JokerOne of the most common questions I get asked by both business clients and individuals is whether their non-compete agreement is enforceable. As explained below, a number of points will determine the answer, but none are more important than what essentially amounts to a “wild card” — the judge deciding your case.

Attorney Brett Snider wrote an informative article, “Is the Noncompete Clause in Your Work Contract Legal?” His article covers the big-picture legal issues that both employers and individuals need to generally consider when it comes to noncompete enforceability. But one point that is worth building upon is the role a judge plays in deciding a noncompete lawsuit.

Specifically, Mr. Snider notes:

The law bends toward allowing former employees to move on with their careers and allowing them to work, but you should still be aware of your employer’s noncompete agreement.

I’ve been on both sides of this bend when it comes to non-compete issues, i.e., representing employers and former employees. Its great when you’re on the right side of the bend, but not so much when you’re not.

Case in point, last week the judge presiding over a noncompete lawsuit filed against my clients had all counsel in chambers for an early intervention and scheduling conference. The judge asked two questions relevant to the enforceability issue of the noncompete agreement in dispute:

  1. How long is the restriction; and
  2. What was the geographic scope of the restriction? 

The judge was told the restriction period was five years and covered the three counties making up Metro Detroit. In response, the judge simply stated those restrictions were not reasonable. It was enjoyable listening to opposing counsel politely try to explain why the judge was “wrong” on this assessment.  

Whether the judge’s off-the record assessment ultimately becomes a ruling in this lawsuit remains to be seen. Even if it does not, it certainly changed the focus of the lawsuit away from expensive litigation to settlement discussions. Nonetheless, this example also illustrates the uncertainty that both employers and employees face when it comes to enforcing a non-compete agreement.

Closing Thoughts on Noncompete Enforcement

Certainly from a client’s perspective one of the most frustrating responses to legal question is to be told that the answer “depends.” However, when it comes to whether a noncompete agreement is enforceable, the answer will almost always be that it depends because ultimately that question and associated issues will be decided in the sound discretion of the the person who happens to be the judge. 

Even so, there are a number of steps employers can take to minimize the likelihood a judge will find company’s non-compete agreement is not enforceable. And the beginning point in this analysis is having a well-written non-compete agreement that provides reasonable protection to the employer.

This article was written by Michigan employment attorney Jason Shinn who routinely handles Michigan noncompete legal issues and lawsuits.

Trade secret protectionTrade secret theft continues to be a major concern (or it should be) for businesses. And the numbers back up this conclusion; In an article by  by Will Yakowicz, appearing in Inc., “How to Avoid Becoming a Victim of Trade Secret Theft,” it’s noted that:

Criminal theft of corporate trade secrets is reaching epidemic levels, experts say … the number of trade secret cases in U.S. federal courts doubled between 1988 and 1995, doubled again from 1995 to 2004, and is projected to double again by 2017.

Mr. Yakowicz’s article goes on to provide business owners with great advice on how to reduce trade secret thefts in your business. Having recently wrapped a trade secret misappropriation trial filed in Michigan state court, I can definitely say that the article is worth reading and the recommendations should be meaningfully considered by any business with information worth protecting.

What happens when a trade secret misappropriation lawsuit falls apart.

For background purposes, I represented a company and its executives who were sued for claims involving trade secret misappropriation, breach of a non-compete agreement, and other business related claims. One problem with any sort of lawsuit is that often times the facts get in the way.

This became clear as two days after the trial began, the lawsuit settled on terms very favorable to my clients (Plaintiff had requested over $860,000 at Michigan’s case evaluation procedure, which resulted in the evaluation panel awarding $175,000 against my clients). However, the parties settled the lawsuit for $8,500.00 payable over time.

Continue Reading What Steps Can Your Business Take to Avoid Becoming a Victim of Trade Secret Theft?

Michigan Gov. Rick Snyder said Thursday, May 29, 2014 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. These statements were made in an interview with Crain’s Detroit Business, as reported by Chris Gautz.

