New Expert Report Offers Policy Recommendations for Non-compete Agreements

As this blog has discussed before, non-compete agreements are a real problem. A new report from the Brookings Institution’s Hamilton Project seeks does a deep dive on this nationwide problem, compiling the most comprehensive recent studies on non-compete agreements. The report’s author, Matt Marx, has several key policy recommendations for lawmakers who want to promote economic growth rather than stifle it:

• Employers should inform employees if they will be required to sign a non-compete agreement before they accept the job. Employers routinely hide the fact that employees are required to agree to a non-compete until after an employee has accepted a position and presumably turned down other offers. (This takes away employees' negotiating power and hurts the economy.)

• If existing employees are asked to sign new non-compete agreement, employers should be required to compensate them. (In Texas, employers often require long-time employees to sign new non-compete agreements with the promise of nothing more than continued at-will employment.)

• Allow judges to rewrite overreaching non-compete agreements so that they are in-line with state law. (In Texas, judges already have this power. The problem is that in order to get the issue to a judge, a lawsuit needs to be filed by either the employer or employee, taking time and costing legal fees.)

• Give attorneys general the power to go after firms that require workers to sign predatory non-competes. (This could be helpful in some states. Unfortunately in Texas our current Attorney General would have no interest in helping Texas workers in this way.)

• Bolster non-disclosure agreements so that they make a better substitute for non-competes. (This sounds good but I'm not sure how much stronger they could be without creating a real imbalance of power in the workplace.)

You can read the entire report here.

Non-Compete agreements are not evil per se. In fact in some cases they make sense. But companies have gone way beyond using non-competes to protect legitimate trade secrets and now routinely abuse them in attempt to gain a competitive advantage over other businesses by keeping employees out of the labor pool. 

Buc-ee’s Loses Texas Retention Agreement Case

A year after a trial court ordered that a former employee pay Buc-ee’s close to $100,000 in alleged damages and attorneys fees for breaching an employee “Retention Agreement”, a Texas court of appeals reversed that decision, ordering that Buc-ee’s take nothing on its claims against its former employee and also ordered that it pay for her legal fees as well. (Read my previous coverage of this case here.)

The employee in question, Kelly Rieves, was hired by the store as an assistant manager in Cypress, Texas for total compensation of about $55,000. She was hired as an at-will employee, meaning that the company could fire her for any reason at any time. But Buc-ee’s required her to sign an employment contract that is uncommon in the convenience store industry. It's called a "retention agreement".  

The contract Rieves signed divided her pay into two categories, regular pay and “retention pay." The amount allocated to "retention pay" accounted for approximately one-third of her total compensation. The contract allowed the store to recoup the retention pay should she fail to remain employed for a full 48-month term. The contract also required Rieves to give six months' notice before leaving. This is despite the fact that the company maintained the right to terminate Rieves prior to the end of the period. (The contract may or may not have contained notice provisions in favor of the employee that I am not privy to but it would not be required to have such provisions under Texas law.)

Three years later, Rieves decided to leave her job a year or so before her contract expired. We don't know her reasons but we do know she tried to work it out with the company first but her boss refused to let her out from under the contract. So she quit.

In response, Buc-ee’s sued her for the full amount of the retention pay she earned during her three years with the company -- an amount over $67,000.00. The trial court found against Rieves and awarded the company nearly $100,000.00 in damages and attorney’s fees.

Last week the court of appeals took that verdict back, ordering that Buc-ee’s take nothing on its claims against Rieves and that it pay for her legal fees as well. The court reasoned that the requirement that Rieves pay back such a large sum of money should she leave the company acted as a restraint of free trade and violated Texas’ employment-at-will doctrine. As a result, it could only be valid if it met the requirements of an actual noncompete agreement, which in Texas is controlled by statute. Because this agreement did not meet those requirements, it was not enforceable. 

Download a copy of the opinion.

 Buc-ee’s will now have to decide whether to appeal the matter further.

Click here to learn more about employment agreement cases from San Antonio employment attorney Chris McKinney.

Tort Reform Is A Lie: Hot Coffee Still Being Used to Mislead

Here's the lie:

The lies used to support corporate efforts to continue to restrict regular people's access to the courthouse are powerful. And, sadly, they work. Routinely, potential clients who are sitting in my office will reference the famous McDonalds "Hot Coffee" case and try to assure me that their case isn't like the Hot Coffee case.  Their case is real. 

