Imagine a vindictive employer – angry at an employee who recently filed an EEOC charge, but smart enough to know not to fire the employee in retaliation for filing the claim. How is this vindictive boss to take out his frustration without making matters worse? If you are North American Stainless, you fire the employee’s fiancée!

What an evil twist. You didn’t do anything to the employee who filed the claim. You didn’t do anything to a person who supported a protected action. You live in an “at-will” state so you can fire the fiancée without a reason. You should be in the clear – right? Of course, this would be a pretty boring blog post if that was right. Enter the Supreme Court’s decision in Thompson v. North American Stainless.

Employers have always been prohibited under Title VII’s anti-retaliation provision from retaliating against a “person aggrieved” by the employer’s illegally discriminatory action, but up until Thompson, employers could expect that meant the employee who made a claim of discrimination or others who directly supported the claim. Now, the people who can claim retaliation has been broadened greatly.

Blah, blah, blah, legal stuff, legal stuff. Kelsheimer – tell us what we need to know: OK, here it is. You have to look over your shoulder more than ever before if you have an open claim of discrimination. Every friend, fiancée, family member, or lunch buddy can lurk in the shadows waiting for you to do something – anything – that adversely affects the terms of their employment and – BOOM – you’ve got a new claim. This friend or acquaintance can say that you made the decision to retaliate against the original employee who made the first discrimination claim. They will say that you were really trying to get back Suzie 1stClaimer by reducing the 2nd employee’s pay rate, hours, or whatever else.

Is it really that bad? Well sort of. Employees will be able to make a colorable claim this way, but they won’t necessarily stick. Of course, the threat to employers will be the cost to get what might be a ridiculous new claim dismissed. The standard provided by the Supreme Court is that anyone adversely affected within the “zone of interest” can make this type of retaliation claim. What the heck does “zone of interest” mean? You’ve got me, but the Supremes say that it does include family members, spouses, and, based on the Thompson case, fiancées.

If you really want to try to avoid these claims, I guess it is time to go back and reconsider anti-nepotism policies, policies against more than one family member working in your business, and policies against employees dating.

The EEOC announced today that Pepsi Beverages has agreed to a settlement of $3.1 million to resolve a claim by black prospective employees.  Between 2006 and 2010, Pepsi excluded from any consideration for employment any applicant who had been arrested or convicted of a crime, including minor offenses (not sure how minor).

The EEOC found reasonable cause to believe that Pepsi’s policy had a disproportionate effect on black applicants, and was poised to file a lawsuit against Pepsi.  According to the EEOC, the use of criminal background checks “can be legal”, but now apparently, it can also be illegal.

For the uninitiated, the US laws on discrimination not only prevent what might be called direct discrimination – toward a particular individual or group of individuals, but also they also prevent what is known as “disparate treatment”.  Disparate treatment happens when a protected class does not equal treatment with other protected class.  Disparate treatment can even happen when an otherwise innocuous policy – such as using criminal background checks – has a disproportionate and discriminatory effect.

Now, many of you reading this would say that it is ridiculous to say that you can’t exclude prospective employees because they have a criminal history.  After all, being a criminal isn’t a “protected class”.  I’m right there with you, but the EEOC doesn’t seem to see it that way.  From its perspective, a person’s criminal history might not be relevant to whether they can be a good employee.  I’m not exactly sure how that would work.  A person who commits a crime is willing to cross a line that I believe an employer ought to have the right to say they don’t want crossed.  It doesn’t matter to me if the person is applying for a job as a janitor and their crime was being drunk in public.  Sure the two are different, but that crosses a line I don’t want crossed.

If the EEOC can sue for this, it is tantamount to making being an ex-con a protected class.  Of course, since I am not king of the world, I don’t get to overrule this decision and my opinion doesn’t matter.

So, what does this mean for you, employers?  I guess it means that you have to give more thoughtful consideration to hiring criminals, or perhaps you have to be more careful to have a thoughtful excuse why a particular criminal shouldn’t be hired and mark it on their application.

Let’s start of 2012 with a bang!  Over the holidays someone forwarded an article about a lawyer in Illinois who was suspended from the practice of law for a year.   Why you might ask?  Perhaps not, since the title of this post gives it away.

