, those same consumers and employees are forced into arbitrations everyday.  Arbitration is premised on the arbitrator and the parties disclosing all prior contacts.  But, if they choose not to disclose, who will know otherwise?

Non-Compete Agreements Are Not Always Fair

You work for a company for 30 years, acquire a skill, and then join a new, smaller company doing the same job.  You think you have reached a certain level of success.  But, no, you have not.  That is Teresa Jackson's exprience.  She worked for the Scooter Store in Newe Braunfels, Texas for over 31 years as a sales representative.  She left to join Patient's Choice, LLP of Arlington Heights, Illinois.  Patient's Choice is a competitor of the Scooter Store. 

The Scooter Store sent a cease and desist letter to Ms. jackson and filed suit.  They later added Patient's Choice to the lawsuit.  So, Patient's Choice fired Ms. Jackson to get out of the lawsuit.  Patient's Choice offered to rehire Ms. Jackson if she settled the case with the Scooter Store.  But, she reached an agreement with Scooter Store not to work for any competitors for two years.  She said she tried to find a lawyer to help her.  She spoke to 17 lawyers but could not find anyone to help her.  

The Scooter Store said it would suffer irreparable injury if Ms. Jackson was not stopped.  Meaning apparently, that the Scooter Store sought a temporary restraining order stopping her from selling scooters for any competitors.  Ms. Jackson denies the Store's claims.  She says she has no trade secrets.  She just knocks on doctor's doors until someone buys a scooter.  Ms. Jackson says she was railroaded.  

I am sure she is correct.  Ms. Jackson must have signed a non-compete agreement with the Scooter Store.  Texas has a statute that addresses the permissible limits of a non-compete agreement.  Judges impose some limits.  But, still a valid non-compete agreement will impose a time limit and a geographic limit on a worker going to work for a competitor.  Two years is about as long as any court will allow such an agreement. The geographic limits can include states or regions.  The law, in effect, recognizes a temporary, local sort of slavery.  It is part of the price we pay to support businesses and "job growth." 

As I have explained to many potential clients, there is no guarantee that the law will be fair.  Ms. Jackson cannot work for a competitor for two years.  She cannot do work in which she has surely found some success.  But, in the meantime, she must pay her bills and will likely end up in a new industry doing some new job for much less pay.  In two years, employers like People's Choice may not want her skills.  See San Antonio Express News report

Yes, its is hard to find an employment lawyer.  We are out here.  But, even if Ms. Jackson did find one of us, there may have ben nothing anyone could do.  Most employers know how to draft a non-compete agreement to make it binding.  The NFL has free agency.  Local business does not. 

Most Voters Oppose Forced Arbitration Clauses

A survey of likely voters in 2010 shows that the American public is generally opposed to mandatory arbitration clauses found in employment and consumer situations.  59% oppose forced arbitration clauses found in the fine print of employment and consumer agreements.  59% of likely voters support the Arbitration Fairness Act, a proposal which would prevent these arbitration clauses.  Opposition to such clauses is found regardless of party affiliation or gender.  Voters who identify themselves as Republicans opposed these clauses 59%, while Independents opposed such clauses 59%.  60% os surveyed Democrats opposed arbitration clauses. 

The survey also indicated that some three-fourths of Americans believe they can sue an employer if necessary  the presence of these forced arbitration clauses.  

The survey was taken by Lake Research Partners and was commissioned by the Employee Rights Advocacy Institute, an affiliate of National Employment Lawyers Association.  

Former KBR Employee and Emotional Suffering

In my recent post, I talked about Jamie Leigh Jones losing her trial.  Ms. Jones became a hero to many when she successfully opposed and overturned the mandatory arbitration agreement she allegedly signed with KBR.  Since then, I now understand that Ms. Jones' mother was called to testify and was cross-examined by the defense lawyers regarding Ms. Jones' mental health history.  Apparently, the defense lawyers had hundreds of pages of Mr. Jones' psychological history and were using it well against her.  

There is a risk in employment cases when we seek large psychological damages.  To justify large damages, we need mental health professional testimony and evidence.  To do that, the plaintiff employee must disclose her psychological history.  Her mental health history becomes relevant.  Since, the defense will want to introduce evidence of other things that cause emotional stress in the employee's life other than her employment.  The employer may be entitled to introduce evidence regarding other matters that have caused the employee emotional distress.  That right may open the door to everything from family problems to drug problems to low self-esteem.  Of course, any drug problems, however ancient, may prejudice many juries. 

But, if the plaintiff limits her claim to "garden variety" emotional distress, then her mental health history is not discoverable, much less admissible.  So, yes, it is often better not to plead more than "garden variety" emotional distress damages.  Otherwise, we may open the door to our client's entire history, a history which may be not be flattering and which may cause additional stress for our clients.  Many clients feel like they are being abused again during the litigation process. 