Currently Michigan’s Elliott-Larsen Civil Rights Act prohibits employment, public accommodations, public services, education, and housing discrimination based on race, religion, color, national origin, sex, age, marital status, height, weight, and arrest records — sadly, it does not prohibit discrimination based on sexual orientation or gender identity/expression. 

Crain’s Detroit also reported that Rick Baker, President and CEO of the Grand Rapids Area Chamber of Commerce, and Sandy Baruah, president and CEO of the Detroit chamber support amending Michigan’s Elliott-Larsen Civil Rights Act to prohibit employment discrimination based on sexual orientation. Ms. Baruah further explained:

Michigan’s business community is sending a very clear message about the importance of workforce diversity to our state’s future. We are in a global war for talent, and need the best and brightest workforce to compete in the 21st century economy, regardless of sexual orientation and gender identity. We are committed to a Michigan where all are free and welcome to contribute to our economic comeback.

I share Ms. Baruah’s beliefs and reasons for amending Michigan employment laws to protect against sexual orientation discrimination. See my October of 2013 article, Sexual Orientation Discrimination and Michigan Law – Is it a Time for a Change?, calling for the amendment of Michigan’s Elliott-Larsen Civil Rights Act to prohibit employment discrimination based on sexual orientation.

Gov. Snyder’s newly expressed support as well as the support of business leaders for such an amendment is an important step in the right direction for Michigan, its employees and Michigan businesses. And with the growing support for this amendment, one can be optimistic that this will translate into action.

For more information about sexual orientation discrimination and compliance with federal and Michigan employment laws, contact employment attorney Jason Shinn.

 

“Should Companies Monitor Their Employees’ Social Media?” This question was debated by the Wall Street Journal on 5/12/2014.

On one side of the debate was Ms. Nancy Flynn who took the position that companies absolutely must monitor their employees’ social media use, as well as use social media to screen job applicants. Or in her words:

Management has a right and responsibility to monitor how employees are using social media at all times … companies should ask for access to employees’ Facebook accounts and other private social media.

Mr. Lewis Maltby took the contrary view that monitoring employees’ social media use should be the exception. That exception being limited to when it is believed an employee engaged in misconduct and it should not be used to screen job applicants.

The fact is the vast majority of what employees do on the Internet has nothing to do with work, takes place during their private lives and is done on their personal computers … It’s simply too easy to turn social-media searches into fishing expeditions.

Continue Reading Monitoring Employees’ Private Social Media – Putting Together a Sensible Approach

Dunce.jpgEmployers and their HR professionals may want to sit down before reading on: If a manager in your company text messages a picture of his “fully erect penis” to an employee and then fires that employee the day after she brings this to your attention, you will probably be sued. In other news, water tends to be wet.

As to text messaging shenanigans, a lawsuit filed in Genesee County, Michigan Circuit Court (PDF) (don’t worry there are no “Exhibits” attached to the complaint) claims that Suski Chevrolet Buick fired an employee the day after she complained that her boss emailed her a photo of a “fully erect penis.” The Complaint further alleges that the boss threatened to “bury” and “harm her if she sued for sexual harassment.”

Suski is being sued under Michigan’s Elliot-Larsen Civil Rights Act for sexual harassment based on a hostile environment, retaliation, and other related claims.

The Take-Away

This lawsuit was only filed in the last couple of days. And there is always two sides to every story (maybe?). But in any event, this blog rarely, if ever, gives out free legal advice, however, today is an exception: 

Based on my years of employment law experience and an otherwise keen intellect, I highly recommend that your company’s managers should not be texting pictures of fully erect, partially erect, or even a flaccid penis. In my 13 plus years of practice, I’ve never encountered an exception to this rule. And if for some reason this rule is violated, don’t follow up with threats of burying or harming anyone if they share the picture.

If for some reason a manager believes that sending a picture of his (or her) genitalia is simply just the right message for that situation, as a company carefully evaluate whether you have a legitimate basis to fire the employee if he or she decides to report the incident. And if your company concludes that firing the employee the day after the incident is reported just makes sense, you should probably get a second opinion from your employment attorney.