Seriously?  Seriously.   The lawyer posted an advertisement for a legal assistant on Craigslist that read as follows:

[L]aw firm looking to hire [an] energetic woman for their open secretary/legal assistant position. Duties will include general secretarial work, some paralegal work and additional duties for two lawyers in the firm. No experience required, training will be provided. Generous annual salary and benefits will be provided, including medical, dental, life, disability, 401(k) etc. If interested, please send current resume and a few pictures along with a description of your physical features, including measurements.

Removing all doubt, the lawyer later communicated explicitly what he expected in an email to a prospective candidate:

[I]n addition to the legal work, you would be required to have sexual interaction with me and my partner, sometimes together sometimes separate. This part of the job would require sexy dressing and flirtatious interaction with me and my partner, as well as sexual interaction. You will have to be comfortable doing this with us.

Because the lawyer had problems in the past lining up a new assistant that was truly up for the job, he stated the following in another follow up email:

Lastly, we’ve actually hired a couple of girls in the past for this position. But they have not been able to handle the sexual aspect of the job later. We have to be sure you’re comfortable with that aspect, because I don’t want you to do anything that you’re not comfortable with. So … we’ve decided that as part of the interview process you’ll be required to perform for us sexually (i didn’t do this before with the other girls i hired, now i think i have to because they couldn’t handle it). Because that aspect is an integral part of the job, I think it’s necessary to see if you can do that, because it’ll predict future behavior of you being able to handle it when you have the job….

You can’t make this stuff up!  While this story has been posted on several legal humor blogs, my curiousity ran mostly to the employment law consequences.  Ready for a surprise – it is a close call.  You are immediately thinking that this must clearly be sexual harassment, but the prospective employer is being up front about what he expects so it would be difficult for a prospective employee or new employee to argue that the sexual advance of the lawyer was unwelcome as required to establish a claim.

Setting that aside, it might be criminally illegal and considered propositioning along the lines of prostitution.

So, if it is a close call from an employment context and the lawyer didn’t get criminally prosecuted, why was he suspended?  He was suspended by the state bar for an ethical violation related to the practice of law.

Who, What, Why . . .

Who does it apply to: Any employer who fears its employees might go out and start a competing business or work for a competitor and share the employer’s secrets.

What is a “covenant not to compete”: Non-competes, also known as non-competition agreements, are a specially designed type of contract creating an obligation with current and former employees not to go into competition with your business within a certain geographic area for a certain period of time.

Are non-compete agreements legal: Several years ago non-compete agreements were on the verge of extinction. The way the Texas Supreme Court interpreted the law made it almost impossible for an employer to successfully create a non-compete that a court would uphold. Then, in 2006, the Court did an about-face pushing covenants not to compete back into the limelight and making them enforceable again.

How long can I prevent a former employee from competing: Generally, Texas courts will uphold non-compete agreements up to two years, but the court will examine the time to determine whether it is reasonable in the particular situation. It is best to get it right the first time, but the court can adjust it and leave the non-compete in place if the time you choose is determined unreasonable.

How wide of an area can I prevent competition in: The appropriate geographic scope depends largely on the area in which it is reasonably necessary to prevent competition. If you have an employee who works nationally, you will have a hard time getting a Texas court to send him to Canada to make a living. In that case, you should look at only restricting the former employee from soliciting existing customers of your business wherever he lands a new job. If your business draws customers from a 10 mile area, that is what the geographic area should be. Like the timeframe, the geographic area can be adjusted by a court and the agreement may still be enforced.

What do I have to give my employee in exchange for the non-compete: You have to give the employee something that is worthy of preventing them from competing with you. Examples that are acceptable include sharing trade secrets (see last month’s EH piece), confidential information, and/or specialized training. As much as some employers might like to do so, you cannot buy an employee’s agreement not to compete.

Can I have a non-compete with an “at-will” employee: At-will employees are those you can fire anytime you like and that can quit anytime they want. While it is somewhat more difficult to make a non-compete agreement with an at-will employee as opposed to a term contract employee, it can be done.

What does the agreement look like: Unless the non-compete is part of a term contract with an employee, it will usually be the subject of a specialized stand alone contract. In the agreement, the employer promises to provide the employee with secrets and training, etc., and the employee promises in turn not to compete after leaving the company for a period of time. You and the employee can negotiate the geographic area and length of prohibition in the agreement. Non-compete agreements are usually drafted by an attorney because courts are so picky about enforcing them (even after the Supreme Court’s change of position).

