When the Employer and the Employee Reside in Different States, Which State’s Law Applies to a Non-Compete Agreement?

Welcome to Texas Business Matters! This is our sixth blog in a ten-part series on non-competes. In our last blog, we addressed the special rules for non-compete agreements for physicians.  In this blog, we will discuss which state’s law applies to a non-compete agreement when the employer and the employee reside in different states.

Many employers have employees based in more than one state. When an employer must enforce a non-compete agreement against one of its employees who is in another state, one initial question is which state’s law will be used to analyze the agreement. This can be a critical question and can be the deciding factor in whether the employee can be bound by the non-compete agreement. For example, while non-compete agreements generally are enforceable in Texas, they are not enforceable in California, as we mentioned in the first blog in this series.

In most cases, non-compete agreements and other employment agreements contain a “choice of law” provision in which the parties agree that a particular state’s law will govern any legal questions related to the agreement. Where the employer and the employee are in the same state and the choice of law provision requires the law of that same state, courts typically enforce the choice of law provision and analyze the non-compete agreement under the law of the chosen state.

The analysis becomes more complicated when the employer and employee reside in different states, since the dispute may relate to each state in one way or another. Although courts generally enforce the parties’ choice of law, courts may disregard that choice in certain instances. Under Texas law, even if a non-compete agreement contains a choice of law provision that requires the application of another state’s law, a court may disregard that provision and apply Texas law if: (1) Texas has a more significant relationship to the parties and the transaction than the other state does, (2) Texas has a materially greater interest in enforcing the agreement than the other state does, and (3) application of the other state’s law would be contrary to the fundamental policy of Texas.

Multi-state employers must know the law of the state in which they are based as well as the law of each state in which any of their employees resides or works. An employment attorney can survey each state’s law and craft non-compete agreements that best protect the employers’ interests in each of these states.

In our next blog, we will discuss some examples of how this choice of law issue may be analyzed when either the employer or employee is in Texas and the other is in California.

Physician Non-Compete Agreements Have Special Rules

Welcome to Texas Business Matters! This is our fifth blog in a ten-part series on non-competes. In our last blog, we addressed whether an independent contractor can be bound by a non-compete agreement. In this blog, we will discuss the special rules for non-compete agreements for physicians.

As we discussed in our first blog of this series, to be enforceable under Texas law, a non-compete agreement must be reasonable in time, scope of activity, and geography. Non-compete agreements for physicians must adhere to the same reasonableness standards.

However, in addition to these general requirements, non-compete agreements for physicians must contain three special provisions. One, the non-compete agreement must allow the physician to have access to a list of the patients she has seen in the past year, allow access to a patient’s medical records if authorized by the patient, and provide that the list of patients and medical records will be in the same format in which they previously were maintained. Two, the non-compete agreement must allow the physician the option to “buy out” of the agreement at a reasonable price. Three, the non-compete agreement must allow the physician to provide continuing care to specific patients during an acute illness even after the physician’s employment has been terminated. Without these provisions, the non-compete agreement is not enforceable against the physician who signed it.

A Houston eye clinic learned this the hard way. In Lasikplus of Texas, P.C. v. Mattioli, a physician employed by the clinic signed a non-compete agreement which prohibited him from opening a competing eye clinic within 20 miles for 18 months after he left the clinic. However, after leaving the clinic, he opened his own clinic just two miles away. His former employer sued. The employer lost, even though the physician had violated the non-compete agreement, because the agreement lacked the special buy-out provision required for physicians. The Houston Court of Appeals refused to “reform” or revise the agreement even though the agreement contained a provision allowing for revision if the agreement was unreasonable in scope of time or location. Because the clinic did not include the buyout provision, the non-compete agreement was not enforceable against the physician.

A lesson to be learned for medical employers: make sure that your physicians’ non-compete agreements contain the required special provisions. If an agreement is reasonable and contains these special provisions, it may be used to limit when, where, and how a physician can establish a new practice or join an existing practice.