Former KBR Employee Loses her Case

 Jamie Leigh Jones, who claimed she was raped in Iraq when she served as a private contractor lost her case.  See news report.  She had sued her former employer, KBR.  A Houston jury rejected her claims of fraud and rape.  Ms. Jones acquired some fame when she testified in Congress opposing mandatory arbitration in so-called employment agreements.  She appealed her arbitration issue and eventually won the right to a jury trial.  I previously wrote about her case here.  

Texas Court of Appeals Overturns Arbitration Award

Arbitration is not popular with many people.  Part of the problem with arbitration is a lack of accountability.  There is no appeal from an award by an arbitrator.  There is often a lack of information about the arbitrator.  In a recent case, we see what goes on behind some arbitrations.  The Fifth Court of Appeals in Dallas vacated a $22 million dollar award by one JAMS arbitrator.  See decision on Karlseng v. Cooke, No. 05-09-01002-CV.  The decision focused on the social ties between the arbitrator and the lawyer for the winning party.  Robert Faulkner, the JAMS arbitrator and a former US Magistrate, had close ties to the lawyer, Brett Johnson.  The arbitration hearing lasted several days in 2007.  The arbitrator awarded $22 million in damages and another $6 million in attorney's fees to the winning party.  The arbitral hearing concerned a partnership dispute. 

Karlseng, the losing party appealed the award to the trial judge, but was denied.  The Dallas Court of Appeals then overturned the lower court decision - finding that the ties were close between the former Magistrate and Mr. Johnson and those ties were not disclosed.   Of course, in an arbitration, all ties should be disclosed. 

In 2006, Johnson and Faulkner attended a Dallas Mavericks game, with Mr. Johnson paying some $1,200 for the tickets.  They ate dinner at an expensive restaurant to the tune of $428, again paid by Mr. Johnson.  In December, 2006, Mr. Johnson sent a $75 basket of wine to the Faulkners.  

Yet, at the start of the arbitration in 2007, Mr. Faulkner and Mr. Johnson acted as if they were meeting for the first time.  

Later, Mr. Faulkner said his wife opens the presents and he was not aware of the wine basket.  Mr. Faulkner said he forgot about the Mavericks game until reminded by his wife.  So says a report by Texas Lawyer.  

Arbitration is intended to represent an agreement between the parties to have their matter heard by an impartial third party.  It only works if the arbitrator discloses any potential biases.  It is a system based on contract.  If the arbitrator does not disclose all possible ties, the parties have no way of knowing.  The parties cannot make an intelligent choice in the absence of information. 

Arbitrations only work if the arbitrator discloses every possible bias.  Anyone who has purchased a new car, electronic device or who has worked for some 30% of the employers out there have knowingly or unknowingly agreed to mandatory arbitration.  A system based on arbitral disclosure will not work well for the average consumer, much less the average businessman involved in a partnership dispute. 

Stock Options Do Support a Non-Compete Agreement, After All

The Texas Supreme Court has ruled that stock options will indeed support a non-compete agreement.  See last week's Texas Supreme Court opinion in Marsh USA Inc. v. Cook. 

I previously wrote about this case here and here.  The Dallas appeals court had found in 2009 that stock options would not support a covenant not to compete.  There must be some binding promise by the employer, such as to provide trade secrets to support a covenant not to compete, said the appellate court.  The Marsh USA decision now overrules this Dallas appellate court opinion.  

Our state difffers from many states which simply require compensation or money to make a non-compete agreement binding.  The law in Texas has been more restrictive, requiring that a promise regarding proprietary information to the employee would be necessary to make a non-compete binding.  

Non-compete agreements have historically been seen as a restraint on free trade.  If an employee could leave a job and take proprietary information, then that employee could start a new business with such information.  Employers needed a way to provide confidential information to employees without fearing they were creating new competition.  So, the Texas Covenants Not to Compete Act was passed.  The CNCA imposes limits on how such agreements can be enforced. 

With this latest decision, the Supreme Court has continued its gradual trend toward making non-compete agreements easier to enforce.  Stock options are now sufficient consideration for a non-compete agreement.  Stock options, said the court, reasonably relate to an employer's good will and encourage an employee to continue in his/her employment.  The Texas Supreme Court has taken another step toward making non-compete agreements less restrictive.  The majority opinion notes and welcomes this shift.  As the dissent points out, if stock options can encourage an employer's goodwill (a requirement under the Covenants Not to Compete Act), then simple compensation may also provide the necessary consideration. 

Three justices dissented, while a fourth issued a concurring decision.  It was a close vote.  But, with this decision, Texas becomes more and more a corporate world and less and less an entrepreneurial world. 