Common Situations:

Fired employee: After 15 years of loyal service, Joe Sixpack is fired from his job. He begins looking for a new position, but is asked by many prospective employers whether he has a non-compete with his former employer. Joe explains that he does not, thinking that the non-compete that he signed is unenforceable because he was fired. Is he right? No. Covenants not to compete are enforceable even if the employee is fired. Think about it. If firing an employee would invalidate the non-compete, anyone who wanted to get out of their non-compete could just steal money to get out of it.

New hire: Sara’s Soda Company is hiring a new sales representative for its Texas region. After interviewing several candidates, Sara decides on hiring Genie, who formerly worked for another regional bottler who knows the businesses in the area and can start making sales to new customers right away. Shortly after Genie begins making calls, Sara is served with a lawsuit from Genie’s former employer in which Genie has been sued for violating a non-compete and Sara has been sued for “tortious interference with a contract”. Sara is incensed. What has she done wrong? Sara should ultimately be able to extricate herself from the lawsuit – if she can prove she didn’t know about Genie’s non-compete. That said, Sara will incur legal fees to get out and will probably have to fire Genie, thus incurring a loss for the time she has invested. Employers need to be careful to ask if prospective employees have a non-compete with their former employers to avoid these hassles.

New non-compete – Existing employees: So you’ve now read my non-compete piece and you have decided to have a non-compete written for your employees. As part of creating a valid non-compete, you are supposed to provide the employee with secrets or training, but your existing employees already have all of your customer lists and access to your other trade secrets. Will the non-competition agreement be enforceable? It depends. If the employee receives new secrets or training, the non-compete will become enforceable when the employees receive the information. I often advise employers to try to roll out a non-compete near the time they are providing some new training to try to reinforce that the non-compete will be enforceable.

No more secrets: Tommy Tactical runs a private investigative firm. He was already suspicious of every employee that works for him and keeps everything about his business on a “need to know” basis. After reading last month’s EH piece on Trade Secrets and Confidentiality, Tommy has withdrawn even more, keeping every possible piece of information about his company locked up like the formula to a certain soft drink. Seeking even additional protection after reading this piece, Tommy has all of his employees – down to the copy boy – sign a non-competition agreement. As an employee leaves, he is quick to jump on them with a lawsuit after they start with a competitive company. Tommy has just one problem. He has worked so hard not to share the secrets of his business with his employees, that he has invalidated the non-compete. For a non-compete to be justified and to prevent someone from working in a competitive business, courts have to see that the person poses a risk to your business. If you keep all the secrets there will be no justification. Another situation where this particular example comes up is with new hires that quickly are let go or quit. Courts are reluctant to enforce the non-compete because the new hire didn’t learn anything or so little that the prohibition is not justified.

What should I do:

Good: I’m not sure this qualifies as “good” but you can try to draft your own non-compete agreement. Make sure to cover the length of time, the geographic area, the type of secrets you are promising to provide, and the scope of the employee’s promise not to engage in competition.

Better: Use your attorney to draft a bare-bones non-compete for the employees you feel are most risky to you and have the employees execute the agreements. Be careful, you might have the employee quit instead of signing it.

Best: Prepare a solid non-compete agreement with your attorney and include: (1) a non-solicitation of customers provision; (2) non-disclosure provision; (3) non-solicitation of employees away from the company after leaving; and (5) corporate opportunity provision.

My favorite tipster over at LexBlog sent me a couple of links this week to an employment related issue in San Francisco. A popular vegan restaurant chain called Cafe Gratitude is closing eight locations over a series of employment lawsuits. Sparing you the gritty details, one lawsuit involves the café’s tipping policy which is a common trouble spot for restaurants. Another involved a salary employee who was not paid overtime which is also very common mistake. The last involves the company’s requirement that employees attend some sort of spiritual healing workshops on their own dime which the owners firmly believed in.