In all seriousness, every business needs to have an effective and meaningful anti-harassment policy. At a minimum, that policy should include three fundamental components:

  1. A statement prohibiting harassment, including sexual harassment; 
  2. A definition of harassment; and 
  3. An easy procedure to encourage employees who believe they have been harassed to complain, as well as assurances that there will be no retaliation for filing a report.

For more information about preventing and responding to sexual harassment or other workplace discrimination issues, contact employment attorney Jason Shinn. He works with businesses to comply with federal and Michigan employment laws, as well as litigating these issues in state and federal courts.

Telecommuting.jpgUnder a recent federal court ruling, Michigan employers must be prepared to consider telecommuting as a reasonable accommodation under the Americans with Disabilities Act (ADA) for an employee under a 4/22/2014 court ruling.  

Specifically, Jane Harris was terminated from her position as a resale steel buyer at Ford Motor Co. This termination occurred shortly after she asked to telecommute several days per week in an attempt to control the symptoms of irritable bowel syndrome (IBS).

The Equal Employment Opportunity Commission (EEOC) took up this case and argued at the district court level that Ford discriminated against Ms. Harris on the basis of her disability and retaliated against her for filing a charge with the EEOC.

The district court rejected this argument and dismissed the case in favor of Ford. But this decision was reversed on appeal by the U.S. Sixth Circuit Court of Appeals (the federal jurisdiction covering Michigan).

Reasonable Accommodations in General

Before jumping into why telecommuting must now be a consideration as a reasonable accommodation, a brief overview of the ADA is in order.

Under the ADA, an employer may not “discriminate against a qualified individual on the basis of disability in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms, conditions, and privileges of employment.” 42 U.S.C. § 12112(a). An employer “discriminates” under the ADA if it does not make “reasonable accommodations to the known physical or mental limitations of an otherwise qualified individual with a disability who is an applicant or an employee, unless [the employer] can demonstrate that the accommodation would impose an undue hardship on the operation of the business.” Id. at § 12112(b)(5). 

Returning to telecommuting as a reasonable accommodation, the EEOC argued that Ms. Harris was: (a) Qualified for the position after the elimination of the requirement that she be physically present at Ford facilities or (b) Qualified for the position with a telecommuting accommodation.

Here is the reasoning the Court used and that employers need to understand: 

It is important, at this juncture, to clarify that we are not rejecting the long line of precedent recognizing predictable attendance as an essential function of most jobs. Nor are we claiming that, because technology has advanced, most modern jobs are amenable to remote work arrangements. As we discussed above, many jobs continue to require physical presence because the employee must interact directly with people or objects at the work site … We are merely recognizing that, given the state of modern technology, it is no longer the case that jobs suitable for telecommuting are “extraordinary” or “unusual.

To appreciate the significance of this ruling, consider the district court had accepted Ford’s assertions that in-person interactions were an “essential function” of the resale buyer position: and the “ADA requires courts to consider ‘the employer’s judgment as to what functions of a job are essential.” Accordingly, under the district court’s ruling because Ms. Harris could not be physically present at work, she was not “otherwise qualified” for the position.

What this means for Employers

Employers and HR professionals should read the entire EEOC v Ford Motor Co. opinion. But several important take-aways include:

  1. First, the Court of Appeals noted that it was not rejecting the premise that attendance is an essential function or that technology has eliminated the need to be physically at work. But, employers appear to have lost the ability to simply recite those previously magical phrases and expect to end the discussion of whether telecommuting is a reasonable accommodation. 
  2. Second, Ford conducts its operations throughout the world and has existing capabilities or the resources to facilitate a telecommuting position for employees. But the ADA applies to companies with as little as 15 employees, which must provide reasonable accommodation to qualified individuals with disabilities unless it results in undue hardship on their businesses. Certainly the costs of telecommuting have decreased through technologies, especially with may businesses moving to cloud services. But there is still a cost to consider. However, does that cost approach an “undue hardship?” 
  3. Third, employers should consider reassessing their job descriptions. Despite this ruling, the ADA still requires courts to consider “the employer’s judgment as to what functions of a job are essential.” A more detailed job description may bolster an employer’s position in illustrating what job functions are “essential,” including attendance. 
  4. Fourth, employers definitely need to have a well-defined telecommuting policy in place. That policy also needs to be consistently applied. I think the issue of consistency worked against Ford in that it allowed employees in certain positions to telecommute up to four days a week. And employees in Ms. Harris’ position were allowed to work remotely one day a week. So when Ford rejected Harris’ request to telecommute four days a week, it created a question of fact as to whether Ford fired Harris because it believed she could not perform her job duties effectively.