Study Shows Arbitration Favors Employers

Alex Colvin of Cornell University has published one of the first empirical studies of arbitration in the employment context.  He looked at the reports submitted by the American Arbitration Association, one of the leading providers of arbitrations, in California.  The study looked at 3,945 arbitrations, of which 1,213 were decided by an arbitration award.  See abstract of this study

Key conclusions include: 1) employees win 21.4% which is considerably lower than win rates in trials, 2) among those few wins by employees, the median award amount was $36,500 and the median award was $109,858, both amounts substantially lower than that reported in litigation awards, 3) mean arbitration fees were $6,340 in cases overall and $11.070 for cases disposed of by an award following a hearing (In 97% of these, the employer paid 100% of the fees other than a small filing fee - pursuant to AAA rules), 4) in 82.4% of the arbitrations, the employee was paid less than $100,000 per year.  Note that the author must be comparing California arbitrations to California state court trials.  The success rate of employees in california state courts is generally higher than that found in federal courts.  See my prior post regarding success rates in federal courts on a national level.   

The study also examined whether there was a repeat player effect, that is, wherher employers who appear repeatedly would receive favorable treatment.  The study indicates that yes, employers who appear more than once achieve significantly lower awards.  The study indicates that when the same arbitrator decides a case with the same employer from prior arbitrations, then those employees receive lower awards and win less often. These findings support the anecdotal evidence suggesting that repeat employers do better and they do better in particular when they use the same arbitrator.  

The repeat player effect has a large impact on employees, since employees will very rarely have more than one arbitration.  Employment arbitrations are far different than labor arbitrations, in which the union would also receive some repeat player effect. 

Coach Leach Appeal Denied

You cannot sue the state without permission.  This law is as old as the United States.  The principle provides essentially that a state must waive its sovereign immunity.  

Coach Mike Leach has run into this challenge when he sued Texas Tech for violating the terms of his contract.  See report.  Coach Leach claims the Texas Tech University violated his employment contract when they allegedly fired him for cause.  The 7th Court of Appeals in Lubbock disagreed and rejected his claim.  Coach Leach says he will appeal to the Texas Supreme Court.  Coach Leach, as some know, is a law school graduate. 

His suit is based on breach of contract.  One would expect that if the state has entered into a contract, then it has waived sovereign immunity for purposes of that one contract.  So, I will be interested to read this opinion when/if it becomes public. 

Arbitration Award Set Aside Due to Bias

Arbitration is becoming a way of life for consumers, employees and many others.  Arbitration formerly was only used in the labor union context.  Now, arbitration clauses are everywhere, even at one Whataburger front door.  See my prior post.  

Arbitration makes more sense for the labor union context, because arbitrators have incentive to remain nuetral.  In arbitration, the two sides to a dispute choose an arbitrator.  Both sides are allowed a certain number of picks.  Eventually, the two sides end up with the arbitrator seen as least biased. That process does not work as well in the employment context.  In employment cases, there is no union.  You have one employee who is filing his/her first and only challenge to some employment action.  That one employee will never again pick an arbitrator.  That one employee will have little or no idea regarding prior history of potential arbitrators or possible bias.  The one employee is shooting in the dark. 

In Alim v. KBR, 2011 WL 61868 (Tex.App. Dallas 1/10/2011), we see one instance where a prior relationship leads to dismissal of an arbitration award.  The arbitrator, Scott Rosuck did not disclose that he had presided over a prior arbitration three years prior with KBR, with the same KBR attorney and with the same KBR representative.  Mr. Rosuck was required to disclose prior relationships, but did not mention the prior arbitration.  He did say at the beginning of the arbitration that he had "come across" the lawyer and representative before.  But, the Dallas court of appeals found that to be insufficient disclosure to put the employee on notice. 

Mr. Rosuck said he relied on memory to check prior conflicts.  It appears he had overlooked the prior arbitration with the same employer, the same employer's representative and the same employer's attorney.  Obviously, he needs a better system for checking potential issues.  The court found this oversight to be "inexcusable."  Mr. Rosuck could not even disclose how many arbitrations he had done with KBR in the past. 

But, the more important issue is prior arbitral awards.  This employee somehow learned of the prior arbitration with KBR, the same rep and the same attorney.  But, arbitration awards are not public records.  The real issue is that there is no systemic way for employees to check prior arbitration awards.  Unlike a lawsuit, where you can look in the district court records, we cannot learn that Scott Rosuck presided previously with the same persons. Unless the employee's attorney gets lucky and calls the right employment lawyer who maybe, sort of remembers Scott Rosuck from three years before.  This is a system sure to lead to abuse. 

