Proactively Managing Employment Law Risks – Lessons from Brazilian Jiu-Jitsu

Business Jiu JitsuOutside of being an employment law attorney, I practice Brazilian Jiu Jitsu. It is a grappling based martial art that owes its modern development to the Gracie family, especially Helio Gracie. But it also offers a broader perspective for approaching conflict outside of physical matches. And – since business is rife with conflict – it frequently offers applications to businesses and start-up companies, especially in the area of employment law.

This point was driven home at a recent class. One of my instructors, Josh Bagely, (on the left in the link) was teaching a particular technique but expanded on three core principles that need to form the basis of every jiu jitsu technique:

  1. Preservation – First, regardless of what is happening in a jiu jitsu match or a self-defense situation, before you can take any other action, you must first make sure you are in a position where you can protect yourself;
  2. Control – Second after you’ve taken steps to protect yourself now is the time to work to gain control of the situation and your opponent. Here you are taking steps to put yourself in a position for going on the attack;
  3. Attack – Once you have the first two principles taken care of, you are now going to be in a strong position to go on the offensive in terms of looking for submissions or other scoring opportunities.

Instructor Bagaly is a jiu jitsu black belt and a very successful competitor. He further explained that his success on the mat goes back to continually assessing whether he is following these principles. In other words, there are times he has taken care of the first two concepts and began to work towards a submission, i.e., an attack. But his opponent counters, which may require going back to regaining control. Or, if you take a big gamble (or are less experienced like me), you may find yourself having lost significant ground and forced to expend a lot of energy and effort focusing on preservation or regaining control. In sum, failing to abide by these principles in a jiu jitsu match often results in being on the wrong end of a submission (trust me on this).

Business and Jiu Jitsu – Protecting the Business, Controlling its Growth, and Competing in the Marketplace

Professionally speaking, in working with start-up companies and even established businesses, we often see where these principles have not been looked at in a while or even overlooked from the outset. For example, entrepreneurs will often take appropriate steps to form a business but then everyone involved in the venture jump right into bringing the product/service development to market. So they have gone from minimal preservation (forming a business entity) to attacking, i.e., getting the product or service to market. It is not uncommon to find that in that rush one founder has the company’s domain name registered in his or her own personal name. Another founder may be contributing the initial intellectual capital to be expended upon by another employee, founder, or both.

But in these circumstances the control aspect was ignored in terms of having employment agreements, an employee manual, non-compete and non-disclosure agreements in place, as well as having employee invention/intellectual property assignments in place to cover these and other situations. Such agreements allow for a significant measure of control for building the company and putting it in a place to successfully compete in the market place, and an eventual exit strategy for the founders. Without that control, however, it is not uncommon for founders battling over ownership interest in designs, software, or other intellectual property with employees in addition to employment law compliance issues that can arise along the way.

Another very common fact pattern where businesses get into trouble is ignoring the need for ongoing assessment. In this regard, assume you are a second-stage company that is now expanding. It has been a few years since your company first drafted its employee manual/employment contracts in preparation for opening its doors/website for business. And since that time, there has been significant changes or “novel” theories by employment-based regulatory agencies as to what is or is not permissible in an employee manual. If these issues aren’t updated, you may have an employment law ticking time bomb hiding in your company’s employee manual.

Or maybe a significant court opinion has come down limiting the effectiveness of certain restrictions in a non-compete agreement. Going back to the concepts of preservation, control, and attack, your company should assess whether it is still on solid ground to maintain appropriate control of employment risks and opportunities before expanding its human resource assets. Otherwise, the next round of competition may not be against competitors, but rather against a former employee who is challenging his or her non-compete restrictions. But instead of having what should be a straight-forward issue, i.e., enforcing a contractual agreement, your company may now be expending time and resources on legal fees dealing with ancillary attacks to the original agreement that, if properly controlled in the first place, would not likely have been an issue.

Closing Thoughts on Business and Jiu Jitsu Strategy

One of the appealing aspects of jiu jitsu training is certainly its effectiveness in terms of self-defense. But what keeps me going back to my particular gym are instructors like Harvey Berman, Angelo Popofski, Brandon Fracassi-McDaniel, and  Josh Bagaly who go beyond teaching just a bunch of techniques. Instead, they provide rich context for the jiu jitsu principles behind the techniques, which frequently extend outside of the gym. This isn’t surprising when you consider the primary explanation given by its founder, Helio Gracie, “Jiu Jitsu is personal efficiency … which anyone can do. It is the force of leverage against brute force.”

