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.

Employers: No Noncompete? Buy “Loyalty” Instead

In April, I wrote about the enforceability of forfeiture clauses in an article published in Texas Lawyer and reprinted with permission here. A forfeiture clause requires an employee to forfeit his right to compensation if he engages in activity detrimental to the company, such as working for a competitor.

In Drennen v. ExxonMobil Corp., the employee participated in a profit-sharing plan. The plan awarded him stock options worth $6 million unless he went to work for a competitor, in which case he would forfeit the options. After he left and went to work for a competitor, ExxonMobil cancelled his stock options. He sued, arguing that the forfeiture clause was an unreasonable restraint on trade because it did not contain any limitation as to time, geographic area, or scope of activity to be restrained.

The court of appeals agreed. It held that the forfeiture clause was effectively a covenant not to compete and must comply with the statutory requirements of section 15.50 of the Texas Business and Commerce Code. The profit-sharing program contained a New York choice-of-law provision, which the court found unenforceable.

Last week, the Texas Supreme Court reversed. First, though the employee worked in Texas and the company is headquartered in Texas, the court held that the New York choice-of-law provision was enforceable because applying New York law was not contrary to a fundamental policy of Texas.

Second, applying the “employee choice” doctrine, the court held that under New York law, the forfeiture clause was not a noncompete because it does not limit Drennen’s “professional mobility.” In other words, unlike a traditional noncompete, whereby a court can restrict an employee from working for a competitor, here, nothing restricts Drennen from working for a competitor—it’s just that if he does, he won’t get the $6 million in stock options. According to the court, there is a distinction between a noncompete, which seeks to protect an employer’s investment, and a forfeiture clause, which seeks to reward an employee’s loyalty.

Though the court declined to decide whether such a forfeiture provision is enforceable under Texas law, it stated in dicta that under Texas law, forfeiture clauses in non-contributory profit-sharing plans “clearly are not covenants not to compete.” Consequently, Drennen provides some support for the idea—once inimical in Texas—that an employer can buy a noncompete—I mean, an employee’s loyalty.

Forfeiture Clauses: When Are These “Bad Boys” Enforceable?

Executive employment contracts and severance agreements often include a forfeiture clause. These so-called “bad boy” clauses require the employee to forfeit his right to compensation if he engages in activity deemed detrimental to the company, such as working for a competitor. A case pending before the Texas Supreme Court could impact the extent to which courts enforce such clauses.

In Texas, courts generally consider a noncompete agreement to be a restraint on trade. They won’t enforce a noncompete unless it’s reasonable as to time, geographical area and scope of activity to be restrained, among other requirements.

In the past, Texas courts were willing to enforce forfeiture clauses containing a noncompete provision without analyzing whether the noncompete provision was reasonable. According to these courts, because the employee was still free to compete—provided he was willing to forego his right to compensation—the forfeiture clause was not a restraint on trade. This reasoning was dubbed the “employee choice” doctrine.

More recently, Texas courts have declined to follow the employee choice doctrine and have refused to enforce forfeiture clauses that fail to comply with Texas law governing noncompete agreements. These courts reason that, where the forfeiture clause imposes a severe economic penalty for competing, the clause effectively becomes a noncompete agreement; therefore, it must conform to the reasonableness requirements for noncompete agreements under Texas law.

In Drennen v. ExxonMobil Corp. (2012), Houston’s 14th Court of Appeals examined the contracts governing an employee incentive program that required an executive to forfeit his stock awards (worth more than $6 million) if he went to work for a competitor. The noncompete provisions lacked any limitation as to time, geographic area or scope of activity to be restrained. Consequently, the 14th Court held the forfeiture clause was an unenforceable restraint of trade under Texas law.

On Aug. 23, 2013, the Texas Supreme Court granted the employer’s petition for review. Given the high court’s recent decisions favoring parties’ right to contract—including Marsh USA Inc. v. Cook (2011), which overturned decades of noncompete law by holding that stock options constitute sufficient consideration to support a noncompete agreement—the winds regarding forfeiture clauses in employment contracts may be about to shift.

Until the high court issues a decision in Drennen, legal departments should ensure that a forfeiture clause complies with the laws governing noncompete agreements, including the statutory requirements in Texas Business and Commerce Code §15.50. If the Texas Supreme Court adopts the employee choice doctrine and holds that forfeiture clauses are not a restraint on trade, courts likely will enforce such clauses absent a violation of public policy.

Reprinted with permission from the April 7, 2014 edition of Texas Lawyer. © 2014 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited.
Not Knowing Is Okay

I like to write about my toddler, who is not actually a toddler anymore but a strapping young lad of four. When he started school, he came home crying, utterly devastated, because he did not know how to sit “criss-cross apple sauce.” All of the other kids knew, but he didn’t. When I tried to show him, he got even more upset. “No, Mama! That’s WRONG!” He was inconsolable. He seemed to feel doomed—like he would never get it. Whoa. Can you imagine feeling so scared and alone over something so simple as how to cross your legs?