Arbitrations have been sold to employers as quicker, cheaper alternative to lawsuits.  We are finding out that they often are not cheaper or faster.  But, the real problem is the secrecy.  Judges have biases.  But, we lawyers and observers have some awareness of those biases.   Lawyers usually know.  But, arbitrators are different.  Arbitration awards are private and not available for review.  Biases reveal themselves only haphazardly or not at all. 

Arbitration Clauses Here, There, Everywhere

Arbitration clauses are everywhere, from employee handbooks to automobile purchases to purchases of electronics.  Now, we even find arbitration clauses posted on the front door of a Whataburger.   See post.   The "American Mediation Association" mentioned in the post is actually a Dallas law firm.  

As Workplace Prof mentions, one day we will surely see arbitration clauses on grocery store receipts.....

Hewlett-Packard Sues Former CEO

Hewlett-Packard  sues Mark Hurd claiming that his new job as CEO for Oracle will require him to disclose trade secrets.  Apparently, HP never required Hurd to sign a non-disclosure or non-compete agreement. So, HP is suing under the theory of inevitable disclosure of trade secrets.  HP filed suit in California, which according to one observer, has not embraced the doctrine of inevitable disclosure. See Workplace Prof post.  

Mark Hurd, of course, was the CEO for HP until he was charged with sexual harassment.  See post. Not a bad gig.  Cost your employer big bucks and bad publicity and become the CEO for Oracle.....

Majority of Americans Oppose Mandatory Arbitration

 A majority of Americans oppose forced arbitration accoding to a recent survey.  See HR Lawyer post.  In a nationwide survey of 800 citizens, 59% opposed forced arbitration clauses in employment and consumer contracts.  59% support the Arbitration Fairness Act, a proposed statute in Congress. Support crosses political and gender boundaries. Even after voters hear arguments pro and con, only one-third support mandatory arbitration. 

Mandatory Arbitration Fails to Live up to Expectations

 Ohio Employer's Law Blog points out that according to a recent article, mandatory arbitration does not live up to its expectations.  See blog post.  Jon Hyman at Ohio Employer Blog refers to a recent ABA article finding that in one study, mandatory arbitration was 30% more expensive and 25% longer than traditional litigation.  The average costs and fees in an employment arbitration were $102,338 as opposed to $70,491 for litigation.  The average life cycle for an employment arbitration was 21 months as opposed to 17 months for litigation.  


Supreme Court Rules in Favor of Employer on Arbitration Agreements

The US Supreme Court issued a ruling in Rent-A-Center West v. Jackson.  The Supremes have found that an arbitrator should resolve issues regarding the enforceability of an arbitration agreement, and not the courts.  See decision.  This is an unfortunate decision.  Simply based on policy grounds, arbitrators earn income by hearing arbitrations.  So, they have ample incentive to find every arbitration agreement enforceable, regardless of the circumstancess of the agreement.  

As the dissent points out, a challenge to the enforceability of the arbitration agreement under the facts in Rent-A-Center would be made by an arbitrator.  Not said is the fact that many arbitrators are not lawyers.  I cannot imagine how a non-lawyer would deal with issues regarding contract issues.  

Arbitration agreements have become very common in the work place.  Arbitrations have many pros and cons, but mostly cons where employees are concerned.  As Workplace Prof points out, the Federal Arbitration Act, passed in the 1940's, was never intended to apply to situations in which the arbitration agreement is not a true arms-length agreement.  See post.  The FAA is being applied to situations in which the parties do not have comparable bargaining power.  See Workplace Prof's description of a case in which bank customers alleged forgery of their signatures on a so-called agreement to arbitrate disputes with a bank.  Yet, the federal court still applied the FAA and ordered the bank customers to arbitration.  

It perverts contract law to force parties claiming fraud or forgery to subject themselves to a psuedo contract.  It is equally perverse to pretend that employers and employees can negotiate in good faith an agreement to arbitrate employment disputes.  

City Manager Demands Severance Pay

City Manager who "terminated" his employment under clouds of a scandal demands his severance pay.  See San Antonio Express-News story.  Ron Cain, who was City Manager for the town of Windcrest, a San Antonio suburban city, stepped down at the suggestion of the City Council.  This was all prompted by a scandal involving his brother and millions of dollars spent or not spent on Rackspace, a large employer in Windcrest.   Mr. Cain's lawyer admits that nothing in his employment agreement provides he would be entitled to severance pay.  But, the lawyer adds, the intent of the drafters of the agreement was that Ron Cain would severance benefits if he resigned. 

It sounds to me like the newspaper report did not get this quite correct.  There is no right to anything just because the drafters of an agreement might have intended it.  To the contrary, there is a principle in the law that anything considered but rejected for the agreement was probably deliberately rejected.  So, I cannot hazard a guess as to what Ron Cain's lawyer is suggesting.  But, generally, under Texas law, there is no right to severance pay.  The only right to severance would be a matter of contract, if there is a contract.  

