More and more, Texas employers rely on non-compete agreements. More and more, those agreements are permeating down below to blue collar jobs. In Elite Auto Body v. Autocraft, No. 03-15-00064 (Tex.App. Austin 5/5/2017), Autocraft sued Elite Auto Body and three former employees of Autocraft. Autocraft claimed the three employees took trade secrets with them when they left Autocraft, including financial and personnel information. Autocraft operated a body repair shop. The three employees included a production manager, and two other employees. A fourth former employee was an Office manager for Autocraft. The former employer accused three of the former employees of using confidential information gained from Autocraft to solicit business and to persuade other Autocraft employees to join the new business.

The Defendants then counter-sued for violation of the Texas Citizens Participation Act (TCPA), also known as a SLAPP suit. Relying on the TCPA, the three defendants sought to dismiss the lawsuit saying it infringed on their right to free association or the exercise of free speech. Relying on affidavits from two of the former employees, the three defendants said the lawsuit lacked basis and was intended to chill their rights to free association. The court of appeals agreed that the Autocraft suit was based on actions which include the exercise of the right to free association. The exercise of free association is defined under the TCPA, said the court, as the right to communication between individuals to collectively promote or pursue common interests.

Autocraft claimed one defendant, David Damian, did not engage in communication under the TCPA because he breached a fiduciary duty by misappropriating confidential and proprietary information from Autocraft. But, the court noted that the communication between the three former employees includes that alleged confidential information. Since the TCPA protects communication between the three employees, they can in fact discuss confidential information. Autocraft then argued that the state legislature envisioned the TCPA would apply to public participation in government, not in the private sector. No, said the Austin court of appeals, the Texas Supreme Court has already made it clear the TCPA applies to the private sector.

Autocraft then argued that certain types of speech are not implicated by the First Amendment, such as speech regarding illegal activity. The court was more troubled by this argument. It found that the burden shifting analysis of the TCPA requires the TCPA movant to show how free speech is involved in the lawsuit by the former employer. After reviewing recent state Supreme Court decision, the Third Court of Appeals found that private speech which is restricted among the three new employees can rise to the level of free speech. Therefore, their speech relates to a matter of public concern, because the language of the TCPA itself is broad enough to include First Amendment protections.The higher court specifically noted that the TCPA does not necessarily protect only First Amendment communications. The provisions of the TCPA apply to more than free speech communications. The act applies to all communications that fit the TCPA definition, whether the communication pertains to free speech, trade secrets or not. The court found the initial question for a TCPA-based motion is whether the employees engaged in communication that fits the TCPA definition of communication and whether those individuals joined together collectively to promote or pursue common interests.

So, the court found the district court improperly failed to grant the three defendants’ motion to dismiss based on the three defendants’ “communications.” Bottom line: as long as the employees discuss so-called confidential information among themselves, it should be protected by the TCPA.  See the decision here.

Among the provisions employed increasingly by employers is the “claw back” provision. Under the typical claw back provision, the employee agrees to a certain salary or wage. The employer then requires the employee to agree that if the employee fails to provide a notice of resignation within a certain amount of time, or if the employee leaves the job before a certain amount of time, then the employee must return some portion of his pay. In Rieves v. Buc-ee’s, Ltd., No. 14-15-01061 (Tex.App. Hou. 10/12/2017), the employer offered an agreement of a certain salary if the assistant manager would agree to work at least 48 months. The pay was based in part on 1.2% of the store’s net revenue. The employee, an assistant manager named Kelly Rieves, agreed to return 1.2% of the store’s net proceeds if she did not provide a six month notice of resignation. Ms. Rieves left, and did not provide six months notice. Buc-ees responded with a letter demanding payment of $66,000, plus attorney’s fees.

Ms. Rieves sued seeking a declaratory judgment that these provisions function as unlawful restraints on trade. Buc-ees moved for summary judgment, which was granted.