For questions about complying with the Americans with Disability Act or reasonable accommodations in the workplace such as telecommuting, contact attorney Jason Shinn. Mr. Shinn is a Michigan employment attorney who works with businesses to comply with federal and Michigan employment laws. Also, for additional insight on this issue ruling, see Road Rules: Ruling Now Guides Telecommuting As Reasonable Accommodation Discussion, by attorney Gabe Jiran.

Post It - Waiting.jpgEmployee terminations are an unfortunate reality of every business. But that doesn’t mean employers and their managers are good at carrying out terminations. 

Take for example a response Sir James Dyson (yes, the vacuum guy was knighted by Queen Elizabeth II in 2006) gave when he responded to Bloomberg Businessweek’s “Ask a Billionaire” feature that asked what is the best way to fire someone:

It’s terrifying. It took me six months to pluck up the courage to fire the first person.

I have not had the opportunity to represent too many billionaires, but in my experience in representing other business owners, this response is fairly typical and understandable. Often this reluctance is justified that “maybe” the employee will turn it around or that the employee will get the message and just quit. But whatever the reasons – real or manufactured – for delaying the firing will often make the situation worse for the employer and its operations. 

Waiting to terminate only compounds the problem.

When it comes to employee terminations, the fact is an employee may not work-out for a business for any number of reasons. Regardless of those reasons, at the end of the day the interests of the employee and the company are no longer (if they were ever) aligned. And it is a mistake for this misalignment to continue.  

But when the employer fails or otherwise delays in making the termination, now the employer is compounding the problem by continuing in a misaligned relationship. This situation is not good for anyone – the employee, the employer, and its operations or other employees, especially those who work along-side with the yet-to-be terminated employee. 

And another real concern employers should consider is that if an unhealthy employment relationship is allowed to fester, that employee may become disgruntled and actively undermine the business and its relationships with customers or vendors.   

But Haste Makes Waste(ful) Litigation. 

Nothing in this post should be read to mean that any termination should be a spontaneous decision. Instead, employers need to make sure every termination follows a well-reasoned and documented process. The better the process, the more likely the employer will be able to avoid a later claim the termination was unlawful.

See this link for an actual example of a manager’s testimony is directly contradicted by emails and other documents. Also, see this link for considerations employers should examine with their employment attorneys.  

Conclusion

Ending a person’s employment is a major event and it needs to be handled carefully and should be handled with dignity. But once it is determined an employee’s performance or conduct is not acceptable, termination may be the only option. But once this is substantiated, the employer should not delay the carrying out the decision: The employee needs to be terminated no matter how terrifying the experience may be for the employer.  

For more information about investigating employee misconduct and terminating the employment relationship, contact employment attorney Jason Shinn. Mr. Shinn routinely collaborates with employers and human resource professionals to properly document issues involving employee misconduct and terminations. This documentation has proven invaluable in fending off claims for wrongful terminations.  

Signing Contract.jpgEmployers commonly require newly hired employees to sign a non-compete agreement as a condition of their employment. In this regard and under Michigan law, employers may obtain from an employee an agreement or covenant that protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business. MCL 445.774a(1).

Basics of Enforceable Non-compete Agreements under Michigan Law

Normally non-compete agreements are entered into at the beginning of the employment relationship. But what happens if a long-time, currently employed individual is required to enter into a non-compete agreement?

Before addressing this question, it is important to understand that to have an enforceable contract requires valid an element called “consideration,” which is essentially “a bargained-for exchange.” In other words, consideration consist of a benefit on one side, or a detriment suffered, or a service done on the other. 