Not to mention that the City Manager's conduct is being investigated.  This request sounds a little "nervy."  

Former Employee Emails Linkedin Contacts and is Sued

So, you have a LInkedin account.  As with most users, many of your contacts are co-workers.  You leave your employer and send messages to your contacts on Linkedin.  Is that a problem?  It is a problem, if you have a non-compete with your former employer in which you agreed to not contact former your former co-workers.  That is what happened in one recent lawsuit.  The former employer, an IT staffing firm, learned of the messages and filed suit against the former co-workers.  See report.  

The former employee had signed a non-compete agreement in which he agreed to not solicit former co-workers.  So, sending an email to all his contacts, co-workers and others, which said, "Hey, let me know if you are still looking for opportunities," sounds like solicitation. 

So, yes, as the report explains, now, when an employee leaves a company, that employee may have to "un-friend" his/her former co-workers.  In this case, the non-compete clearly prohibited solicitation of former employees.  

Deductions from Paycheck Must be Authorized

A frequent issue arises concerning the right of an employer to deduct debts from an employee's paycheck.  Texas Workforce Commission recognizes three occasions when an employer may make such deductions: 1) in response to an order from a competent court, such as for child support; 2) state or federally mandated withholdings; and 3) when authorized in writing by the employee.  See TWC info.  

So, for example, when the employee owes payments on a loan to the employer, the employer may not deduct those payments from the paycheck.  Even if the employer has a signed loan agreement, the employer may not deduct those payments without written authorization from the employee.  

But, the other shoe is that TWC will probably do nothing more than send letters to the employer finding them at fault.  I have personally never heard of TWC taking stronger steps than sending letters to the miscreant employer. 

How to Read an Employment Contract

My colleague in California, Gene Lee, has written a couple of nice entries about how to read an employment contract.  See this post for part 1 of his series on reading contracts.  Note the information regarding which state law governs the contract.  In today's business world, employment contracts frequently involve two, three states or more.  It can make a huge difference regarding which state law governs.  Just because you are hired in Texas for a Texas employer does not mean Texas will law will govern.  

See Gene's second post for Part 2 of how to read an employment contract.  Note his final advice: a contract helps, but a contract is no substitute for having a lawyer in your corner.  I know many employees essentially draft their own contract.  A self-written or borrowed contract is better than no contract.  But, the best plan is to consult with a trained employment lawyer whenever you sign or draft a contract.  

Texas Supreme Court Accepts Non-Compete Issue for Review

 Texas law on non-compete agreements is stricter than many states.  In Texas, the non-compete can be enforceable only if the employer provides some sort of confidential information in exchange for the non-compete agreement.  Typically, the employer provides some trade secret or other proprietary information.  Mike Maslanka pens another excellent post and discusses the state of non-compete law in Texas.  He discusses the case of Marsh USA Inc, Et Al v. Cook.  The lower court of appeals found that since no confidential information passed from employer to employee, then the non-compete signed by Rex Cook is not valid.  Marsh argues that the mere exchange of money serves to make the non-compete binding.  As Mike explains, the arguments are cloaked in legal jargon.  But, in reality, they reflect core Texas values, such as supporting individual entrepreneurs versus securing the fruits of hard-won business success. 

The Texas Supreme Court has accepted the case for appeal.  If Marsh wins, then non-compete agreements will become much more common,as my friend Chris McKinney notes.  

KBR Drops Petition for Cert in Jones Case

 Halliburton/KBR has dropped its petition for certiorari to the US Supreme Court in the Jamie Leigh Jones case.  See report.    Ms. Jones is the lady who was raped in Iraq by KBR co-workers.  She retutrned to the US to find that she had sgned an arbitration agreement which would have prevented most of her case from going before a jury.  KBR has fought very hard to keep her case in arbitration.  The employer lost on appeal with the Fifth Circuit.  It looks like that decision will now become the final decision.   The Fifth Circuit found that rape was not related to her employment, and, therefore, not properly a part of an arbitration agreement.  Therefore, the rape allegations would go to trial. 

Ms. Jones was gang raped in Iraq and the locked up by company employees.  In withdrawing their petition for certiorari, KBR is effectively withdrawing its request for appeal.   The company was motivated in part by the Franken amendment which prohibits arbitration for companies that do business with the Department of Defense. 