Here's the thing, the story everyone knows about the Hot Coffee case is a myth. It's a lie pushed by big business and their tort "reform" groups to poison the minds of potential jurors and make it harder for those who have been legitimately injured to received fair compensation. 

So, What Happened?:

In 1992, 79-year-old Stella Liebeck bought a cup of takeout coffee at a McDonald’s drive-thru in Albuquerque and spilled it on her lap. She sued McDonald’s and a jury awarded her nearly $3 million in punitive damages for the burns she suffered.

Before you hear all the facts, your initial reaction might be "Isn’t coffee supposed to be hot?" or "McDonald’s didn’t pour the coffee on her, she spilled it on herself!" But that would be before you hear all the facts.

Here are the facts:

Mrs. Liebeck was not driving when her coffee spilled, nor was the car she was in moving. She was the passenger in a car that was stopped in the parking lot of the McDonald’s where she bought the coffee. She had the cup between her knees while removing the lid to add cream and sugar when the cup tipped over and spilled the entire contents on her lap.

The coffee was not just “hot.” It was very dangerously hot. McDonald’s policy was to serve it at an extremely hot temperature that could cause serious burns in seconds. Mrs. Liebeck’s injuries were far from minor. She was wearing sweatpants that absorbed the coffee and kept it against her skin. She suffered third-degree burns (the most serious kind) and required skin grafts on her inner thighs and elsewhere. (See the video above for pictures.)

Importantly Mrs. Liebeck’s case was far from an isolated event. McDonald’s had received more than 700 previous reports of injury from its coffee, including reports of third-degree burns, and had paid settlements in some cases.

Mrs. Liebeck offered to settle the case for $20,000 to cover her medical expenses and lost income. But McDonald’s never offered more than $800, so the case went to trial. The jury found Mrs. Liebeck to be partially at fault for her injuries, reducing the compensation for her injuries accordingly.

But the jury’s punitive damages award made headlines — upset by McDonald’s unwillingness to correct a policy despite hundreds of people suffering injuries, they awarded Liebeck the equivalent of two days’ worth of revenue from coffee sales for the restaurant chain. Two days. That wasn’t, however, the end of it. The original punitive damage award was ultimately reduced by more than 80 percent by the judge. And, to avoid what likely would have been years of appeals, Mrs. Liebeck and McDonald’s later reached a confidential settlement for even less than that.

Here is just some of the evidence the jury heard during the trial:  

• McDonald’s operations manual required the franchisee to hold its coffee at 180 to 190 degrees Fahrenheit.

• Coffee at that temperature, if spilled, causes third-degree burns in three to seven seconds.

• The chairman of the department of mechanical engineering and biomechanical engineering at the University of Texas testified that this risk of harm is unacceptable, as did a widely recognized expert on burns, the editor-in-chief of the Journal of Burn Care and Rehabilitation, the leading scholarly publication in the specialty.

• McDonald’s admitted it had known about the risk of serious burns from its scalding hot coffee for more than 10 years. The risk had repeatedly been brought to its attention through numerous other claims and suits.

• An expert witness for the company testified that the number of burns was insignificant compared to the billions of cups of coffee the company served each year.

• At least one juror later told the Wall Street Journal she thought the company wasn’t taking the injuries seriously. To the corporate restaurant giant those 700 injury cases caused by hot coffee seemed relatively rare compared to the millions of cups of coffee served. But, the juror noted, “there was a person behind every number and I don’t think the corporation was attaching enough importance to that.”

• McDonald’s quality assurance manager testified that McDonald’s coffee, at the temperature at which it was poured into Styrofoam cups, was not fit for consumption because it would burn the mouth and throat.

• McDonald’s admitted at trial that consumers were unaware of the extent of the risk of serious burns from spilled coffee served at McDonald’s then-required temperature.

• McDonald’s admitted it did not warn customers of the nature and extent of this risk and could offer no explanation as to why it did not.

After the verdict, one of the jurors said over the course of the trial he came to realize the case was about “callous disregard for the safety of the people.” Another juror said “the facts were so overwhelmingly against the company.”