Citing the last lawsuit, you could write off the owners as crazy people with some kind of bizarre cult interwoven into their company business. I would probably be right there with you, but there is a very important lesson to be learned here. In their “fairwell note”, the company owners wrote:

A series of aggressive lawsuits has brought us to this unfortunate choice. Although we believe that we have done nothing wrong and our policies are completely legal, it will cost us too much money to defend them in court. Despite telling the attorneys that brought the lawsuits that the current structure and resources of Café Gratitude are insufficient to sustain and defend our community, they have refused to give up and are forcing us to close.

We appreciate the loyalty of our employees and customers over these past 8 years and are grateful for having had the opportunity to serve each of you. We were happy to tolerate low margins and sustain ourselves on the transformation and personal growth of our people, while providing local organic vegan food to our community in an atmosphere of unconditional love. That commitment is under attack and we are not able to weather this storm . . .

I highlighted the portions that are particularly relevant. Restaurants operate on very low margins and in tight economic times even more profitable businesses are operating on the edge of sustainability. I have seen time and time again, small business totally caught off guard by the cost of defending even a small wage and hour lawsuit or a Department of Labor audit. For a simple overtime claim, employees can recover the overtime wages for up to three years, plus an equal amount in penalties and their legal fees. On top of this, the sued company gets the pleasure of paying its own lawyer to defend the suit. So, even a small suit by one former employee can cost a lot of money. I routinely see clients incur $20,000 or more in cost over one little overtime claim between the settlement and defense fees.

For Café Gratitude, the cost was just too much. And the sad part is, most of these issues could easily (and cheaply) be avoided if the café consulted with a labor lawyer to make sure it was handling everything right.

Earlier this week, President Obama signed the VOW to Hire Heroes Act of 2011 into law.  Explained in more detail on the Veterans Affairs website, the law provides expanded education and training programs for soldiers, improves reemployment rights for guard members and reservists,  and offers disabled veterans additional vocational assistance.  Of course, the reason I am writing about it is the tax credits for employers who hire veterans.

For example, employers that hire a veteran who has been unemployed for at least 4 weeks can obtain tax credits near $2,400.00 and an employer who hires a veteran who is disabled and has been unemployed for 6 months or more can get up to $9,600.00.

NPR is dubious about whether this change will make any difference.  Quoting David Loghran, a senior economist for Rand Corporation: “In the long run, if you look at veterans compared to comparably educated people in the civilian labor market … in fact they have lower unemployment.”   According to the NPR piece, “[t]he jobless rate in October for vets of the first Gulf War was 5.9 percent. For earlier conflicts, it was 7.2 percent — in both cases, lower than the 9 percent rate for the population overall.”

I personally have mixed feelings about the new law.  I am very thankful for our veterans, but the law looks a little bit like window dressing by an administration that has a bad reputation with the troops and it may have some unintended consequences.  Veterans already receive the protedtion of the Uniformed Services Employment and Reemployment Rights Act which provides for guaranteed reemployment of servicemembers returning to jobs after being called to active duty or who left jobs for military service.  (USERRA is the subject of an upcoming EH piece so look out for that).  Given the overall low unemployment numbers for service members and the other protections in the law, service members may end up with jobs that, as I have noted before, are already not making it to older workers.

There are only so many jobs and there is a fight to get those jobs among the unemployed.  It is a zero-sum-game.  When you give to one, you are likely taking from another.

Setting those concerns aside, employers should take a look at the benefit to them for hiring a service member.

As winter approaches and those of us in the Dallas area wonder if we are in for a repeat of last year’s snow storms, employers may start thinking about those days they probably had to close around the time of the Superbowl.  They may wonder if they have to pay employees for those days.  I can tell you our firm made a change in its policy.  Perhaps you should too.

How and when you choose to close your business due to bad weather is up to you.  Some businesses, like hospitals and emergency clinics can’t close, but others like banks (which seem to be closed every other day anyway) aren’t so hard pressed.

But, what obligations do you have to pay your employees for those days?  If they are hourly, clearly, you have no obligations.  They don’t clock in and don’t get paid.  Salary employees are a little different depending on whether you characterize them as exempt from overtime (See the previous posts Overtime and Exemptions from Overtime).

Salary employees who are not exempt may have their pay docked for days that you close the business.  Exempt salary employees must be paid for the entire week for any week that they work at all, or you risk losing their exempt status.  Before you get aggravated at this, remember that the exempt status frees you from the obligation to pay overtime to these employees so it probably balances out in the long run.

