Sunday, August 6, 2017

The Ugly Truth: Are Your Employee Handbook Policies and Non-Compete Agreements a Recipe for Litigation?

    A question often asked by employers is whether they are legally required to have an employee handbook, and the answer is “no.”  A much better question to ask is whether it is a good idea for employers to legally protect themselves with a well-drafted and up-to-date employee handbook, and the answer to that question is a clear and definitive “yes.”  
    A good employee handbook provides a road map for your company, and introduces employees to your culture, mission and values.  It should clearly and concisely communicate your policies, procedures and expectations to your employees and provide guidance to your supervisors.  In the event of employment litigation, what you have in your handbook as far as reporting harassment or discrimination, accommodating disabilities or religious beliefs, granting leave under the FMLA, or wage and hour issues, could make the difference between prevailing in a lawsuit, or having to pay an adverse judgment.
    However, recent changes in how federal agencies interpret existing employment law, combined with outdated, poorly drafted or “boilerplate” policies, can turn your employee handbook into a recipe for costly litigation.  Likewise, a poorly drafted non-compete agreement that is found to be unenforceable, can result in the loss of business, customers and trade secrets.  Learning the “ugly truth” about these issues can go a long way in avoiding even uglier litigation. 
    A. Ugly Truth #1:  The Best Employee Handbook in the World Will Not Prevent a Lawsuit (but a Bad One Could Help the Plaintiff Win).
    Every business is different, and there is no “one-size-fits-all” employee handbook.  Your handbook should directly reflect how your company actually operates, its culture and its expectations. As such, avoid using a handbook you found on the internet that contains provisions and policies that have nothing to do with your business or contains rules you will not actually follow or enforce. Revise or replace outdated handbooks.  Keep your handbook concise, avoid legal terminology and use language that your employees will understand.  The basics of what you should include are as follows:
    Include an At-Will Disclaimer.
    Mississippi is an at-will employment state, as is the case in most states.  At-will employment means the employee works for the employer at the employer’s will.  The employer may terminate the employment relationship for good reason, bad reason, or no reason at all.  Likewise, the employee can terminate the relationship at any time.  However, in the case Bobbitt v. The Orchard, Ltd., 603 So. 2d 356 (Miss. 1992), the Mississippi Supreme Court held that if a handbook contains detailed policies and procedures to be followed when terminating an employee, it can create an employment contract, destroy the at-will relationship, and expose an employer to a breach of employment contract claim if the employer did not follow its own procedures in terminating the employee.  However, if the handbook disclaimer expressly provides that the employment relationship is at-will and can be terminated at any time, the employer has not waived the right to unilaterally terminate the employee by setting forth a grievance process in the manual.
    The disclaimer should be clear and conspicuous. Disclaimer language should also be included in all other documents given to the employees, such as job applications, profit sharing plans, and memoranda regarding employment benefits.
    The language should make clear that the employee’s employment is terminable at will, and that nothing in the handbook should be construed to alter the at-will relationship.  Avoid “contract-like” language.
    The disclaimer should express that nothing in the handbook should be construed as creating a contractual relationship or as implying a guarantee of continued employment or benefits.  Use “may” and avoid “will” or “shall” or any language that suggests the company is promising to do something or confer specific benefits.  
    The disclaimer should make clear that the employee handbook provides only general guidelines as to company policy and should not be read as including the fine details of company policy or procedure.  The employee should be directed to appropriate management personnel for more information regarding particular policies.  
    Handbook language should reserve the company’s right to change, modify, supplement or revoke its policies at any time, with or without notice to the employee.  Although employers should keep employee handbooks up to date to accurately reflect company policy, disclaimer language should caution employees that changes in policy are not dependent upon the changes being reflected in a revised handbook. 
    Equal Employment Opportunity Statement and Anti-Discrimination / Harassment /Retaliation Policy.
    Statement that employer will comply with applicable federal and state law and provide equal employment opportunity without regard to race, color, religion, gender, sexual orientation age, national origin, disability, sexual orientation, veteran status or any other protected category.
    Definitions of discrimination, harassment, retaliation.
    Requirement that employees report to his/her supervisor or HR any complaints of unlawful conduct, without fear of retaliation.
    Specific reporting instructions, that allow employee to bypass supervisors who may be the source of the unlawful conduct.
    Statement as to company’s investigatory process for complaints and corrective/disciplinary action for unlawful conduct.
    Effective policy can provide valuable legal defense.
    Include policy regarding consensual workplace romantic relationships.
    Americans With Disabilities Act (“ADA”).