That’s because those jurors were able to hear all the facts — including those presented by McDonald’s — and see the extent of Mrs. Liebeck’s injuries.

But that's not the story that the public has heard. Tort reform advocates lied about the facts of the case and the fake story gained traction. It went viral. So viral that now this story is what is most often cited by jurors and others when explaining why they don't trust lawyers, why they don't like lawsuits, and why they think plaintiffs are just out for a quick buck. 

And it's all a lie.

If you want to read more, start here.

Don't Sign Away Your Right to Get a New Job

The growth of noncompete agreements is part of a broad shift in which companies assert ownership over work experience as well as work. A recent survey by economists including Evan Starr, a management professor at the University of Maryland, showed that about one in five employees was bound by a noncompete clause in 2014.

Employment lawyers say their use has exploded. Another recent study showed that noncompete and trade-secret lawsuits had roughly tripled since 2000. Noncompete agreements are not being used beyond the realm of protecting truly proprietary information.  They are being used, and arguably abused, by companies of all types against employees at all levels. 

Employment lawyers know this, but workers are often astonished to learn that they’ve signed away their right to leave for a competitor. A recent article in the New York Times tells the story of Timothy Gonzalez, an hourly laborer who shoveled dirt for a fast-food-level wage, was sued after leaving one environmental drilling company for another.

By giving companies huge power to dictate where and for whom their employees can work next, noncompetes take a person’s greatest professional assets — years of hard work and earned skills — and turn them into a liability.

Read the entire New York Times Story

Can You Trust Your Company's HR Department?

A fellow blogger has a post out this week titled "Who Do You Report Harassment To If the Harasser Is the CEO?".  It is a thoughtful article and it makes the excellent point that HR for every company needs to bake into their policies a method by which an employee can internally report sexual harassment being committed by the CEO or owner of a company without risk of retaliation. I think that is an excellent goal to strive for and I hope that all HR departments set that as a goal.  There is only one problem with the premise of the article. 

The effort will almost certainly fail. 

Michael Corleone: "C'mon Frankie... my father did business with HR, he respected HR."

Frank Pentangeli: "Your father did business with HR, he respected HR... but he never trusted HR!"

HR is, in my opinion, possibly the most challenging role for any manager to do and do well. It is arguably designed to fail. The problem is obvious: HR serves two masters. On the one hand, HR is designed to serve as a helpful ombudsman to employees. To assist employees who are being mistreated. To conduct thorough investigations and correct inappropriate behavior against employees. On the other hand, HR is required to defend management against accusations of unlawful employment practices. HR is usually directly involved in the termination decisions that lead to EEOC filings. HR is then in charge of or at least heavily involved in drafting the company's defensive statement of position filings, arguing that the company is blameless. Thus, the very department that an employee is supposed to trust with his or her career and feel comfortable making a complaint to is the same department that will be spearheading the fight against the employee when it all goes south. 

What this means in most companies is that, no, you cannot trust HR to help you. While many HR officers have their hearts in the right place when they start working in the field, they can't help but know who is responsible for signing their paychecks. Hint: it's not the employee bringing a complaint against a member of management.  

So, should you bring complaints to HR? Yes, you should. In fact, in many cases you are legally required to do so or you risk waiving any claims you may have against the company for the discrimination or harassment you are reporting. Just don't assume that HR's only role is to help you. Because it isn't. While HR may be trying to assist you they are also assessing corporate risk, documenting your complaint in a way that will assist the company in defending against your complaint, and looking for ways to satisfy the demands of management. 

Here are a couple of quick tips: 

1. Make all reports in writing. When push comes to shove down the road, HR is liable to either not "remember" you made a complaint or to remember it substantially differently than you do. Putting your report in writing is the only way to prove you made a complaint, when you made it, and to whom the complaint was made.

2. You know that written report from number 1, above? KEEP A COPY. A written complaint does you know good if you send the only copy to HR. It might...you know...get lost.

3. Consider going outside the organization to the EEOC. If your complaint involves EEO-based (age, sex, race, religion disability, color) discrimination or harassment then consider making a complaint to the EEOC sooner rather than later. There will be little question that a report to the EEOC is protected activity under the law. This gives you a somewhat higher level of protection from retaliation than if you merely report internally.