In our next blog, we will cover which state’s law applies to a non-compete agreement when the employer and the employee reside in different states.

Can an Independent Contractor Be Bound to a Non-Compete Agreement?

Welcome to Texas Business Matters! This is our fourth blog in a ten-part series on non-competes agreements. In our last blog, we addressed the remedies that an employer may obtain from the court when an employee violates a non-compete agreement. In this blog, we will discuss whether an independent contractor can be bound by a non-compete agreement.

Many employers hire independent contractors to fill particular niches in their workforce. From an employer’s prospective, using independent contractors allows the employer to hire on a project-by-project basis without having to pay the taxes and benefits required for actual employees. From the contractor’s perspective, the arrangement allows more freedom and flexibility for those who are looking to freelance or do not need the benefits that come with regular employment.

Even though independent contractors may not have all the rights and benefits that employees have, independent contractors may still have access to the employer’s proprietary information and may still pose the risk of taking that information, sharing it with competitors, and starting competing businesses. In fact, independent contractors often work for multiple companies at the same time, and thus these risks may be greater for independent contractors than for employees.

Despite these risks, employers should not have their independent contractors sign non-compete agreements, even though Texas law generally does not prohibit an independent contractor from doing so. The problem is that a non-compete agreement restricts an independent contractor’s right to work freely, which makes the independent contractor more like an employee. Thus, if an independent contractor signs a non-compete agreement, the state or federal government could re-classify the independent contractor as an employee. As a result of this re-classification, the employer could be required to pay penalties and make retroactive payments that the employer would have made if the independent contractor had been initially classified as an employee. These payments may include overtime, benefits, workers compensation premiums, and contributions to the state unemployment insurance benefit funds.

Instead of a non-compete agreement, the employer should have the independent contractor sign a non-disclosure agreement. As we discussed in our second blog of this series, a non-disclosure agreement allows the independent contractor to work for the employer’s competitors but prohibits the independent contractor from using the employer’s confidential and proprietary information in the course of his work with any other employer. Also, the employer should take a closer look at the job that the independent contractor is to perform.  If it involves access to confidential and proprietary information, the job may be better suited for an employee.

In our next blog, we will cover special rules that apply to non-compete agreements for physicians.

What Are an Employer’s Remedies When an Employee Breaches a Non-Compete Agreement?

Welcome to Texas Business Matters! This is our third blog in a ten-part series on non-competes. In our last blog, we addressed the difference between non-compete, non-solicitation, and non-disclosure agreements and how to determine if your business needs a non-compete. In this blog, we will discuss the remedies that an employer may obtain from the court when an employee violates a non-compete agreement.

Under Texas law, when an employee violates a non-compete agreement, the employer may obtain (1) injunctive relief, (2) damages, or (3) both injunctive relief and damages.

Injunctive relief is where the court orders a party to do something or to not do something. For the violation of a non-compete agreement, injunctive relief may include orders preventing the employee from working for a new employer, soliciting certain customers or employees, or disclosing trade secrets or other confidential information. Injunctive relief is often the critical remedy sought by employers where an employee has violated a non-compete agreement.

There are three types of injunctive relief. A temporary restraining order (TRO) is an emergency order that specifies what a party can and cannot do for a short period of time. In some cases, an employer may obtain a TRO against an employee without the employee’s presence in court. A temporary injunction is similar to a TRO, but it is typically designed to remain in effect until the matter is brought to trial. Finally, a permanent injunction is issued by the court after trial and is a final decision that governs the parties’ conduct in perpetuity.

Damages are often less important than injunctive relief to the enforcement of a non-compete agreement and often can be difficult to quantify. Generally, an employer should be able to recover for actual losses that the employer has sustained as a result of the employee’s violation of the non-compete agreement. Such losses may include those attributable to lost sales or customers or to the disclosure of trade secrets or other confidential information.

In our next blog, we will cover whether an independent contractor can be bound by a non-compete agreement.