As an employment and business law attorney, this quote drives home the point of how companies and start-ups should approach business – continually taking the steps to monitor and investing the time to allow their business to efficiently compete without having to resort to brute force in the form of substantial legal fees that escalate pursuing or defending against drawn-out litigation. For more information about federal or Michigan employment legal issues or otherwise discussing employment best practices for your start-up company, contact attorney Jason Shinn. Since 2001, he has represented entrepreneurs, start-up companies, and established businesses in responding to employment and business law challenges. This experience includes pursuing or defending such matters in state and federal courts.

Business Owners Need to Protect Against Being Burned by Social Media Mistakes

Social Media FirestormSocial media issues in 2014 certainly had a significant impact when it came to employment law issues. And these issues will continue into 2015. But social media issues are not limited to front line employees. Instead, they need to be addressed at every level of the organization – including owners.

Take for example a Metro Detroit business owner and his company who ended up at the center of a social media firestorm. Here’s the cliff-note version: Following the shooting of New York police officers Rafael Ramos and Wenjian Liu, the owner of Detroit BBQ Company, Tim Idzikowski, posted on his personal Facebook page the following:

How many times did they think they were going to kick the hornets nest before they got stung? These guys ‘can’t breathe’ now either.

In doing so, Mr. Idzikowski drop-kicked his own hornets’ nest. It is being reported that following this post a Detroit police officer saw the message and then published Idzikowski’s phone number to a forum. Mr. Idzikowski has since received death threats and an onslaught of angry phone messages. And his business is allegedly facing a boycott and one business partner has since cut ties with Detroit BBQ – Kuhnhenn Brewing Company announced it will stop using it to cater at its Warren location.

Finally, Detroit BBQ is seeing a significant increase in negative Facebook and Yelp reviews since Mr. Idzikowski’s Facebook posting was made: In a span of 24 hours the Detroit BBQ Company’s Facebook page received over 50 negative reviews).

Social Media Take-Aways for Employers and Business Owners

“Traditionally” employee social media issues often arise in the following areas:

  • Drafting narrowly-tailored social media policy protecting your legitimate business interests that won’t run afoul of the NLRB’s concern about having an overbroad and undefined terms that may chill your employees from engaging in protected concerted activity; 
  • Leveraging the benefits of the publically available online information about applicants to get the best and brightest, while minimizing the chance your business doesn’t learn “too much” information that could open the doors for a discrimination claim; and
  • Balancing the need to monitor what goes on in your company’s workplace and employees’ privacy rights. 

And these issues will continue to play a significant role in employment law compliance and litigation. But business organizations need to make sure their social media risks management extend to all levels of the company – front line employees, managers – C-Suite executives, and owners. Otherwise you may find the business is trending for all the wrong reasons, which can threaten, or worse, your entire business.

As one who frequently makess it a point to enjoy the perks of being at the top of the food chain, Detroit BBQ’s social media missteps is unfortunate because it is very respectable BBQ. But whether that is enough to overcome the current social media firestorm it faces remains to be scene. 

For more information about protecting your business against social media legal risks, contact attorney Jason M. Shinn.

Proposed Michigan Bill Would Make it Easier for Individuals to Clear Convictions from Records

Criminal background checksMichigan’s Senate Judiciary committee is scheduled to consider a bill tomorrow that would make it easier for individuals previously convicted of certain crimes to have their records expunged.

Specifically, Michigan House Bill 4186 would allow individuals convicted of a single felony or a couple of misdemeanors to apply to have them removed from their record.  Notably, the bill’s sponsor, Stacy Erwin Oakes, is a former Michigan Assistant Attorney General who previously prosecuted criminals under both Democratic and Republican Attorney Generals (Granholm and Cox, respectively).

Michigan law currently allows for expungement if (1) the person does not have more than one conviction or (2) the person has two or three convictions and all but one are for a minor offense, as defined by the statute. If either of these exceptions apply, proceed to the next question. The proposed legislation is intended to give people not otherwise eligible under current law another chance to have their records expunged.

Such expungements are especially critical when it comes to employment opportunities because an expungement has the effect of setting aside a prior criminal conviction. This permits a job applicant to honestly represent in a job application or to a potential employer and others that he or she has not been convicted of a crime. 