4. Consult with an employment lawyer. If you are in a situation in which you feel you need to make a complaint against management then, make no mistake, you job IS at risk. Start looking for a qualified employment attorney who represents employees. Be warned, in many parts of the country there aren't that many who lawyers who specialize in representing employees. So start looking before you need one. And don't expect such a lawyer to visit with you for free. This is not a simple car accident case and you aren't looking for a PI lawyer who can take your case on a contingent fee basis. Employment law is very specialized and contingency fees are generally not available for consulting services. If you find a qualified lawyer to advise you, however, it is money well spent.

Bottom line: Yes, you should report harassment or discrimination internally to your company's HR department. But that doesn't mean you should blindly trust the HR department. Understand that they serve two masters and protect yourself accordingly.  

Buc-ee’s Sues Former Employee for Violating Retention Agreement / Non-Compete

Story in the HoustonPress reports a former employee of the popular Buc-ee's convenience store chain is being sued for more than $60,000.00 for allegedly violating what is called a retention agreement. 

The employee in question, Kelly Rieves, was hired by the store as an assistant manager in Cypress, Texas for total compensation of about $55,000. She was hired as an at-will employee, meaning that the company could fire her for any reason at any time. But Buc-ee’s required her to sign an employment contract that is uncommon in the convenience store industry. It's called a "retention agreement". 

What is a "Retention Agreement"?

The contract Rieves signed divided her pay into two categories, regular pay and “retention pay." The amount allocated to "retention pay" accounted for approximately one-third of her total compensation. The contract allowed the store to recoup the retention pay should she fail to remain employed for a full 48-month term. The contract also required Rieves to give six months' notice before leaving. This is despite the fact that the company maintained the right to terminate Rieves prior to the end of the period. (The contract may or may not have contained notice provisions in favor of the employee that I am not privy to but it would not be required to have such provisions under Texas law.)

Three years later, Rieves decided to leave her job a year or so before her contract expired. We don't know her reasons but we do know she tried to work it out with the company first but her boss refused to let her out from under the contract. So she quit. 

In response, Buc-ee’s sued her for the full amount of the retention pay she earned during her three years with the company -- an amount over $67,000.00.

Are Retention Agreements Legal?

In a word, yes. If drafted properly, retention agreements can be enforced against employees in Texas. However, it is highly unusual to see such an agreement used with anyone other than high-level company executives. 

In the case of Ms. Rieves, a trial court ruled in favor of the company last fall. And it gets worse. The Court also ruled that, in addition to the original sum she owed under the contract, she was also responsible for the company’s legal fees plus interest on the retention pay since she left Buc-ee’s. 

The total the company is now seeking from Rieves approaches $100,000. The matter is currently on appeal. 

The Moral of the Story.

Don't sign an employment contract without having an attorney review it for you. Don't sign an arbitration agreement without having an attorney review it for you. Just don't! 

As a lawyer who primarily represents employees, I spend a fair amount of my time trying to help workers get out of contracts that they never should have signed in the first place. It is an uphill battle. 

The time to negotiate or get changes to employment-related contracts is BEFORE you sign them. Companies do not necessarily have your best interests at heart. You need to understand the implications of what you are signing BEFORE you sign it. A couple hundred dollars spent on lawyer contract review may seem like a lot when you are excited about starting a new job, but compared to the economic havoc that can be caused by signing a contract you don't understand, it's peanuts. 

Get the information you need to protect yourself and your family. It may be the best money you ever spend.

More: Read the entire story from the HoustonPress here.

Non-Compete Agreements Are The New Black, Part 1

As employment lawyer Eric Meyer put it last week in his article on the subject, "orange non-competes are the new black." They are increasingly being used by employers everywhere against all types of employees - from "tech workers to sandwich makers." Recent statistical studies indicate that one in four workers have signed a non-compete in their lifetime and 12.3 percent all workers are bound by one right now.

These numbers will understandably vary widely from state to state and from industry to industry. From my own experience working with hundreds of Texas employees in non-compete cases, it would not surprise me if the numbers are even higher for Texas workers.