It reminded me of how new he is to so many things, and how new things can be scary. Can you relate? I know I can.

Here’s my takeaway:

1. We ALL don’t know stuff. Lots of stuff.

2. It’s okay not to know.

3. When you don’t know, ask for help. It is there. When you do this, not only do you acquire a skill or approach or piece of knowledge you didn’t have before, you strengthen your resources. You can share your knowledge. More people benefit. (It’s the Circle of Life, people. Cue the Lion King music.) By contrast, when you refuse to try something because you don’t know, you limit your own power. Think of a time when you didn’t know but got up to speed and moved forward. How did it change you?

Clients may feel a great sense of unease in a world that is foreign to them. As lawyers, how can we empower them by imparting what we know? And what can we learn from them (and others) that will empower us to help others?

My son has now mastered sitting “criss-cross apple sauce,” among many other things. He teaches me every day. And (I say with a parent’s proud smile) I am eager to learn more.




Obamacare: Fewer than 50, (Some Say) Nifty

I frequently advise small businesses on employment laws. A reminder to all you small businesses with fewer than 50 employees: Obamacare’s requirement that employers offer health insurance to employees or pay a penalty, otherwise known as the “employer mandate,” which is set to take effect in 2015, does not apply to you.

Nor will you be responsible for verifying that employees carry health insurance. The “individual mandate”—that is, the requirement that most individuals carry health insurance or pay a penalty, will be enforced by the IRS. For more information on the final regulations for the “individual mandate,” released on August 24, 2013, click here.

John Graves and Old Man Willett: Learning from Hardship

Legendary Texas writer John Graves died recently. I’m reading his book Goodbye to a River: a Narrative (Vintage Departures). In it, he describes his last trip down the Upper Middle Brazos River, a place that had “meaning for [him] during a good part of [his] life in the way that pieces of rivers can have meaning. You can comprehend a piece of river.” In it, he describes a man he meets on the river, Old Man Willett, “tiny and wizened and old in bib overalls.” After telling Graves about his life, which was full of hardship (though “his manner in telling it was all factual . . . he had a dry narrow dignity that did not ask for sympathy”), Old Man Willett says:

“A man needs it hard. I don’t give a crap. He’d ought to have it hard a-growin’ up, and hard a-learnin’ his work, and hard a-gittin’ a wife and feedin’ his kids and gittin’ rich, if he’s gonna git rich. All of it.”

Graves replies, “Appreciates it better, maybe.”

Does it better,” Old Man Willett says.

I like Old Man Willett. He reminds me that hardship sharpens our skills. It shows us what to avoid. It makes us better at what we do.

I’ve never liked the saying, “Everything happens for a reason.” I view it as (1) false, and (2) a shortcut—a bypass, if you will, around a difficult circumstance that deserves to be thought about, considered, experienced, waded through. But maybe those who declare “Everything happens for a reason” have something in common with Old Man Willett—a recognition of the value of hardship.

Texas Trial Lawyer Trivia: When to Demand a Shuffle of the Jury Panel?

Voir dire is my favorite part of a trial. It’s the beginning, which is always the most exciting part of any adventure. And it’s where you, as a trial lawyer, begin to get to know the jury panel, and they begin to get to know you and your client. Call it the courtship phase of the relationship. Both sides are trying to show the jury panel their best selves. After the trial is over and the jury has picked the winner, feelings may not be as warm. But in the beginning, both sides love the jury panel.

As a trial lawyer, I am always interested in case law that relates to voir dire, and this recent case from the Fort Worth court of appeals is no exception.

Texas rules give a party the right to demand a shuffle of the jury panel before voir dire begins. Tex. R. Civ. P. 223. But when does voir dire begin?

According to the Fort Worth court of appeals in BNSF Railway Co. v. Wipff, voir dire begins AFTER the jury panel is sworn in under Rule 226 (“You, and each of you, do solemnly swear that you will true answers give to all questions propounded to you concerning your qualifications as a juror, so help you God.”). Distinguishing an earlier case, the court held that voir dire does not begin when counsel reviews jury questionnaires.

Lessons for trial lawyers? For parties wanting a shuffle, (1) make your demand on the record, before the jury is sworn in under Rule 226; and (2) if your demand is denied, argue harm on the record—in other words, identify the objectionable jurors who were seated that you otherwise would have peremptorily struck.

For those resisting a shuffle, (1) make sure the Rule 226 swearing-in is on the record so that the party demanding a shuffle cannot later argue that, at the time of the demand, the swearing-in had not occurred; and (2) argue there was no harm from the lack of shuffle.

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