The Houston court of appeals disagreed. It found the provisions did indeed act as restraints on an employee’s ability to move to a different job. The provisions set unreasonable limits and imposed a substantial penalty on Ms. Rieves for exercising her right as an at-will employee to quit a job. The court pointed to the Free Enterprise and Antitrust Act, Tex.Bus.&Com.C. Sec. 15.05, which declares that contracts may not restrain trade. The court said that unless a contract fits within the exception found within the Texas Covenants Not to Compete Act, covenants limiting an employee’s mobility are unlawful restraints on trade. Under the Texas Covenants Not to Compete Act, Tex. Bus.& Com.C. Sec. 15.50(a), covenants must be reasonable as to time and geography.

The court found the payment retention provisions in the Buc-ees employment agreement to be unreasonable. The provisions did not include any limit in geography or time. It did not even limit Ms. Rieves to employment with a competitor. The assistant manager did not move to a competitor. Her new job was not with a competitor of Buc-ees. Too, the provisions required her to re-pay the money even if she left the job through no fault of hers, or even if she did not take a new job. This agreement, said the court, goes far beyond any legitimate need of Buc-ees in regard to competition in the market place. See the decision here.

The court reversed the decision to grant summary judgment. It also ordered that Buc-ees take nothing from its suit. And, it found that the provision did indeed act as an unlawful restraint on trade.

Thank goodness. One might think that Texas courts never saw an employer friendly agreement they did not like. Let’s hope the employer does not appeal to the Texas Supreme Court.

Former Texas Tech coach Mike Leach is still after the pay he believes he was owed. I wrote about his lawsuit against Texas Tech here and here. He seeks $2.4 million, including $1.6 million for a buyout clause. Under the terms of the buyout clause, he would be entitled to $1.6 million if he was fired without cause. Coach Leach recently hired a former news reporter to create a publicity campaign to help pressure the university. See Ft. Worth Star Telegram report. But, the thing is the school had pretty good cause to fire him., He had abused the son of an ESPN analyst, Craig James. Mr. James was also a former star running back at SMU and in the NFL. The coach might disagree whether the treatment of the young Adam James was abuse. But, the employer gets to make that call, not the employee.

He tried to sue his former employer for breach of contract. But, like most states, Texas has a law that a state cannot be sued unless it has given permission. And, it has never passed any sort of law that would allow a former coach to sue for breach of contract. He apparently feels like he was cheated in some way. But, everyone who deals with the state incurs that risk. Coach Leach is also a law school graduate. He may feel he has some inside knowledge. If so, it has not worked for him, yet.

Too, Coach Leach, while still employed at Texas Tech reportedly told his boss, the school President, to go f— himself. That sort of remark does tend to cause issues with management.

Arbitration is becoming more and more a significant feature of the legal landscape. Arbitration is a creature of contract. Whatever the parties agree to becomes the arbitration. What if the parties agree to arbitration, but then allow some form of appeal? In a recent decision, the Fourth Court of Appeals wrestled with that question. In Methodist Healthcare System v. Friesenhahn, No. 04-16-00825 (Tex.App. San Antonio 10/11/2017), the employer invoked arbitration. But, the arbitration did not go as the employer had hoped. The arbitrator awarded the employee almost $214,00 in damages and $170,000 in attorney’s fees. So, the employer got creative and filed a motion to vacate the arbitration award. Methodist Hospital argued that the arbitration agreement provided for expanded judicial appeal. It pointed to a small number of cases that recognized arbitration agreements that provided for appeals of decisions which contain reversible error. That is, they sought to appeal the arbitration decision based on traditional litigation type appeals. For example, in one section, the agreement states that the arbitrator will apply the same law as would a judge in court. The employer argued this meant reversible error would be grounds for appeal.

But, no, the Fourth Court was not going there. The court of appeals discussed the provisions cited by the employer. It said those provisions do not provide for an expanded appeal. They simply explain that the arbitral forum is simply another forum. The same legal theories apply in arbitration and apply in court. To provide expanded judicial review, the agreement would have to apply limitations on the arbitrator’s authority. For example, noted the appellate court, the agreement could have incorporated a reference to reversible error. It did not include any such reference. See the decision here.

The employer wanted arbitration. It drafted the arbitration agreement and then invoked the agreement when the plaintiff field suit. But, in the end, the employer found arbitration was not what it wanted, after all. Be careful what you ask for. You just might get it.