Binding Arbitration is Not So Binding When You are Bob Perry

 No one supports frivolous lawsuits.  But, few have done as much to stop supposed frivolous lawsuits as has Bob Perry.  The huge home builder from Houston, Texas has donated tens of millions of dollars to political contests largely to oppose consumer lawsuits.  He funded the SWIF boat for truth campaign against John Kerry.  He helped George Bush become governor of Texas.  His pet issue throughout all these donations has been arbitration.  The Texas Residential Construction Commission was created largely due to his support of key state legislators.  Due in no small part to Bob Perry's largesse, binding arbitration is now a fact of life for most Texans from employees to home buyers to automobile owners.  

One particular lawsuit by one of his home buyers has dragged on for over a decade.  Bob Perry was determined not to let this case go to a jury.  He wanted it to go to arbitration.  It did go to arbitration, where Bob and Jane Cull were awarded $800,000 by the arbitrator.  Yes, some consumers do win in arbitration.  Mr. Perry was not satisfied.  He found a way to make binding arbitration not so binding.  He appealed twice and lost until he came to the Texas Supreme Court.  The Texas Supreme Court is a very friendly venue for large corporations and for Bob Perry.  The Texas Supremes came out for their man.  Bob Perry had donated $21 million to the Texas Supreme Court between 2006 and 2009.  Every member of the court had accepted money from Bob Perry.  Yet, not one member of the Texas Supreme Court recused themselves from his case.  In a close 5-4 decision, the Texas Court disallowed the arbitration award and sent it to trial in 2008.  I am sure this is the only Texas case that has ever gone to arbitration but was overturned on appeal in the past ten years. 

So, yes, Bob and Jane Cull's case then went to a jury, an actual trial in 2010.  The Cull's told the jury how the attic caved in and the foundation heaved and how Bob Perry refused to fix it.  On March 1, 2010, the jury responded.  They awarded the Cull's $58 million, including $44 million in punitive damages.  Bob Perry will surely appeal.  He has already described this jury verdict as "jackpot justice." 

The Cull's originally bought their dream home, their planned retirement home in 1996.   Now, in 2010, with years more for appeals, they will not get their home fixed anytime soon.  But, this "jackpot justice" jury award will surely help them if Bob Perry decides to discuss settlement. 


Coach Leach Amends his Petition

 An employment relationship that went bad.  It happens all the time from Burger King to any corporate boardroom.  When it happens in Lubbock, Texas to a major college coach, it becomes big news.  Mike Leach filed his Third Amended Petition in state court alleging breach of contract, wrongful termination,  among other things.  He has added new facts suggesting "outside forces" conspired to get him evicted.  But, as with any employment relationship, prior issues also serve as background evidence.  He had a difficult negotiation of his contract just last year.  

It is safe to assume Coach Leach had a "just cause" termination clause in his contract.  Otherwise, none of these new facts would be relevant.  If he did indeed abuse a player, then "just cause" means he could be fired without having to pay the remainder of his contract.  

"Just cause" means he could only be fired for a just or good reason.  Just cause is the opposite of "at-will."   Not all, but very many individual employment agreements contain some form of a just cause termination clause.  What is a just cause will be up to a jury.  Texas juries can be very conservative.  Coach Leach would have to show that Texas Tech did something more than reasonably rely on complaints from a concerned parent.  

Final Paycheck Due in Six Days in Texas

 Texas Workforce Commission is supposed to enforce the Texas statutes regarding wages.  A statute is a law passed by the state legislature.  TWC provides a summary of the Texas Payday Statute at: http://www.twc.state.tx.us/ui/lablaw/pdlsum.html.  Many employees want to know when must an employer pay the last paycheck?  Frequently,  many employers withhold the last paycheck until Joe Employee turns in his tools, pays for a damaged rear view mirror, turns in her uniforms, or whatever.  

But, the employer cannot do these things.  An employer cannot hold the final paycheck until an employee turns in tools or whatever.  The employer must pay the last paycheck within six days of the last day.  Texas Labor Code Art. 61.014.  But, this law has no real teeth.  The employer can incur a criminal penalty for missing this deadline.  But, few District Attorney’s would have the time to prosecute what they see as a relatively minor crime.  

An Employer's Promise can Become a Contract

 Well, it must be getting ready to snow in July, because the Texas Supreme Court issued a pro employee decision.  See Mike Maslanka's post.    In a 9-0 vote no less, they found in favor of a group of employees who stuck around when an employer was being sold.  Management had told the employees that if they stayed until the comnpany was sold, they would receive 5% of the sales price.  They stayed.  But, the company reneged and refused to pay them the 5%.  The employees sued on basic contract principle: if you take action based on a promise, then that promise becomes a contract.  The company defended on the basis that the employees could have terminated the employees at any time.  Thus, the promise was illusory.  

The Texas Supremes disagreed, finding that if the employer's argument was accurate, then any wage, salary or pension would be illusory.  So, yes, if an employer promises a percentage of the sales price, and the employees rely on that promise, then that promise becomes an enforceable contract.  Venegas v. American Energy Services (Tex. 12/18/09).  