In his article, Meyer indicates his surprise that so many employees who are presented with a non-compete agreement simply sign it without protest. He was also surprised by the relatively small percentage of employees who try to argue with their employer about the issue.  The Washington Post article to which he refers notes the following:

“And overall, only about 10 percent of workers who’ve signed a non-compete ever try to argue over it, with most assuming that it’s either not negotiable or that doing so would cause tension with an employer.”

In my personal opinion, non-compete agreements are morally justifiable only in the most extreme cases -- situations in which employees truly will be given access to real trade secret information that would obviously cause serious harm to an employer if it got into the hands of a competitor (think secret recipe of eleven herbs and spices). This is a very small percentage of workers. And yet we see that more and more employees are being asked and are agreeing to sign such agreements and thereby damage their ability to work in their chosen field should they be fired or choose to leave their employer.  Why?

I think there are a few reasons for this phenomena:

• An actual or perceived weak bargaining position. -- A majority of the time non-competes are presented at or just after the point of a job offer being made. Employees believe that if they want the job then they have no choice but to sign the agreement.

• Employees don't realize what they are signing. -- Many times employers slip non-compete agreements in along with the 30 other documents that a new employee must sign on his or her first day. They then rush them through the process and absolutely do not encourage the new employee to actually take the time to read and consider the documents they are signing. I would estimate that 30%-40% of those who consult with me because they have been sued or threatened with a lawsuit relating to a non-compete state they were not even aware that they had signed such an agreement.

• An incorrect belief that such agreements are not enforceable. -- The enforceability of non-compete agreements is largely a creature of statute and varies dramatically from state to state but here in Texas such agreements are, generally speaking, very enforceable. But this wasn't always the case. As big business interests have increased their stranglehold of Texas' legislature and its courts over the last 20 years, the law regarding non-competes has done nearly a full 180. Non-compete agreements - once considered to be not worth the paper they were written on - are now as good as gold. Yet people's perceptions of such agreements have been slow to catch up.

So, given this state of affairs, what should an employee who is presented with a non-compete do to protect himself or herself? I'll address this in a follow-up post next week.

How to Hire An Employment Lawyer

So you need to hire an employment lawyer but you don’t know how to get started? This article is for you.

Hiring a lawyer to guide you through an employment-related dispute can be challenging. Unlike cases involving personal injury matters, there aren’t hundreds of employment lawyers running TV advertisements in an attempt to get you to “Call now!” Quite the opposite is true in fact.

Due to the complicated statutory nature of employment law practice, there are likely only a small handful of lawyers in even a relatively large city who are board certified to represent employees in employment-related disputes. The few who are qualified and have the years of experience you should be looking for will likely be extremely busy because there are so few of them. For this reason it is important that you do some research and get your own materials together before you start making calls.

To get you started, I've prepared a handy guide outlining some of the basic steps you need to take.

Step 1 - Do A Little Research Online. 

Before you pick up the phone and start making calls, pick up your mouse and start making clicks. Many good employment lawyers will have a website and/or a blog that will provide you with a lot of quality information about employment law issues. Take a look at what practice areas in which the lawyer claims he or she practices. You don’t want a jack-of-all-trades-master-of-none attorney for your case. You want someone who concentrates the majority of his/her practice on employment law issues. You could also search legal directory avvo.com to help you find local lawyers who represent employees. It isn’t a perfect system but it will give you a good list to start your research.

Step 2 - Check For Board Certification

Lawyers are not required to be Board Certified in employment law to practice it in Texas. Some states don’t even provide for board certifications. But in Texas, the State Bar of Texas does provide Board Certification to those lawyers who practice employment law for a sufficient period of time, provide recommendations from lawyers and judges who they have practiced with and who pass a lengthy examination process. You can learn more about Board Certification here.

Step 3 - Expect To Fill Out A Questionnaire And Pay A Fee For A Consultation

Many firms have developed questionnaires. These are not idle exercises. You must fill them out to help your lawyer understand your case so he can better help you. Plus, filling out these short (usually electronic) forms may save you money. Some attorneys use short electronic forms as an initial screening tool for the many potential client contacts they receive each day. Sometimes, the form indicates a simple question for which a quick answer can be provided. Other times, the type of case being described would be better handled by another lawyer who specializes in that specific niche — you can usually get that referral set up at no cost. Then, if the form indicates an issue on which a lawyer believes he or she can provide meaningful assistance, a full, in-person consultation can be scheduled.