Under the proposed legislation, however, there are certain convictions that could not be removed, such as child abuse and acts of terrorism. The bill previously cleared the state House without a single dissenting vote.  The bill must pass the state senate this week or it dies and would need to be reintroduced next year. The smart money is on the bill dying, but that is just an educated guess.

For more information about conducting criminal background checks of job applicants and in hiring decisions, see our prior post What Employers and Employees Should Understand about Conducting Background Checks. And for more information about complying with federal or Michigan employment law or improving your company’s risk management of human resource issues, contact attorney Jason M. Shinn.

NLRB Allows Employees to Use Employers’ Email System to Engage in Protected, Concerted Activity

email, nlrb, employer email, employer email policiesCompanies will need to revise their employee email policies following a ruling from the National Labor Relations Board (NLRB) (Purple Communications on December 11, 2014).

Specifically, in a 3-2 decision (three Democrats, two Republicans) held that Section 7 of the National Labor Relations Act allows,

… employee use of e-mail for statutorily protected communications on nonworking time must presumptively be permitted by employers who have chosen to give employees access to their e-mail systems …

Section 7 essentially protects the right of employees to unionize or take collective action.

Significantly, the Purple Communications ruling reversed a 2007 decision, Register-Guard, which had permitted employers to restrict e-mail use under those same Section 7 rights at issue in Purple Communications.

The basis for this reversal (other than the make-up of the NLRB) according to the majority opinion is that the prior Register-Guard opinion failed to “fully acknowledge the major role” email plays in employees’ workplace communications and because it gave too much weight to employers’ property rights (i.e., control over its technology systems).

With this change, employers need to understand that the NLRB will now “presume that employees who have rightful access to their employer’s email system in the course of their work have a right to use the email system to engage in Section 7-protected activity on nonworking time.” An employer may rebut this presumption if it demonstrates “special circumstances necessary to maintaining production or discipline justify restricting its employees’ rights.”  

Limitations under the Purple Communications Decision

The Purple Communications decision has limits according to the majority:

  1. It doesn’t require employers to provide access to e-mail where it has not chosen to do so;
  2. It permits a “total ban” on e-mail use during nonworking time if there are “special circumstances;” and
  3. It since it didn’t address e-mail use by nonemployees,
  4. It does not prohibit employees from sending large attachments or audio/video files, if the employer can demonstrate that they would interfere with the employer’s email systems.
  5. Significantly, nothing in the Purple Communications decision prevents an employer from monitoring company computers and email systems for legitimate management reasons. Such reasons include basic operational issues like ensuring productivity and preventing email misuse (think harassment or other misconduct), except the employer cannot implement a “special” monitoring program or policy that is out of the ordinary. This scenario would likely occur if an employer increased its monitoring during an organizational campaign or focused its monitoring efforts on protected conduct or union activists. 

The bottom line is that employers can’t stop their employees from using work e-mail during nonworking time. Therefore, employers should review their current policies applicable to employee email and technology in order to comply with this decision.

Documenting Employee Performance Issues and Teeth Cleaning – Not Fun, But Necessary

Employment Law Due DiligenceFor many employers, investigating and documenting poor employee performance issues is about as fun as going to the dentist. But a recent Michigan Court of Appeals decision illustrates the importance of both because it often becomes a critical defense against claims that the employee was disciplined or terminated for unlawful or discriminatory reasons.

Worker’s Compensation and Retaliation

In Larue v Gary P. Mulnex DDS, PLLC, the plaintiff was employed as a dental hygienist. She worked at this practice for 26 years before the defendant, Mulnix, purchased the practice. About a month after Gary Mulnix bought the practice, plaintiff was injured after she tripped on equipment at work. Co-workers assisted her in getting back on her feet and took her to a an urgent care facility. A workers’ compensation claim was filed and a month later, plaintiff was terminated.

At trial, the plaintiff relied on circumstantial evidence to show retaliation, which included that she was terminated from employment by a letter dated 12/13/10, which was soon after her 11/17/10 injury and subsequent workers’ compensation claim.

The trial judge disagreed and found that the plaintiff could not demonstrate a “causal link” between filing for workers’ compensation and her termination from employment. The judge reasoned that a “correlation between the time of the protected activity and time of the adverse employment action does not demonstrate a causal relationship.” The trial judge also concluded that the defendant employer met its burden of demonstrating a legitimate business reason for terminating plaintiff’s employment.