Every employee owes his employer a duty of loyalty. An employee generally may not carry on a business that competes with his employer’s business. To do so is grounds for termination. But, what about an employee who is contemplating leaving his employer? Can he discuss his possible departure with co-workers? The court in In Re Athans, 478 S.W.3d 128, 2015 WL 5770854 (Tex.App. Hou. 2015) answers yes. In Athans, three surgical assistants worked for American Surgical Professionals. One of them considered leaving ASA to work for a competitor. The three worked closely together. Another surgical assistant planned to leave to start a competing firm, Prestige Surgical Assistants. Martinez planned to leave and asked Athans if he was interested in leaving. Martinez testified he simply shared his project with Athans. He shared the project with other surgical assistants. Martinez and an investor started Prestige Surgical Assistants after Martinez ;eft ASA. ASA sued Martinez and Athans  for “soliciting” Athans and others to leave. ASA accused Martinez of interfering with the employment agreement between Athans and ASA. Four surgical assistants turned in letters of resignation at the same time. One surgical assistant changed his mind and stayed with ASA. The others joined Prestige.

The jury found in favor of Prestige. ASA sought a new trial, which was granted. Prestige sought a writ of mandamus to stop the new trial, which the court of appeals granted. The Court of Appeals agreed with Prestige. Assuming, said the court, that “solicit” means to ask seriously, Athans did not ask any of the surgical assistants “seriously.” He simply told them about his project. Athans was not certain he would work for Prestige when he resigned from ASA. He did not know what he would do when he left ASA. The other surgical assistants also indicated that Athans simply told them about a possible opportunity. The jury was entitled to use the ordinary meaning of “solicit.” See decision here.

The decision illustrates the difficulty in suing based on intent. ASA apparently lacked evidence regarding when Athans made up his mind to work for Prestige. If Athans had decided before he turned in his resignation and if ASA had some evidence of the timing of that decision, the outcome might have been different.

You have to love capitalism. I still believe the capitalistic system is the best around. But, the crazy things it can lead to. Everyone has heard about the Wells Fargo scandal. Bank tellers at Wells Fargo were required to open a certain amount of new accounts every month. The pressure was on to meet a certain goal every month. So, many Wells Fargo employees opened false accounts in the name of customers. They were so desperate to meet their goals, that they basically took money from customers to open accounts that the customers did not want.

Every bank customer at Wells Fargo signs an arbitration agreement when they open their account. Does that arbitration agreement apply to a fraudulent account? Yes, it does, according to early court opinions. Customers have tried to sue the bank for its fraudulent sales practices and have been stymied by the arbitration provision for the one true account. As one Los Angeles lawyer said, its “laughable to any logical person.” See Los Angeles Times report. In one instance, Wells Fargo opened eight accounts fraudulently in the name of one customer. But, a San Fransisco district court would not let him sue the bank.

Arbitration is often, paid-for justice. At least one study has shown that there is a “repeat player” effect. That is, an arbitrator will favor a repeat customer. In this context, Wells fargo would be the repeat player. They would have hundreds or more such arbitrations, while each customer likely has just the one. If there arbitrator wants more arbitrations, he knows he should find in favor of the repeat customer.

Yes, some employers will take advantage of employees. My friend, Chris McKinney, discusses one such case of a worker for Buc-ees. You know the place with the friendly, smiling beaver? Kelly Rieves was hired by Buc-ees as an assistant store manger in Cypress, Texas. They had her sign a contract which included a clause for “retention pay.” Retention pay is usually used for senior executives. But, Buc-ees imposed it on this assistant store manager. A portion of her pay, about one-third, was designated as retention pay. If she left before 48 months, she would agree to return that retention pay. She did in fact leave after three years. She tried to work out an agreement with her boss before she left. But, he would not discuss it.

The contract provided that she could be fired at anytime. Yet, the retention pay clause remained.

After she left, Buc-ees sued her. The friendly beaver sued her for the amount of retention pay, or $67,000. She lost the lawsuit. The court also awarded attorney’s fees and interest. Now, she owes $100,000. The matter is on appeal. See Chris’ blog post here.