    Prohibits discrimination and ensures equal opportunity and access for persons with disabilities.  The ADA also requires employers to provide reasonable accommodations, i.e., changes to the workplace or job -- to allow employees with disabilities to do their jobs.  The ADA, like other federal employment statutes, anticipates an interactive process between the employee and the employer to reach a reasonable accommodation, and for this reason, it needs to be in your handbook so that your employees are made aware of the need to initiate the process with their employer.
    Pregnancy Discrimination Act (“PDA”).
    The PDA amended Title VII of the Civil Rights Act of 1964 to "prohibit sex discrimination on the basis of pregnancy."  The Act covers discrimination "on the basis of pregnancy, childbirth, or related medical conditions."
    Family Medical Leave Act (“FMLA”).
    The FMLA entitles eligible employees of covered employers to take up to twelve weeks of unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave.
    Fair Labor Standards Act (“FLSA”).
    The FLSA establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in Federal, State, and local governments.
    Uniformed Services Employment and Reemployment Rights Act (“USERRA”).
    Protects the right of employees to be reemployed in their civilian job if they leave that job to perform service in the military service and protects service members from employment discrimination and/or retaliation based on their military service.
    Code of Conduct / Discipline Policy.
    Outline acceptable workplace conduct, and unacceptable conduct that will result in disciplinary action, up to and including termination.  In listing examples of unacceptable conduct, e.g. theft, false reporting of time worked, threats of violence, make it clear that it is not an exclusive or complete list.  While the policy should retain the right to use warnings or progressive discipline at the discretion of the employee, it also should state that an employee may be subject to immediate termination for inappropriate conduct or violations of workplace policies.   
    Outline policies and eligibility regarding vacations, 401(k), health insurance, paid leave or other benefits to employees. 
    Include Handbook Acknowledgment Form.
    A common claim by plaintiffs in employment litigation is that they were unaware of the workplace policy that they violated, or that they had never seen or been given a copy of the employee handbook.  Every handbook should include an acknowledgment form to be signed by the employee, attesting that they have received a copy of the handbook, acknowledging their responsibility to read and comply with the policies contained in the handbook, including any future revisions, and acknowledging their at-will employment status.  This can be done using a hard copy form to be put in the employee’s personnel file, or in the case of a handbook that is on-line or on the company’s intranet, it can be a digital form which the employee electronically signs.  A signed copy of an acknowledgment form can be a valuable exhibit when a plaintiff claims in a deposition that he was never given a handbook or had no knowledge of the policy which he violated and which resulted in his or her termination.
    Train Your Managers / Inconsistent Enforcement Can Result in Discrimination Claims.
    Don’t assume that your managers and supervisors will always act in accordance with the policies in your handbook.  Make sure they receive regular training on handbook policies so that they are implemented correctly and effectively.  Once trained, management and supervisors should periodically review handbook policies to assess whether they are being applied consistently.  Inconsistent enforcement of policies could result in claims of discrimination. 
    B. Ugly Truth #2:  Many Commonly Utilized Handbook Policies Now Expose Employers to Liability Courtesy of the National Labor Relations Board (“NLRB”).
    The National Labor Relations Board (“NLRB”) is the federal agency responsible for enforcing labor law in relation to union election, collective bargaining agreements between unions and employers, and unfair labor practices.  Unbeknownst to many employers, the National Labor Relation’s Act’s (“NLRA”) prohibition against unfair labor practices also extends to non-union employers. 
    In recent years, the NLRB has taken a highly aggressive position against many commonly utilized employee handbook policies.  The NLRB alleges that overbroad employment policies could have a chilling effect on employees’ concerted activities protected by Section 7 of the NLRA. Generally speaking, there is protected concerted activity when two or more employees act together to improve their terms and conditions of employment.  Employees have a right to advocate in this manner even where there is no union involved.  Under the NLRB’s recent interpretive guidelines, an employer’s policy will violate the NLRA if it could simply be “construed” as restricting Section 7 rights. 
    On this basis, the NLRB has been asserting unfair labor practice complaints against employers across the country for handbook policies that are commonly utilized.  Examples of handbook policies that the NLRB finds could be construed as restricting Section 7 rights include the following:
    Policies against “personal business” on company property and “while at work.” 
    [NLRB Position:  The prohibition against conducting “personal business” on company property and “while at work” can reasonably be read to restrict the communications of employees with each other about union or other Section 7 protected rights in non-work areas and on non-work time.]
    No "[d]efamatory, libelous, slanderous or discriminatory comments about [the Company], its customers and/or competitors, its employees or management.