On this point, the employer offered evidence that plaintiff was terminated for job performance issues observed between the time the new owner purchased the practice and plaintiff’s injury. Such performance issues included on more than one occasion finding poor tarter cleaning and failure to timely provide x-rays. Bolstering the employer’s position, the dentist reviewed about 10 patient records for patients treated by plaintiff between 10/22/10 and 12/3/10, which showed “plaintiff’s poor job performance, including poor calculus cleaning and failure to timely provide x-rays.” Adding to this, another hygienist who worked for the defendant employer stated in an affidavit that she had also noticed tarter accumulation that was never treated on a number of plaintiff’s patients.

On appeal, the Court found the trial court did not make a mistake in determining that the defendant employer established a legitimate business reason for the plaintiff’s discharge, and that it was not a pretext. Accordingly, the court affirmed the trial court’s order granting the defendant employer’s summary disposition motion.

The Take-Away for Employers

This case illustrates two important points for employers. First, terminations are, unfortunately, a part of the employment relationship. And ideally if it becomes necessary to terminate and employee, your company will have documented the nondiscriminatory and legitimate reasons for that termination. It is this documentation that will become invaluable if the terminated employee later claims that determination was unlawful for any number of reasons, including retaliation or discrimination under federal or Michigan employment laws. In sum, sloppy documentation, like sloppy teeth cleaning, can cause significant problems.

Second and not as obvious, when it comes to purchasing a business, one of the most important areas of due diligence should focus on employee and HR issues. This is often where problems tend to fester and this is especially true where the the value of the business being purchased is derived from the quality of services provided or good will.

Returning to the purchase of the dental practice, in supporting the employer’s position that it terminated the plaintiff for legitimate reasons, the employer went back and examined prior patient records relative to cleanings performed by the plaintiff to find proof of subpar performance. Certainly that information was available prior to the purchase, but the purchaser had not examined it. Otherwise, the purchaser could have made an informed decision to not continue the hygienist’s employment or used the discovered deficiencies in patient care to negotiate a lower purchase price from the seller.

From our law firm’s experience in representing both sellers and buyers, deficiencies in employee matters or anticipated employment litigation can significantly lower the purchase price in negotiations or make it completely unattractive.

For more information about federal and Michigan employment law or conducting employment related due diligence when buying a business, contact attorney Jason Shinn. Since 2001, Jason has represented employers in complying with federal and Michigan employment laws. He also routinely collaborates with purchasers and their legal and financial teams as an employment law specialist when it comes to evaluating human resource and employeee issues involved in the purchase of a business or making HR related improvements to a seller’s business to increase its value.

 

An Uber Example of Getting Caught with Your Hand In Your Employer’s Cookie Jar

Trade Secret MisappropriationUber and Lyft are both internet and mobile application based technology companies offering a peer-to-peer ridesharing platform. Or for less tech-speak, they are involved in what is generally described as the “sharing economy.” However, a recent lawsuit makes clear that sharing has its limits.

Specifically, Lyft is suing a former executive (Lyft v Uber (PDF)), Travis VanderZanden, for breaching his confidentiality agreement and fiduciary duty and after he jumped ship to join Lyft’s chief rival, Uber. According to the complaint filed in the lawsuit, the former executive copied vast amounts of confidential information on his way out the door. Uber has denied that Mr. VanderZanden has “shared” any of this information with Uber. 

These claims and allegations are by no means extraordinary. But they do provide a perfect roadmap for both employers and employees to follow when it comes ending one employment relationship in order to join a competitor. But instead of taking an all-out road trip to address all of those issues, two points stand-out.

How to Get Guarantee Your Former Employer Will Sue You

As to the firs issue, a little background for what not to do if you are an employee about to join a competitor: Lyft’s lawsuit alleges that VanderZanden informed the company’s founders of his plans to resign on August 12 and agreed to meet with the founders on August 15. But VanderZanden cancelled that meeting and suggested they speak after the weekend.

According to the complaint, it was a busy weekend for Mr. VanderZanden. Lyft alleges that he backed up a number of emails and confidential documents to his personal home computer and mobile phone before handing his company computer back. These actions were discovered after Lyft conducted a forensics analysis of VanderZanden’s company-issued laptop. The analysis further revealed that months prior to the departure, Mr. VanderZanden synchronized his personal Dropbox account with his Lyft laptop, copying a “significant number of Lyft’s most sensitive documents” in the process.