I do not know the specifics of Ms. Rieves’ case. But, many workers who are sued for non-compete clauses often ignore the lawsuit. They hope the suit will go away. But, unfortunately, these lawsuits by prior employers do not just go away. Retention pay clauses might make sense for senior executives who have some bargaining leverage. But, seriously, for an assistant store manger, this is a case of an employer taking advantage of its superior bargaining position.

The sandwich chain, Jimmy John’s, has agreed to stop including non-compete agreements in its hiring documents. I wrote about the chain’s requirement for non-compete agreements here. As I mentioned then, they were requiring the low wage earners to sign these agreements. As part of a settlement, Jimmy John’s is now dropping that non-compete agreement. The non-compete imposed a two year time limit in which a departing Jimmy John’s worker could not work for a competitor within two miles. The sandwich chain was sued by the New York state Attorney General regarding the practice. See CNBC report.

It is a brutal tactic to use with the most vulnerable workers. Earlier, this year the Illinois Attorney General commenced a similar lawsuit. Jimmy John’s is headquartered in Illinois. The chain says it stopped issuing sample non-compete agreements to its franchisees in 2014.


Arbitration in employment cases is still new. It is also private. So, researchers have not had access to arbitration decisions or awards. But, a statute passed in California requires the arbitrators to make public their decisions. One Cornell researcher obtained those public awards and found some remarkable trends. The largest provider of arbitration services is the American Arbitration Association. AAA is also the only provider that provides protocols designed to protect employees from the worst sort of arbitration abuses. The report includes some 3900  AAA arbitration awards or decisions over a four year time period. I previously wrote about this study here. But, I want to mention some additional details.

Alexander Colvin found a “repeat player” effect. That is, repeat participants, employers with more than one claim filed against them, receive better results. Repeat players would also include repeat law firms. The unique aspect of employment arbitration is that the employee will almost always have only one arbitration in his/her life. Whereas, the employer may have multiple arbitration matters. The fear is that some arbitrators will curry favor to some degree with the employer in the hopes of securing additional arbitral matters. Most arbitrators are lawyers who have financial incentive to do more, not less, arbitrations. The more arbitrations they do, the more they get paid. Mr. Colvin found that in the “one-shot” employer situation, the employee would win 31.6% of the time. While, in the repeat employer situation, the employee win rate drops to 16.9% of the time. Regarding damages, when the employee did win in a one-shot employer situation, the mean damage award was $40,546. But, in the repeat employer situation, the mean damage award was only $16,134. So, workers have a better chance with the one-time employer, but even then their success rate is lower than in a traditional court.

Out of the 3900 cases, repeat employers included 62% of filings. There might have been more, but the four year window necessarily would have excluded some prior filings.

Compare the above win rates to other forums. Overall, the employee “wins” 21.4% in AAA arbitrations. In California federal court, the employee wins 36.4% of the time. In California state court, the employee wins 59% of the time. Yet, in securities arbitration, which has a much longer history than general employment arbitration, securities industry employees win arbitral hearings some 40-50%. Mr. Colvin does not attempt to explain why employment arbitration employees fare much worse than security dealers. He invites future researchers to answer that question.

Looking at a slightly different problem, what happens when the repeat employer uses the same arbitrator? Does that even make a difference? Mr. Colvin found some 15.9% of the cases included what he describes as “repeat pairings” – that is, the same employer with the same arbitrator. When cases did not involve a repeat pairing, the employee win rate was 18.6%. But, when you had a repeat pairing, the same arbitrator with the same employer, then the employee win rate slid down to 12%. The average damage award for non-repeat pairings was $27,039. But, when the same employer was paired with the same arbitrator, the average damage award was $7,451. So, when the employer has actually worked with the same arbitrator in the past, and the employer is not simply another employer who has done arbitration in the past, the success rate of the employee drops to 12%.

What is a “win”? Mr. Colvin defines a win as any positive finding in favor of the employee, no matter how small the award might be. He seeks the broadest measure of arbitral success as possible. Mr. Colvin suggests in his article that arbitration claims would have lower value than traditional court litigation claims. He is surely correct about that. See the article, An Empirical Study of Employment Arbitration: Case Outcome and Processhere.