In the employment context, when an individual is offered employment, the job offer and corresponding acceptance serves as the bargained-for exchange between the employer and employee. In other words, as consideration for executing a non-competition agreement, the applicant is offered employment; Without signing the non-compete agreement, the individual would not have been employed.

In contrast, when a person already employed is asked to sign a non-compete agreement, the question becomes is continued employment sufficient consideration to have an enforceable non-compete agreement?

Continued Employment and Michigan Non-compete Law

Employers and their attorneys often refer to a case called QIS, Inc. v. Industrial Quality Control, Inc. (2004) to support the conclusion that continuation of employment is sufficient consideration to support a non-compete agreement. However, there is an argument to be made that the QIS decision is based on shaky legal ground. This is because the QIS decision relied on a federal case (Robert Half Int’l, Inc. v. Van Steenis (1991)) to support the conclusion that continued employment will support a non-compete agreement. But the Robert Half decision cited to Iowa law – not Michigan law – to support this conclusion.  

This is not an academic concern. For example, a former colleague recently asked me my thoughts on non-compete agreements and continued employment (he bought lunch so I didn’t mind sharing the above insight). Apparently, his client, a company, received an adverse arbitration decision in a dispute involving the enforceability of a non-compete agreement that was entered into after the employment relationship began. One of the cases the company relied upon was QIS.

The arbitrator, however, rejected the contention that continued employment was sufficient consideration to support a non-compete agreement. The arbitrator’s decision did not illuminate the reasons, including the shortcomings of the QIS decision for this conclusion. Nonetheless, it does illustrate what should be at least concern on every company’s radar screen when it comes to requiring current employees to sign new non-compete agreements. 

The Take-Aways

I don’t agree with the arbitrator’s decision because I think the legal trend when it comes to non-compete agreements is that continued employment is sufficient consideration to support the agreement. But that doesn’t change the result my friend’s company got.

  1. Out of an abundance of caution I generally recommend that companies pay particular attention to the element of consideration when it comes to non-compete agreements. For example, we have come up with specific recommendations designed to eliminate an argument that the non-compete agreement is unenforceable for a lack of consideration.  
  2. Also, as an aside, I am often not a fan of arbitration for various reasons, especially in employment matters. One such reason is because of “rogue” decisions like the one referenced above. Unlike a lawsuit, the arbitration decision is not likely to be subject to being corrected by of a motion for reconsideration or on appeal. 
  3. From the perspective of a currently employed individual asked to sign a non-compete agreement, more often than not you be given the choice of signing it or being terminated. While this hardly seems like a “choice,” if it is an employment at-will situation, i.e., there are no other employment contracts to consider, it is a choice that is lawful. For this reason, it is important to understand before signing the non-compete agreement what you are agreeing to and, if necessary, whether there are defenses against enforcing the restrictions … perhaps a lack of consideration?  

Jason Shinn is a Michigan attorney who focuses on non-compete law and litigation. He works with companies to draft enforceable non-compete and other employment agreements. He also has extensive experience representing employers and employees in pursuing or defending against non-compete lawsuits.    

Same-Sex MarriageMichigan’s Governor Rick Snyder issued today a press release announcing that Michigan will not recognize any of the 300 plus same-sex marriages that were performed last weekend. These same-sex marriages were performed after a federal judge declared Michigan’s ban on same-sex marriage to be unconstitutional.

Unwilling to accept this decision, Michigan Attorney General Bill Schuette decided to appeal the ruling to the federal court of appeals and further asked that this court stay the earlier decision to determine the matter. Mr. Schuette’s request was in part granted and the earlier ruling was halted over the weekend.  

This left open, however, for Michigan residents and employers the question of what to do with the same sex-marriages that were performed between the ruling that Michigan’s ban was unconstitutional and the staying of that decision. 

Governor Snyder answered that question today in a press release. But that answer suggest that Michigan is in the awkward position of talking out of both sides of its mouth.