So the first issue for both employers and employees is really two sides of the same coin. From an employee’s perspective, assume your digital fingerprints will point to every piece of digital information you touched, e.g., every file, every email, every document, etc. And if those fingerprints suggest you took you former employer’s information to your new employer, be prepared to be sued.

And because these digital fingerprints provide valuable insight, employers need to have a plan in place to preserve this likely treasure trove of digital evidence. This is because the absence of such evidence may eliminate an expensive Don Quixote-like endeavor against the former employee. There is nothing worse than spending A+ resources on a C- employee or situation.

Conversely, the presence of such evidence will be needed to convince a judge that injunctive relief is appropriate and to otherwise support claims against the former employee. As part of your company’s plan, you’ll need to address how to preserve, analyze, and use the digital evidence.

Play a Strong Hand; Bluffing in Litigation Can Be Costly Continue Reading

Michigan Legislative Landscape for LGBT Discrimination

LGBT DiscriminationLast year, some Michigan politicians introduced proposed legislation to amend Michigan’s main employment civil rights statute, the Elliot-Larsen Civil Rights Act (ELCRA), to protect employees who are gay from discrimination. That legislation, however, didn’t go anywhere. And going into the elections this November the future of that legislation is, at best, uncertain and, more likely, not going anywhere for the foreseeable future.

Current LGBT Legislation Landscape

Specifically, as Michigan Public Radio noted, Frank Foster, a Michigan Republican Representative, was a sponsor to legislation to add LGBT protections to Michigan’s ELCRA. But he lost in this past August primary to Tea Party challenger Lee Chatfield.

It is far from certain that Mr. Foster’s backing for LGBT protections was the political nail in his coffin: Michigan Public Radio noted that Foster was identified as “one of Lansing’s most lobbyist-wined and dined. It’s never good when an incumbent is targeted as having ‘gone native’ in Lansing or D.C.” But LGBT rights were certainly an issue. Making it further unlikely that prohibitions against LGBT employment protections will not go anywhere is the fact that Gary Glenn, co-author of Michigan’s constitutional amendment banning same-sex marriage, also one his primary.

This Republican hostility towards LGBT equality is in stark contrast to Gov. Rick Snyder, a Republican, who has previously said that he would like to see Michigan lawmakers amend the state’s Elliott-Larsen Civil Rights Act to include language about sexual orientation and gender identity before the end of the year. However, Governor Snyder has, to date, not shown the political backbone to carry this issue within his Republican party.

Conversely, on the Democratic side of the aisle, pro-gay rights candidates won a number of primaries and – for the first time in Michigan political history – two openly gay candidates won their primaries for open House seats. Additionally, the cities of East Lansing and Jackson passed resolutions calling on the Michigan Legislature to add protections based on sexual orientation and gender identity without further delay. Also, Ann Arbor, Kalamazoo and Sterling Heights have recently passed resolutions in support of statewide nondiscrimination protections for gay and transgender people.

The Future for LGBT Legislative Action?

If there is a takeaway, it is being pro-gay rights is a liability on the Republican side of the fence, being gay is not a barrier to winning a Democratic seat, and a growing number of communities support prohibitions against discriminating against members in the LGBT community. For more information about restricting LGBT discrimination see Sexual Orientation Discrimination and Michigan Law – Is it a Time for a Change?

Drilling Home the Difference Between an Independent Contractor and Employee

Independent Contractor versus EmployeeA common question that business owners raise involves the use of employees versus independent contractors. The use and classification of an individual as an employee or independent contractor is one of the more complicated employment law issues that business owners will deal with and resolving such issues will depend upon circumstances.

Consider one test, the economic reality test, is used for determining employment status when it comes to social legislation such as worker’s disability compensation. However, another test, the “control test,” is used when it comes to tort actions. And both of these tests have multi-faceted factors that need to be considered under the specific circumstances).

But a recent Michigan Court of Appeals decision (Cole v. The Bada Bing Club, 2014) involving an employee/independent contractor issue drills home the point (quite literally) one of the significant differences between the two statuses and why it matters to employers.

The Beating at the Bada Bing Club

Specifically, Dennis Cole was severely beaten in the basement of the Bada Bing Club by the club’s manager, Henry Ramirez and three other individuals. The following is taken directly from the Court of Appeals opinion:

Plaintiff was taped to a chair, beaten with a gun, punched and kicked, and drilled through the hand with an electric drill. The men were all convicted of criminal charges for their involvement.