    [NLRB PositionEmployees have the Section 7 right to criticize or protest their employer's labor policies or treatment of employees.  Thus, rules that can reasonably be read to prohibit protected concerted criticism of the employer will be found unlawfully over broad.]
    Policies against employees discussing or disclosing wages.
    [NLRB PositionEmployees have a Section 7 right to discuss wages, hours, and other terms and conditions of employment with fellow employees, as well as with nonemployees, such as union representatives.]
    "You must not disclose proprietary or confidential information about [the Employer, or] other associates (if the proprietary or confidential information relating to [the Employer's] associates was obtained in violation of law or lawful Company policy)."
    [NLRB Position:  “Although this rule's restriction on disclosing information about "other associates" is not a blanket ban, it is nonetheless unlawfully overbroad because a reasonable employee would not understand how the employer determines what constitutes a "lawful Company policy."]
    On the same basis, the NLRB also has been filing unfair labor practice complaints against employers’ because of their social media policies that impose discipline on employees for disparaging comments made about their employers or supervisors on their personal Facebook pages or other social media.
    There has been an expectation among employers that with a new administration, and with the NLRB soon to have its full complement of Republican members, that the Board might relax its position.  However, as recently as late April 2017, an NLRB judge ruled against Verizon Wireless, ordering it to strike ten of its employee handbook policies on the basis that they violated the NLRA because they could be construed in such a way to “chill” an employee’s right to engage in protected concerted activity.
    In another recent case, the United States Court of Appeals for the Second Circuit in New York affirmed the NLRB’s controversial ruling against Whole Foods’ policy against employees from making workplace recordings.  The Second Circuit agreed with the NLRB’s position that the rule could be construed as blocking workers from recording activity protected by the National Labor Relations Act.
    The NLRB has published guidelines to assist employers in drafting handbook provisions that will withstand scrutiny, but the difference between what the NLRB considers a lawful handbook policy and what it considers an unfair labor practice is fairly subtle.  Some points to consider:
    Have your policy acknowledge the law.  One way to ensure that your handbook/social media policy is not considered invalid on its face is to include protective language which states the policy will be applied and enforced consistent with the NLRA and any other applicable local, state or federal laws.
    Avoid overly broad language.  While employers may want to have a policy that would address every conceivable situation that might arise, such a strategy runs the risk of being considered invalid under the NLRA.  
    Have handbook policies reviewed for legal compliance.
    Review Internet/social media policies yearly.  Social media and its technology is constantly changing, and the statutory and case law governing its use in the workplace is also evolving.  It is wise to make sure employment policies keep pace.
    C. Ugly Truth #3:  Not Reasonably Accommodating the Religious Beliefs of Employees Can Be Unreasonably Expensive.
    In any handbook, there will always be some generally applicable rules, such as dress and grooming policies or work schedules, that have the potential to raise a conflict with an employee’s religious belief or practice.  Title VII of the Civil Rights Act of 1964 places a duty on the employer to engage in an interactive process with the employee, to reach a reasonable accommodation that does not impose an undue hardship on the employer.  For this reason, a handbook should contain language stating that reasonable accommodation for religious beliefs or practices may be sought, and the procedures for making such a request.  Generally, these issues are relatively easy to address.  When not handled correctly, they can be costly.  This is illustrated in two recent cases.
    In EEOC v. Consol Energy, Inc., (N.D. W.Va) an employer’s use of a high-tech device to stay in compliance with the Fair Labor Standards Act (“FLSA”) resulted in a large dollar jury verdict in a religious discrimination case brought by the EEOC. 
    Consol operated a coal mine in West Virginia, and utilized a biometric hand scanning system to track employee work hours for purposes of payroll and FLSA compliance.  One employee, Christian Beverly Butcher, told his supervisor that he could not comply with the hand scanning policy because he believed the technology has a connection to the “mark of the beast” and the Antichrist, as alluded to in the Book of Revelation in the New Testament of the Bible.
    As a proposed reasonable accommodation, the company offered to allow Butcher to scan his left hand with his palm up, which he declined. Butcher resigned, stating that he was doing so involuntarily. He brought his complaint to the EEOC, which filed suit on his behalf against the company, alleging that Consol had violated Title VII by failing to reasonably accommodate Butcher’s sincerely held religious beliefs.
    A federal judge in West Virginia denied Consol’s effort to have the lawsuit dismissed, and a jury later ruled in Butcher’s favor and awarded $150,000.00 in compensatory damages.  The EEOC later filed a post-trial motion seeking an additional $413,000 in front and backpay. 