San Antonio Court Upholds Non-Compete Agreement

 You work for a company.  Things are going well.  But, the company still has not paid you everything you are entitled to under your compensation agreement.  You become unhappy.  A start-up lures you away.  The start-up competes directly with your old company.  You had signed a non-compete agreement with the old company.  But, you think why should you honor the non-compete when the company did not honor your compensation agreement.  In caselaw, we call that the "doctrine of unclean hands."  One cannot seek equity without first being equitable itself.  One cannot come to court seeking equitable relief if that person does not himself have clean hands.  So, you think, the employer cannot come to court seeking equity when the employer itself has not been equitable.  

Well, you, the employee, lose this argument.  You lose at least before the San Antonio Court of Appeals in Central Texas Orthopedic Products, Inc. v. Espinoza.  The Court found that since the breach did not grow out of the agreement which is the subject of the suit, the doctrine of unclean hands does not apply.  They are separate transactions, found the court.  That is, the failure to pay under the terms of the compensation agreement was a separate transaction from the non-compete agreement.  One agreement was signed in 2003, while the other was signed in 2007.  As Russ Cawyer says, this decision continues Texas' trend toward supporting non-compete agreements.    

See Workplace Fairness for a nice summary of non-compete agreements.  

Good Summary on Non-Competes

 Once again, Mike Maslanka writes a nice post, summarizing a complicated area of law.  See his post summarizing the law on non-competes.  Look at his summary near the end.  You can successfully attack a non-compete agreement on various theories: 1) the information provided to the employee was not truly confidential, 2) the confidential information was provided too late to be of any real benefit to the employee and it could not serve as consideration, 3) and the usual: the non-compete was too broad in geographical location or length of the agreement. 

Eight Ways to Lose a Noncompete Case

 Eight ways to lose a non-compete case.  See gruntled employees blog to see how an employer can lose a lawsuit regarding a former employee who has apparently violated a noncompete agreement.  The post provides a nice summary regarding what to avoid.  

Signing Non-Compete Agreement in Wrong Place

You are asked to sign a non-compete agreement by your employer.  But, you are not sure you want to sign.  What do you do?  One IBM management employee deliberately signed in the wrong place.  He wanted more time to think about signing it.  He signed in the space where the employer would sign.  Then, he went to work for Dell.   The Second Circuit Court of Appeals finds for the employee in this recent decision, IBM v. Johnson.  See post.  


Mandatory Arbitration is a Loser for the Employee

 Mandatory arbitration holds few benefits for the employee.  In the labor union context, it is helpful.  The union and employer can pick the arbitrator they want.  Both union and employer have knowledge of the different arbitrators and their particular biases.  So, both sides can make an informed selection when they choose arbitrators.  But, that does not work in the non-union context.   Because in the normal at-will situation, the employee may go to arbitration only once in his/her life.  She will have no knowledge of the different arbitrators.  Instead, the employer will go to arbitration far more often and will have more knwowledge of the different arbitrators.  

And, the cost is huge.  One typical case: the employee was required to pay half the arbitrator's fee (usually about $250/hr with a minimum of $2000/day), filing fee of $500, case filing fee of $1000, additional filing fee of $2750, $150 daily hearing fee.  These are huge fees for someone who may have ben terminated.  

Then, if you lose, you may have to pay the other side's legal fees - $207,000 in one case.  In another case, the arbitrator derived half of his annual income from the employer.  

One study found that employees won 21% of the time in mandatory arbitration while winning 56% in California state courts.  I know there are occasional significant wins for employees, but generally, employees do worse in arbitration than they do in traditional courts.  The cost alone makes it virtually impossible for any employee to pursue.  

And, since the employers do more arbitrations, the arbitratraors will favor them.  The arbitrator gets work only if they get picked by one side or the other.  Over time, the arbitrator will favor the side that hires him/her more often.  

The reliance on arbitration needs to change.  It is harming a great many employees.  Support the Arbitration Fairness Act now pending in the Senate. 


Two Year Limit Reasonable for a Non-Compete

 An interesting decision on non-compete agreements.  The Court of Appeals in Houston found a non-compete reasonable. See:  Gallagher Healthcare Ins Services v. Volgesang.  The former employee was an insurance broker for Gallagher Healthcare.  After twelve years, she resigned to work for a competitor.  The non-compete provided that the employee could not have contact with 80 customers she had done business with in the prior two years for another two years working for the competitor.  The court found this provision a reasonable substitute for the customary geographical limitation.  So, instead of the typical geographical limit, this non-compete provided the employee could not contact for two years her prior customers.  See more at Russ Cawyer's post about this case. 