Most attorneys charge a small consultation fee to review employment-related matters. Because employment law is very fact specific, an employment lawyer needs to know all the facts of your case before he or she can commit to representing you. This often takes time. If employment lawyers are not paid something for this, they cannot stay in business.

Step 4 - Prepare For Your Consultation

Once you have a consultation with an employment lawyer scheduled, it is important that you prepare to make the most of the time you will have with the lawyer. I have written an article discussing the initial consultation in more detail, including tips on what to bring and how to prepare for this important meeting.

Non-Competes Are Out of Control

A recent New York Times article discusses the fact that employers are feeling increasingly free to abuse non-competes and force all types of employees, from camp counselors to hairdressers, to agree to them in order to keep their jobs. The article notes:

Noncompete clauses are now appearing in far-ranging fields beyond the worlds of technology, sales and corporations with tightly held secrets, where the curbs have traditionally been used. From event planners to chefs to investment fund managers to yoga instructors, employees are increasingly required to sign agreements that prohibit them from working for a company’s rivals.

The United States has a patchwork of rules on noncompetes. Only California and North Dakota ban them, while states like Texas and Florida place few limits on them. When these cases wind up in court, judges often cut back the time restraints if they’re viewed as unreasonable, such as lasting five years or longer.

As noted in the article and by Rob Radcliff in his blog post on the subject this week, Texas employers have great leeway in how they use noncompete agreements. As a result, noncompete abuse has come to be seen as just a normal business practice in the state.  Radcliff writes:

The reason behind non-competes appearing in more industries and occupations is because there is no downside for an employer to insist on such a covenant.  First off, a Texas employer can include and insist on a non-compete or non-solicit and then choose not to enforce it.  So the employer gets the benefit of intimidating or at least making an employee think twice about moving to a competitor but then never sue.  The employer could also send the former employee and their new employer some type of demand letter letter and force some type of dialogue or resolution.  Basically, the employer can us the threat of enforcing the non-compete without having a court every construe its terms or determine whether it is actually enforceable.

Why don’t more employees challenge non-compete in court?  The reason is simple – $$$$$.  Most employees don’t want to and can’t fund litigation to find out if there non-compete is enforceable.

Unfortunately what we have seen in Texas is that noncompetes have become the tool of choice for employers to attempt to restrict fair competition and suppress employee mobility. But Texas isn't alone in this regard and now corporate overreaching is starting to create a backlash among the public and state legislatures in many states.  California and North Dakota already ban noncompetes altogether. Reform efforts are currently underway to ban or restrict the abuse of noncompetes in several states, including Oregon, Colorado, and Massachusetts. (We recently wrote about the Massachusetts effort here.)

I, for one, support this trend and hope that all states move to ban the fundamentally un-American practice of requiring an employee to give up his or her right to work in the future in return for an at-will job. At the very least they should be scaled back to apply only to the highest level of employees or those employees who truly have access to secret recipes or true trade secrets (no your rolodex does not qualify).  Current they are (at least in Texas) out of control and damaging to both employees and to businesses’ ability to find quality employees in many fields.

Massachusetts Moves to Ban Employee Noncompetes

Following California, Massachusetts appears to be moving closer to banning noncompete "agreements" in the employment context. Dawn Mertineit and Erik Weibust report in the Trading Secrets blog:

As the New York Times reported on Sunday, many of those who testified at the hearing opined that employee non-competes stifle competition.  For example, several legislators spoke of constituents who they deemed “trapped” in jobs because of non-competes signed years earlier, and insinuated that many employees are “ambushed” with non-compete agreements after they have quit their former jobs and rejected other offers.  The Boston Globe and the Boston Herald have each recently published articles about the purported perils of employee non-compete agreements, both of which (as well as the New York Times article) referenced a summer camp in Wellesley, Massachusetts that makes its camp counsellors sign them.

I hope this trend continues and all states move to ban the fundamentally un-American practice of requiring an employee to give up his or her right to work in the future in return for an at-will job. At the very least they should be scaled back to apply only to the highest level of employees or those employees who truly have access to secret recipes or true trade secrets (no your rolodex does not qualify).  Current they are (at least in Texas) out of control and damaging to both employees and to businesses' ability to find quality employees in many fields.