Mr. Colvin noted significant differences in AAA arbitrations from individual arbitration agreements. AAA arbitrations are different because AAA requires any employer promulgated arbitration agreement to follow certain procedures. Those procedures ensure the employee pays only a modest fee for the the service. But, AAA arbitration matters that develop out of individual employment agreements see better results for the employee. But, as the researcher notes, individuals with his/her own arbitration agreement typically are higher ranking, are paid more and have much greater resources that the employer promulgated arbitration agreements. According to the data, some 82% of arbitration claimants were paid less than $100,000. So, the AAA arbitration results studied by Mr. Colvin represent by far the more typical experience for American workers.

This study is a stark reminder that employment arbitration is designed for employer success, not employee. The employer who has multiple claims will always come out ahead in this system. Civil-rights receive less protection in the arbitration context.

Large employers and corporations have been pushing arbitration as the panacea for a host of consumer issues, from purchasing phone plans and automobiles to applying for jobs. But, there are some things arbitration just cannot do. In 2012, Lance Armstrong admitted he had used drugs as part of his training regimen. But, for years before his admission, he had successfully fought those allegations. In fact, he even took to arbitration in 2006 one sponsor, SCA Promotions, for a $5 million bonus saying there was no proof that he had doped. The sponsor had refused to pay the bonus because the allegations were so strong. The arbitration panel eventually awarded the cyclist a total of $7.5 million – based on a settlement reached by SCA and Mr. Armstrong.

After Mr. Armstrong’s admissions in 2012, SCA asked the same arbitration panel to re-convene and order Armstrong to pay back the money. The panel did so and awarded SCA Promotions $10 million as a sanction. But, the panel of arbitrators is not a court. There is a very complicated, robust scheme for awarding sanctions in the judicial system. Arbitration is not part of the judicial system. Arbitration is based on contract. The parties must agree to arbitration. Arbitrations are supposed to be limited to the terms of the parties’ agreement. Lance Armstrong did not sign any agreement allowing possible sanctions as part of an arbitration award. It would be rare for any arbitration agreement to address even the remotest possibility of sanctions.

The panel found jurisdiction based on Mr. Armstrong coming to them twice before seeking relief. The majority panel pointed to the decision in Nielsen S.A. v. Animal Feeds International Corp., 130 S.Ct. 1758 (2010) for the finding that prior use of the panel amounts to continued use of the panel. The majority also pointed to an “implied covenant to cooperate” and to Mr. Armstrong’s bad faith. So, the majority awarded that the $7.5 million be repaid to SCA, $2 million in attorney fees, and $500,000 in “additional costs insusceptible of precise calculations” (say what? I can just imagine if I tried to ask a court for $5,000 in “additional costs insusceptible of precise calculations”).

One arbitrator on the panel dissented. Ted Lyon pointed to the 2006 settlement agreement between the parties that specifically provided the intent of the parties was to “fully and forever” resolve their differences. See Louisiana Bar Journal, vol. 63, no. 2 (Aug./Sept., 2015).

And, now SCA is seeking a declaratory action in a Texas court seeking recognition of the award. There is no legal precedent for this reconsideration of a prior award. In a traditional court, SCA would seek reconsideration based on new evidence. The new evidence would be Lance Armstrong’s very public confessions. The party would have a good chance of getting the settlement reversed. But, what happens when the “judicial system” is based on contract? The parties did not agree to sanctions. Arbitration was created in the nineteenth century for shipping companies to deal with the vagaries of international courts – or the lack of any courts. Now, these parties are trying to morph a system based on contract into a judicial system.

This reminds me of the old saw often heard in criminal court, “if you can’t do the time, don’t do the crime.” The saw refers to defendants who whine about his/her punishment. It means do not whine. We need a new saw for arbitration agreements, “if you don’t like the result, don’t sign the agreement.” SCA paid the bonus under the original agreement. SCA drafted the agreement to pay the bonus to Lance Armstrong. It was SCA who chose arbitration initially, not Lance Armstrong. But, now SCA is trying to turn arbitration into a full-blown court of law. Now,the company has second thoughts…..