How to Determine If Your Business Needs a Non-Compete

Welcome to Texas Business Matters! This is our second blog in a ten-part series on non-competes. In the first blog, we addressed what is a non-compete and under what circumstances non-competes are enforceable in Texas. In this blog, we address the difference between non-compete, non-solicitation, and non-disclosure agreements and how to determine if your business needs a non-compete.

As discussed in the previous blog, a non-compete agreement is a contract between an employer and employee that prevents the employee from working for the employer’s competitors (or from starting a competing business). A non-solicitation agreement, by contrast, allows an employee to work for the employer’s competitors but prevents the employee from soliciting the employer’s customers (and employees and suppliers). A non-disclosure agreement allows an employee to work for the employer’s competitors but prevents the employee from using the employer’s confidential and proprietary information in his new job.

Practically speaking, non-compete, non-solicitation, and non-disclosure agreements are often combined into one agreement. But because non-competes may prevent a former employee from earning a living in the area where he lives, some courts are reluctant to enforce them. Further, a non-compete is not always necessary to protect the employer’s interests. Sometimes an employer’s interests can be protected by a non-disclosure and non-solicitation agreement.

When is a non-compete truly necessary? How can you determine if your business needs a non-compete? To determine whether your business needs a non-compete, ask yourself these questions:

  1. Does the success of your business depend on confidential or proprietary formulas, processes, methods, strategies, or information which, if shared with a competitor, could spell ruin for your business?
  2. Do your employees have access to this information?
  3. Is there any likelihood that a former employee will share this information with a competitor?

If the answer to all three of these questions is yes, then, in addition to a non-disclosure and non-solicitation agreement, which are essential for most businesses, your business needs a non-compete.

In the next blog, we will cover what remedies an employer can seek when an employee has breached a non-compete.

Any questions? Let us know how we can help!

Introduction to Non-compete Agreements

Welcome to Texas Business Matters! Today we start our 10-part series on non-compete agreements. In this series, we will cover what is a non-compete agreement; under what circumstances a non-compete agreement is enforceable under Texas law; the difference between non-compete, non-solicitation, and non-disclosure agreements; how to determine whether your business needs a non-compete agreement; what remedies an employer can seek when an employee has breached a non-compete agreement; and the latest cases interpreting non-compete agreements.

First, what is a non-compete agreement? A non-compete agreement is a contract between an employer and employee that prevents the employee from working for the employer’s competitors. Non-competes are not legal in every state. In California, for example, non-compete agreements are considered to be an illegal restraint on trade and so are not enforced. In Texas, however, non-compete agreements are legal and enforceable, provided they meet certain requirements.

Specifically, to be enforceable in Texas, an employer must provide the employee consideration, or something of value, in exchange for his agreement not to compete, usually in the form of confidential information, trade secrets, specialized training, or access to valuable business relationships. According to a recent case from the Texas Supreme Court, stock options are also sufficient consideration to support a non-compete agreement.

In addition, a non-compete agreement must contain reasonable restrictions on time (the length of time an employee can be prohibited from working for a competitor), geographic area (the geographic area in which an employee can be prohibited from working for a competitor), and scope (the kind of duties an employee can be prohibited from providing to a competitor).

For employees who are doctors or physicians, there are additional requirements, including (1) the non-compete agreement must allow the doctor access to a list of the patients she has seen in the past year and those patients’ medical records; and (2) the non-compete agreement must allow the doctor the option to “buy out” of the agreement at a reasonable price.

In the next blog, we will address the difference between non-compete, non-solicitation, and non-disclosure agreements and how to determine whether your business needs a non-compete agreement.

Any questions? Let us know how we can help.

Employer Disaster Plan: What To Do When an Employee Has Stolen Trade Secrets and There Is No Non-Compete Agreement

Trade secrets are the kind of information that, if end up in the hands of a competitor, could spell disaster for your business. A common example is the Coca Cola recipe. Other examples include customer lists, pricing information, and business strategies.