Plaintiff sued the Bada Bing Club and Atlantis Lounge Inc. Atlantis Lounge was the sole Owner of the Bada Bing Club, which was an assumed name filed by Atlantis. Atlantis Lounge, however, verbally contracted with Henry Ramirez (the guy involved in beating Plaintiff) who solely managed and operated the Bada Bing Club.

Lawsuit Turns on Employee or Independent Contractor Status

A central issue on appeal was whether Ramirez was an employee or an independent contractor. If Ramirez was an employee of Atlantis Lounge, then Atlantis could be held directly liable for negligently hiring, training, or supervising Ramirez. In contrast, under Michigan law there is no comparable cause of action for the negligent hiring or retention of an independent contractor. In other words, if Ramirez was an independent contractor then Atlantis Lounge was off the hook.

Normally a court will look to the employment/independent contractor agreement as a starting point for determining the true status of the individual. However in this case, there was an unsigned agreement that Ramirez denied having any knowledge about. Thus, Atlantis was left with arguing that there was a verbal agreement that made Ramirez an independent contractor. Fortunately for Atlantis Lounge, it was able to present additional evidence supporting showing that Ramirez essentially paid for the opportunity to operate the Club as an independent contractor without interference from Atlantis Lounge, Inc. as to the day-to-day operations.

For this reason, the Court concluded that Ramirez was an independent contractor and not an employee. And this conclusion meant that Atlantis could not be liable for the actions of Ramirez.

The Take-Away

Whether an individual is an “employee” or an “independent contractor” is critical when it comes to many employment law issues. For example and in addition to the above example, an important distinction between an “employee” and in “independent contractor
” is that under Michigan law and the Elliott Larsen Civil Rights Act and the Michigan Whistleblower Protection Act do not apply to independent contractors.

However, significant legal problems can and often arise when employers incorrectly label an individual’s employment status as “independent contractor” when they are in fact “employees” under the applicable law. The first step in avoiding this problem, starts with a solid understanding about the distinction between employees and independent contractors and then having in place a defensible independent contractor agreement that accurately reflects the relationship between the individual and business.

For more information about employment and independent contractor agreements, or compliance with federal or Michigan employment laws, contact employment attorney Jason Shinn.

Michigan Court Cuts Down Non-Compete Agreement

noncompete agreementAbraham Lincoln once noted that if he had six hours to chop down a tree, he would spend the first four sharpening the axe. For employers, that sort of up-front attention to details is especially important when it comes to non-compete agreements. Otherwise, as a recent Michigan Court of Appeals illustrates, the only thing likely to be cut down is the employer’s noncompete agreement and any chance of enforcing it against a former employee.

Specifically, in Huron Technology Corp. v Sparling (9/11/2014) the Plaintiff (the former employer) sued Defendant (the former sales employee) for allegedly breaching a noncompete agreement. The plaintiff sought to enforce the non-compete agreement after the Defendant resigned from Plaintiff and went to work for another company in the same industry.

The trial court found that the non-compete agreement, although reasonable in duration and geographic scope, was unenforceable as a matter of law because it did not protect plaintiff’s reasonable competitive business interests and was an unreasonably broad prohibition on field of employment. The former employer appealed this decision.

The Court of Appeals agreed with the trial court’s decision. The Court acknowledged that while Michigan courts have upheld similar language as reasonably prohibiting employment with another business that provides the same product or services as a former employer, the current case was different enough in that the post-employment restriction was actually broader than previously enforced noncompete agreements.

By way of example, the Court cherry-picked the case of Coates v Bastian Bros, Inc, (2007). In that case the noncompete agreement was enforced. But the Court distinguished Coates because the non-compete restriction only prohibited a former employee from working for “any enterprise in competition with the Company” meaning a business that, considered in its entirety, was in competition with the former employer.

In contrast, the Court took the position that the restriction in Huron Technology’s noncompete agreement encompassed a significantly broader range of businesses in that the Defendant was prohibited from working for a business that offers a single product or service that is “competitive” with any product or service offered by the Plaintiff, regardless of whether the business is an actual competition with the former employer. In other words, the Court made the call that this restriction meant that the Defendant in Huron Technology was prohibited from working for any business that was in “remote competition with” Plaintiff and that was unreasonably restrictive. Clear as mud, right?