Specifically, the Governor has taken the position that the same-sex marriages performed after Michigan’s ban was found to be unconstitutional by a federal judge were legally performed and were valid. But because a federal circuit court later granted a stay of that ruling, the rights and liberties arising under those legally and valid marriages are not going to be recognized by the state and are suspended.

Governor Snyder’s press release reads in part as follows:      

After comprehensive legal review of state law and all recent court rulings, we have concluded that same-sex couples were legally married at county clerk offices in the time period between U.S. District Judge Freidman’s ruling and the 6th U. S. Circuit Court of Appeals temporary stay of that ruling …. The couples with certificates of marriage from Michigan courthouses last Saturday were legally married and the marriage was valid when entered into. Because the stay brings Michigan law on this issue back into effect, the rights tied to these marriages are suspended until the stay is lifted or Judge Friedman’s decision is upheld on appeal.

Over the weekend and prior to this press release, our office was inundated with questions form HR professionals and Michigan employers about what the rulings would mean for their business operations and employee benefit programs. Such questions were especially important because Michigan’s primary anti-discrimination employment statute prohibits discrimination based on an individual’s marital status. 

Well, Governor Snyder’s press release answers those questions – absolutely nothing until further ordered.

Unfortunately and regardless of your politics or beliefs, the fact is that over 300 families have been stripped of their legal rights – rights that were lawfully provided by Michigan officials. And it is dangerous ground when that can happen simply because the government says it can, which, as noted by Judge Friedman, is something that should not happen under principles of equal protection:

Today’s decision … affirms the enduring principle that regardless of whoever finds favor in the eyes of the most recent majority, the guarantee of equal protection must prevail.

For more information about Michigan employment law, including sexual orientation discrimination issues contact Jason Shinn. Mr. Shinn is a Michigan employment attorney who has represented employers and individuals since 2001. 

Security_Computer_Laptop in Chain.jpegTrade Secret Saturdays is a new initiative for a weekly round-up of articles and blog posts focused on trade secrets that caught our attention or that should be on your company’s radar screen. Enjoy.   

  • Trade Secrets Loss Could Be 3% of GDP: This article provides hard-data about the cost arising from trade secret misappropriation. The report also identifies one of the main culprits behind trade secret theft to be current and former employees, who are “familiar with a company’s systems, are acquainted with where and how information is stored and know specific details on the production or use of trade secrets are one of the greatest cybersecurity threats companies face.” These findings are definitely consistent with my experience in representing companies in trade secret litigation. The findings also provide sufficient data for allocating company resources to implement or overhaul a trade secret protection plan.  
  • Filing for a Patent Versus Keeping Your Invention a Trade Secret. This article from Harvard Business Review is a great explanation about the advantages trade secret offers over patent protection. And it also provides compelling reasons for why entrepreneurs and businesses should not overlook the importance of trade secret protection. I love the example used; Wyeth maintained an exclusive monopoly on a drug long after the patents to the actual drug expired. It was able to do this because the extraction process that was critical to manufacturing the drug was not patented and, instead, protected as a trade secret. The secret sauce critical to making the multimillion drug – horse pee. 
  • Trade Secret Lawsuit Against DuPont dismissed by Federal Judge (PDF Order). A New York federal judge on 3/3/2014 dismissed a lawsuit brought against DuPont Company by a digital printing company that accused DuPont of breaching nondisclosure agreements and misappropriating trade secrets. The judge’s decision was a virtual buffet of why the trade secret misappropriation claims failed. But it was primarily based on the fact that the plaintiff failed to treat the information as “confidential.” And this failure is also a common theme when it comes to pursuing or defending against trade secret misappropriation claims. It is also a good reminder for any businesses who need to protect a competitive advantage to take the time to invest in a coherent and smart trade secret protection plan. 

For more information about trade secret protection or responding to issues involving trade secret theft, contact Jason Shinn. Jason is a Michigan licensed attorney who has addressed Michigan trade secret legal issues since 2001. He routinely collaborates with companies to establish or improve their trade secret protections by implementing best practices and, if necessary, litigates these issues.