Under Texas law, it is illegal for an employee to take this kind of information. Yet theft of trade secrets is a fairly common occurrence among departing employees—especially those leaving to start their own business—and one that can pose a significant threat to employers.

If an employer suspects a former employee has taken confidential information or trade secrets, what can it do?

The first step is to ask a court to issue an emergency order requiring the employee (1) not to use or disclose the trade secrets and (2) to return the trade secrets. What many employers do not realize is that the employer can seek these kinds of orders even if the employee is not under a non-compete agreement.

An example of this is the recent case I handled, Hughes v. Age Industries, Ltd., 04-16-00693-CV, 2017 WL 943423 (Tex. App.—San Antonio Mar. 8, 2017, no. pet. h.). In this case, an employee left his employer to start a competing business. Before doing so, he downloaded data containing trade secrets from his employer’s computer system and took hard copies of confidential information from his office. Even though he was not under a non-compete agreement, the trial court issued, and the appellate court upheld, a temporary injunction against him, ordering him not to use or disclose the employer’s trade secrets.

Bottom line for employers? Though a non-compete agreement is a good way to protect trade secrets, even without a non-compete, employers can protect their trade secrets by seeking emergency relief from the courts.

Lessons in Lawyering from The Little Prince

In The Little Prince, Antoine de Saint-Exupery wrote, “Love is not gazing at each other but looking outward at the world together.” This strikes me as a way to describe my job as a lawyer—to stand with my client, shoulder to shoulder, and see the world as he sees it. For me, this is the best (and often easiest) part of being a lawyer. I can see the client’s problem. I can feel it. I can articulate it. If I cannot do this whole heartedly, I know I should not take the case. I am simply not as effective as an advocate if I cannot see the world from my client’s point of view.

This does NOT mean that I do not point out how the world looks from MY point of view as an attorney, which will inevitably be different. In fact, clients depend on us to point out things that they do not see. If we fail to do this, we are not doing our job.

Lawyers sometimes make the mistake of trying to get love, or admiration, or respect from clients. To use the metaphor from The Little Prince, we enjoy the client’s gaze. Have you ever avoided telling your client you made a mistake because you were afraid they would lose respect for you? Have you ever discounted your retainer, knowing it was not enough to cover the job, because you wanted your client to like you? Have you ever neglected to spell out the most realistic outcome for your client because you didn’t want to appear “weak”? Have you ever unreasonably refused a discovery request because you wanted your client to see you as a “fighter”? Have you ever failed to ask your client what is most important to him because you are attached to a result that would make YOU happy?

Well, we are all human. But the best lawyers are not merely advocates but guides, who not only understand where the client wants to go but who recognize and identify what it will take to get there, the consequences of taking that road, and the difficulties the client may encounter along the way. Let us, therefore, stop using clients as a mirror of what we wish to see in ourselves. Let us not merely advocate, but illuminate.

The Number One Thing You Can Do to Make Life (and the Practice of Law) Better

Oh, the difficulties of being a lawyer! A parent! A human being! An airline passenger! If it’s not your spouse driving you crazy, it’s your kids, your job, the Democrats (or Republicans), or your awful opposing counsel.

Someone does something they shouldn’t, and you feel your skin flush, your heart pound. You get a ringing in your ears. You spend a couple of hours stewing in a pot of anxiety and rage. Any joy or relaxation you were feeling vanishes. You think: “That/those ______! How could s/he/they?”

In Loving What Is: Four Questions That Can Change Your Life, Byron Katie posits that it is not the circumstances of life that cause us to suffer but our thoughts about those circumstances. She offers four questions to ask yourself anytime you are feeling upset or angry. She calls the questions “Inquiry,” or “The Work.”

1. Is the thought true?
2. Can you absolutely know that it’s true?
3. How do you feel, think, and act when you believe the thought?
4. Who would you be without the thought?