What you can do on inclement weather days is make salaried exempt employees take a vacation day – if they have any available.  If they don’t and the exempt employee worked one day that week it is tough luck on you because you still have to pay.  You cannot, however, take this step without putting these employees on notice of the policy.  So, put it in your employee handbook.

Stay warm!

Who, What, Why . . .

Who does it apply to: Any employer who has information it would prefer that its competitors not have, which really ought to be everybody.

What is a “trade secret”: Any formula, pattern, device, or compilation of information used in your company’s business that gives you a competitive advantage over those who do not know or use it and . . . which information is actually a secret.

What qualifies as a trade secret: Among other things, customer information and lists, business methods (pricing, etc), chemical formulas, recipes, computer programs and source code, business know-how (think special way of modifying a car engine), manufacturing processes, marketing information, product designs, suppliers and vendors, and technical drawings.

What does not qualify as trade secret: Abstract ideas that have not been formed into a business practice or strategy, general skills taught to an employee, and, importantly, what an employer might otherwise call a secret that is out in the public domain.

What obligations do my employees owe to keep my secrets while employed: Employees owe their employer what is known as a “fiduciary” duty while employed. A fiduciary relationship is known in the law as a relationship of the highest trust. They must keep all of your trade secrets and confidences without even requiring a policy to hold against them and they may not compete with your business.

What obligations do my employees owe to keep my secrets after they leave: The fiduciary duty goes away after termination for most employees, leaving employers with somewhat less protection, unless the employer uses a covenant not to compete. Employees can take the general business knowledge they learned from the employer and solicit those customers they can remember from the employer. They can even open up shop right next door to compete.

How can I use a covenant not to compete: Covenants not to compete will be discussed in a separate EH piece, but can help an employer to restrict former employees from opening up right next door and competing with their former employers.

Common Situations:

Secret to the whitest teeth: Don Dentist would like to increase his business for teeth whitening. There is a huge market for it, but customers don’t come to him for that service. In fact, he has lost a lot of business to Happy Teeth dental across town that seems to bring in all the whitening customers. Wondering what the secret is, he lures one of Happy Teeth’s employees to come work for him so he can learn the secret. Can Happy Teeth prevent the former employee and Don from using his secret method for bringing in all the customers? In this instance, no. Happy Teeth’s “secret” method turns out to be a special machine that is new in the marketplace that can instantly whiten teeth. Don could have saved himself the new hire and gone in as a patient of Happy Teeth’s to learn the secret. Information which is discoverable by inspection, is not a trade secret so the hiring of an employee from Happy Teeth doesn’t even matter.

Special car modifications: Mike at Mike’s Hot Rods has really figured out how to modify the engine and suspension of the new Dodge Charger. He has so much work that he has to hire some new workers and teach them his system. After a year, Mike’s business is still going strong. So strong, that the year old workers have decided to open up shop right across the street with their own business making the same modifications. Can Mike stop them? In this case, the answer is probably yes. Mike has specially fabricated parts, experimented with various parts and come up with an undeniably special combination. It took him years to do so and the information would be hard for his customers to discern by taking one of his cars apart. While he cannot stop the former employees from competing, he can stop them from making the same special modifications to the Charger that he uses.

But I came up with the formula: Dr. Chemie has worked for Star Adhesives for 25 years. Over that time, he personally developed almost all of Star’s chemical formulas for its adhesive products. His new girlfriend has convinced him that Star Adhesives is not treating him fairly after all of those years and that he should go into business for himself. They will be rich, she tells him. Dr. Chemie takes the advice and begins selling the adhesive formulas that he developed while working for Star. Can Star Adhesives stop Dr. Chemie? After all, the formulas are his. Absolutely, Dr. Chemie developed those formulas during work hours and those ideas belong to Star Adhesives. He created them, but was paid to do so.

Patent-shmatent: Brice Architecture developed a methodology for building suspension bridges that takes less time. Twenty years ago, they patented the procedure and have enjoyed its protections since that time. Five years ago, Brice hired an enterprising architect who became dissatisfied with the company and went into business for himself this year. The young architect is using Brice’s patented method. Can Brice stop the architect from using its patented design? No. The patent has expired. Even though Brice claims it is still a secret, any architect who looked at one of their bridges can easily discern the idea. That was the reason for patenting it. Brice cannot put its former employee in any worse situation than any other person off the street who wants to copy its formerly patented formula.