Physician Non-Competes Now Limited in Regard to Patients

Russell Cawyer reports that the recent state legislative session amended the statute regarding non-compete agreements.  The new law allows physicians access to patients seen within a year.   The current law restricts the ability of employers to draft non-competes regarding geographic distance, time and activity.  This new provision adds this one category in regard to physicians.  

Stock Options not Enough for Non-Compete

 You work for an employer.  The employer has trade secrets and leads it wants to protect.  It asks you to sign a non-compete agreement when you hire on.  Most non-compete agreements provide that after you leave your job, you will not compete with your employer for a specified amount of time.  Is that non-compete agreement binding?  It would be binding if the employer gave you something in *consideration* for signing that non-compete.  Are stock options sufficient consideration?  A recent Dallas state court opinion says no.  Russell Cawyer, who generally represents employers, says money or other financial consideration will not be enough consideration to support your promise not to compete against your employer.  The employer should offer some binding promise, such as providing trade secrets.  

Once the employer makes good on that promise, then the non-compete *may* become binding.  See Chris McKinney's take on the current law regarding non-compete agreements.  

Arbitrations do not Work in Non-Union Shops

 NPR has a good story on the evils of  mandatory arbitration in the workplace.  Unfortunately, it is all too accurate.  Mandatory arbitration simply does not work well in the non-union workplace.  It favors employers over employees.  Note the experience of one arbitrator who ruled against the company one time, after finding in favor of the credit card companies 19 previous times.  She was removed from the list of potential arbitrators.  

The problem with arbitration in the workplace is that arbitrators are employed or hired for a case only when both sides agree.  Both sides are presented with a list of potential arbitrators.  Both sides can strike whoever they wish.  Employers go to arbitrations multiple times.  Employers will have an institutional memory of who rules which way.  An employee will generally go to arbitration only once. The arbitrators understand this.  If they want future employment, they must find in favor of the employer.  

Support the Arbitration Fairness Act now before Congress. 

Arbitrations are not Popular with Everyone

 Arbitration has been around forever for labor disputes.  Unions and their employers have long relied on arbitration as a relatively inexpensive way to resolve disputes.  In the labor context, the arbitration process is set up through a collective bargaining agreement.  The arbitrator is picked by both sides from a list of some 10 ore more names.  The unions and employers know more or less who the arbitrators are and how they will approach various issues.  The unions and the employer share the fees for the arbitration.  Arbitrators receive anywhere from $150 to $500 per day.  Fees for renting a room, travel, etc. can add up to another $500 per day.  Since the fees are shared, the incentive is for arbitrators to not favor either side.  This approach has some fairness to it.  The entire process is negotiated.  

By going to arbitration, unions give up jury trials, but instead, they get a quicker system to resolve workplace issues.  

But, in the past 10 years or so have these arbitration style processes have invaded the non-union context.  Employers have seen them as relatively inexpensive and just as fair.  But, that is simply not true.  Unlike labor unions, your average employee involved in non-union arbitrations will participate in an arbitration only once in his/her life.  The employee knows nothing about any of the possible arbitrators on the list.  The employee cannot afford $500 per day for an arbitrator.  The courts have imposed some limitations, but still, the employee is expected to pay some fees in most non-union arbitrations.  

Its a tough deal for employees.  So, why have arbitrations?  Well, mostly because the employer want them, or think they want them.  There have been one or two instances of arbitrators awarding sizeable awards to employees.  But, most employees cannot even afford to get into the door of an arbitration.

But,  at least one defense lawyer finds arbitrations to be not worth the trouble for employers.  In his informal survey, he finds many defense lawyers who agree with him.  The process has grown, in part due to many lawyers and employees pushing to get some of the same protections they would have in court.  

But, across a range of consumer disputes, arbitrations appear to be here to stay.  

Forced Arbitration not Supported

 Arbitration for labor unions has been around forever.  Arbitration has only been in use for the last 10 years or so.  Employers started establishing policies for arbitration in employee handbooks in the late 1990's, in response to a few key court decisions.  At first, most employment lawyers who represent employees were very concerned.  National Employment Lawyers Association (NELA), of which I am a member, has sought to reverse this trend for many years.  

The issue is that arbitration means a supposed neutral person will hear both sides regarding the employment dispute.  That means there will be no judge or jury.  Often absent are the tools we normally use in a lawsuit: discovery about the evidence held by the other side. confronting witnesses, etc.  Worse, to gain access to an arbitration, an employee must agree to bear some of the costs of the arbitration.  Since there are many, various fees and since some arbitrators charge $500/day or more, the costs quickly add up. 

Now, a sister organization to NELA, Employee Rights Advocacy Institute has found in a survey that 59% of potential voters oppose forced arbitration in employment and consumer agreements.  The support is the same whether they be Republicans or Democrats.