Here’s an example for my fellow lawyers: You have a pleading due. Your computer breaks down. You contact opposing counsel to see if he opposes a request for extension. Though there is no good reason for him to oppose it, the reprobate opposes it. You are apoplectic.

Let’s apply the four questions to the thought: “There was no good reason for him to oppose the request.”

1. Is the thought true? “You bet it’s true. An extension would in no way hurt his client or delay the case. The judge was on vacation and wasn’t going to look at the pleading for a week anyway. I was having technical difficulties, and he owed it to me not to oppose the request. The only reason for him to do this was to be obstreperous.” In step one, Katie encourages the participant to be judgmental. Let it all out.

2. Can I absolutely know that it’s true? “I don’t know. I suppose there could be some good reason for him to oppose the request, but what? I can’t think of anything.” So can I absolutely know that it’s true, yes or no? “No.”  In step two, Katie encourages the participant to look deep inside and inquire: what can I really know to be true? Notice that just by asking this question your experience is already starting to change.

Note: if you are getting a “yes” to questions one and two—for example, if the thought is an undisputable fact, then investigate your interpretation of the thought, i.e., “and it means that ___________.”

3. How do I feel, think, and act when I believe the thought? “I’m miserable. I’m anxious. I’m distracted. I’m not able to relax.” In step three, you start to see how the thought is affecting you.

4. Who would I be without the thought? “I’d be relaxed. I wouldn’t be angry and consumed. I could move forward and think about what I need to do now.” A companion question to step four is: “Can you see a stress-free reason to keep the thought?”

Once we have asked ourselves the four questions, Katie invites us to turn the thought around to its opposite. “There IS a good reason for him to oppose the request.” Is the turnaround as true or truer than the original thought? “I don’t know. I suppose it’s possible. It may not be in his client’s interests for me to be allowed to file the pleading.” Whoa. You mean opposing counsel may have been representing his client’s interests, i.e., doing his job? Ha! Marvelous! Now that we see the conduct in a new light, we may find ourselves laughing at our own characterization.

In the book, Katie asks the four questions of people who have been through the most difficult circumstances imaginable. It was remarkable to see how—just by investigating their own thoughts—they were able to shift their perceptions and so their experience. Burdens that people had carried around for decades simply disappeared.

Katie’s method tests the maxim: “Pain is inevitable, but suffering is optional.” Could it really be true? By investigating your own thoughts, you may find an answer.

 

 

Plaintiff-Friendly Statute Allows Private Whistleblower Claims by Nursing Home Workers

In Texas, if you work for a private employer, it is often perfectly legal for the employer to fire you for reporting illegal activity. However, there are some notable exceptions to this general rule. One is section 260A.014 of the Texas Health and Safety Code. This 2011 statute prohibits discrimination and retaliation against employees or contractors of nursing homes for reporting a violation of law, including illegal billing practices, Medicare fraud, and abuse, neglect, or exploitation of nursing home residents.

Texas is not known for being especially friendly to claimants of employment discrimination. However, this Texas statute has several provisions that make it unusually plaintiff-friendly. First, unlike many statutes prohibiting employment discrimination and retaliation, section 260A.014 does not require claimants to first seek administrative review of their claim by the EEOC or Texas Workforce Commission before filing suit. Second, unlike other statutes, there is no cap on the amount of emotional, or mental anguish, damages a plaintiff may recover.

Finally, and perhaps most significant, if the employee is suspended or terminated within 60 days of reporting a violation of law, the burden of proof shifts from the employee to the employer. In that case, it is the EMPLOYER’S burden to prove its actions were NOT discriminatory or retaliatory. Thus, what is usually an uphill battle for the employee becomes an uphill battle for the employer.

As of this writing, there are no reported cases under this statute. However, given the recent attention to Medicare fraud, expect to see an increase in these types of cases.


Fatal error: Call to undefined function responsive_get_options() in /home3/emily/public_html/wp-content/themes/emily-frost/footer.php on line 27