The Take-Away for Employers and Employees

Going back to President Lincoln, this decision should be a wake-up call for employers to sharpen their employment agreements, i.e., carefully review and (probably) update their noncompete agreements. In this regard, it is a mistake for employers to assume they can simply recite the general rule that under Michigan law a noncompete agreement is enforceable if it is within an area code of protecting the employer’s reasonable competitive business interest, and it is reasonable in duration; geographical scope; and line of business. With this in mind, a few points are worth remembering:

  • First, an employer’s reasonable competitive business interest does not include protecting against the employee’s general knowledge and skill acquired during the employment.
  • Second, Courts are often exceptionally critical when it comes to enforcing a noncompete restriction. And it is not uncommon for courts to go out of their way to not enforce a non-compete restriction. For example, in reaching its decision, at one point in the Huron Technology decision the Michigan State Court of Appeals cited to a Michigan Federal District Court case, which in turn cited to Iowa law in support of a legal conclusion as to why Huron Technology’s non-compete restriction was not enforceable. For this reason, if a non-compete restriction is important to the success of your business then make the investment to have it properly drafted.
  • Third, and building on the preceding point, the Huron Technology case illustrates that a non-compete restriction is not a “one-size fits all” situation. Instead, noncompete restrictions need to be carefully drafted for your particular business situation in terms of the industry and employee position. What may be enforceable in one industry or for one position may not be in another situation.

Contact attorney Jason Shinn for more information about Michigan non-compete law, including drafting and enforcing noncompete restrictions.

Should My Business Use an Arbitration Agreement for Employment Disputes?

Employment Dispute ArbitrationA frequent question that employers have when it comes to employment contracts and policies is whether the company should use an arbitration procedure for resolving disputes.

While there is not a “right or wrong” answer to this question, I tend to recommend employers reconsider using arbitration for resolving employment disputes. Two important factors for recommending against employer required arbitration resolutions programs are as follows:

Initial Cost of Arbitration vs. Court Proceedings

When an employer is sued in state or federal court there is no court fee imposed on the employer at the outset.

In contrast, employers relying on arbitration often rely upon the American Arbitration Association (AAA) for administering the procedure. Under AAA’s Employment Arbitration Rules and Mediation Procedures, employers are looking at fees that range from $1,350 to $1,800 for responding to an employee’s claim and $1,550 to $2,000 for initiating a claim against an employee.

In judicial proceedings, neither side pays for a judge’s time. That is not true for arbitration. Again, under the AAA’s Employment Arbitration Rules and Mediation Procedures, hearing day fees are charged as follows:

  • For each day of hearing held before a single arbitrator, an administrative fee of $350 is payable by the employer.
  • For each day of hearing held before a multi-arbitrator panel, an administrative fee of $500 is payable by the employer.

In the big picture, these costs may make sense. But these are costs, nonetheless, that need to be factored into an employer-required employment arbitration program.

Arbitrators vs. (Run-away) Juries

One of the most common reasons to choose arbitration over judicial proceedings is to avoid a jury trial. Or more specifically, the avoidance of a potentially plaintiff-friendly, and overly-generous jury.

In contrast, arbitrations are usually heard by a single arbitrator or three-arbitrator panel who often have substantial knowledge and experience in the area of employment law. Certainly not a guarantee an employer will receive a favorable decision, but the belief that arbitrators tend to be both more predictable in decision-making and reasonable in awarding damages than juries can provide a warm and fuzzy feeling to employers.

But this concern overlooks reality; very few civil cases are actually tried before a jury. For example Hon. Denny Chin noted that in the twelve-month period ending September 30, 2011, only 1.1% of civil cases—all civil cases in the country—reached trial, both jury and nonjury. See Summary Judgment in Employment Discrimination Cases: A Judge’s Perspective (2013). Summary judgment – a motion filed to dispose of all or part of a case – has become one of the most common ways to resolve employment discrimination cases, which eliminates a jury from deciding the matter. 

In sum, analysis of federal case law shows that employees who sue over discrimination lose at a higher rate in federal court than other types of plaintiffs and they judges are more likely to dismiss their cases.

Conclusion

Considering whether to implement a system requiring the arbitration of employment disputes will depend upon your company’s particular circumstances, goals, and historical HR risk-management issues. In weighing the advantages and disadvantages of employment arbitration, the two considerations discussed above are among the many that employers will need to consider. 

For more information about investigating and responding to employment disputes, including drafting employment disputes policies and procedures, contact attorney Jason Shinn. Mr. Shinn is a Michigan employment attorney who has collaborated with a range of employers since 2001 to address employment law compliance issues, as well as defending those clients in state and federal courts. 

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