That’s MY customer list: Stone Investments provides investment advice for businesses looking to expand. The company is very secretive about its customer relationships and its customers insist Stone have non-disclosure agreements for all of their dealings. One of Stone’s employees decides to strike out on his own. The employee was very careful not to take any secret customer lists or other information from the company at the time he left, but is about to blast an email to many of Stone’s customers. Can he get away with that? It is likely he will have no liability if the folks he is sending the offer to are just those people he is connected to on Linkedin and Facebook. Any of the former employee’s friends and many strangers can look at his contacts so they are no secret for Stone.

What should I do:

Good: You don’t really have to do anything to enjoy the basic protections preventing current and former employees from using your secrets. The law is designed to look out for you. Simply do your best to maintain your secrets from the public’s watchful eye.

Better: While the law does offer some protections, there are some easy additional precautions you can take that are worthwhile. Have a policy in your employee handbook explaining some information is secret and protected. Many employees will not have the first thought about this type of issue until you bring it to their attention. As part of your new hire consents and acknowledgments, have employees sign off on a confidentiality agreement. Even though it probably just recites the protections you have, employees are more likely to feel bound by it when they leave.

Best: For the most protection available, have employees enter into a covenant not to compete and an assignment agreement regarding all patents the employee might develop while working on the company clock. If you discuss trade secrets while using virtual conferencing platforms, such as Zoom or Webex, be sure to password protect meetings and remove any unidentified lurkers who may find their way in.

This debate has been going on for a while.  The NLRB wants to create yet another poster your employees probably will never read for you to hang up in the break room.  Employers groups are up in arms and the US Chamber of Commerce has filed a lawsuit over the poster.  So much haranguing has been going on that the NLRB pulled back the deadline from November 14 for posters to be placed and established a new deadline of January 31, 2012.

So why is everyone up in arms over the new poster?  I simply don’t know.  I am not really for or against unions.  They have a place.  When business power becomes too great and employees are treated poorly, the employees should be allowed to band together without being threatened with their lives in an attempt to change those conditions.  When unions become too powerful, businesses should have power to strike back.

The National Labor Relations Board (NLRB) is designed to help make sure that union employees and people thinking of forming a union have their right to do so protected.  Unfortunately, the NLRB does not really do much to tamp down unions that go to far, but lets stay out of the politics.

The poster the NLRB wants employers to put up will put employees on notice of laws that have been in place for their protection for a long time.  It is information they could easily and are much more likely to find on the internet than in an employer’s break room.  So, put it up now or wait until the time comes and don’t worry about it again.  All the brew-ha-ha on the internet has done more to make your employees aware of it than what will happen when you post it.

A couple of weeks ago, Workforce.com posted a story on  Texas’ new concealed carry law.  The article touches on a topic I’ve been wanting to discuss for a while which is concealed weapons in the workplace.

I am licensed to carry a concealed weapon in Texas.  I don’t carry into my workplace, but I could.  I got my license long before I started this website, but I was recently preparing an employee handbook for a client and was reminded of this topic when we discussed whether to have a requirement that guns cannot be brought into company facilities.  There is a lot of confusion and ignorance about what employers can and can’t do with guns in the workplace.  The confusion is both in the minds of employees and business owners, so I want to clear it up for everyone.

During the concealed weapon training course, students are taught that they may carry their weapon into any establishment they want as long as there is not a properly worded “30.06” notice (from Tex. Pen. Code § 30.06(c)(3)(A)).  This includes their workplace!  Many employers are ignorant that their employees might just be carrying a gun in their purse or pocket because the notice is not posted.

But employers and employees should know that a business owner can prevent employees from carrying guns into the workplace without posting a 30.06 notice. Employers simply need to make a policy that employees may not carry weapons into work.  If an employee with a concealed carry license violates this rule, they won’t be breaking Texas law, but the employer will be within their rights to terminate the employee’s “at-will” relationship and fire them.

Getting back to the new law, however, employees are now allowed to store a weapon in a locked private vehicle in the businesses’ parking lot, even if the employer owns the lot.  Employers did get some protection from liability for incidents which might arise from this storage, so even if the employer doesn’t like it they are at least somewhat protected from liability.