    The other case involves a very expensive flu shot.  In EEOC v. Saint Vincent Health Center (W.D. Pa.), the EEOC sued a Pennsylvania hospital on behalf of six employees over its mandatory seasonal flu vaccination requirement.  The lawsuit alleged that the employees were terminated because the hospital refused to accommodate their religious objections to the vaccinations.  The case did not go to trial but the hospital ended up paying a $300,000 settlement and entering into a consent decree requiring changes to their policies and requiring mandatory training for supervisors as to accommodating religious beliefs.
    D. Ugly Truth #4:  Gun Policies Can Be a Loaded Legal Issue.
    In light of incidents of workplace violence nationwide, many employers have handbook policies that ban employees from having firearms on company property, including in their vehicle in the parking lot.  However, in Mississippi, this creates a tension with a state law, and it already has resulted in litigation.  Miss. Code Ann. § 45-9-55 provides in part, that:
    [A] public or private employer may not establish, maintain, or enforce any policy or rule that has the effect of prohibiting a person from transporting or storing a firearm in a locked vehicle in any parking lot, parking garage, or other designated parking area.
    The law does provide an exception where: 
    A private employer may prohibit an employee from transporting or storing a firearm in a vehicle in a parking lot, parking garage, or other parking area the employer provides for employees to which access is restricted or limited through the use of a gate, security station or other means of restricting or limiting general public access onto the property. (emphasis added).
    However, employers need to be aware that courts have taken a very strict interpretation of this statute, and that to have such a policy under the exception, the employer has to strictly comply with the access restrictions described in the statute.
    It bears mention that it is completely within an employer’s rights to prohibit employees from having guns on their persons in the workplace.  The lesson here for employers, is that if you want to have a handbook policy prohibiting employees from having access to firearms in their vehicles, you have to have or build the restrictive structures required under the statute.
    E. Ugly Truth #5:  Prepare for the Inevitable Cyber-Breach!
    It is now common to read news stories about big companies being hacked, and the personal information of customers and employees being stolen.  The reality is that any size company can be a target and the result can be costly.  So what does this have to do with employee handbooks?  The cyber security firm Experian Data Breach Resolution estimates that about 80% of the breaches they service can be traced to employee negligence.  Employees need to be made aware of your company’s internal network security.  Some points to include:
    Employees should use strong passwords that are not shared and regularly changed.
    Phishing -- Employees should not trust emails asking for sensitive information even if an email appears to come from a reliable or authoritative source and unknown attachments or links should not be opened.
    No downloading of unauthorized software or apps on company computers or devices.
    USB and other non-company devices should be prohibited or screened for security issues before being plugged into a company machine.
    Parameters for accessing and sharing of company data. 
    Dangers of unsecured networks/public Wi-Fi.
    BYOD policies should reflect employer’s cyber security policies.
    Any suspected breach should be reported immediately and reporting protocols should be clear.
    While not something that needs to be included in an employee handbook, employers should be aware that many states have laws that require the reporting of cyber breaches if it results in the compromise of the personal information of customers, employees or others.  For example, in Mississippi, notice requirements are governed by Miss. Code. Ann. § 75-24-29 (Persons conducting business in Mississippi required to provide notice of a breach of security involving personal information to all affected individuals), and in Louisiana, it is governed by RS 51:3071 (Database Security Breach Notification Law).  
    DTSA Whistleblower Language.
    In 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”), allowing businesses nationwide to file suit in federal court to protect their trade secrets from unscrupulous former employees and dishonest business competitors. The law passed with strong bipartisan support in Congress.  Prior to the enactment of the DTSA, companies were limited to seeking relief in state courts, where the law can vary from state-to-state. DTSA contains an immunity provision to protect individuals from criminal or civil liability for disclosing a trade secret if it is made in confidence to a government official or to an attorney for the purpose of reporting a violation of law.
    However, to take full advantage of the protections provided employers under the law, the DTSA places an affirmative duty on employers to provide employees notice of the new immunity or “whistleblower” provision in “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”  Failure to provide this notice will prevent a company from being able to recover exemplary damages and attorneys’ fees in any lawsuit brought under the DTSA. In anticipation of the future need to exercise rights under the DTSA, employers should immediately begin integrating such language into company documents such as, but not limited to, employment agreements, independent contractor agreements, employee handbooks, offer letters, non-compete/non-solicitation agreements, non-disclosure/confidentiality agreements, invention and assignment agreements, and return of property agreements.
    F. Ugly Truth #6:  A Completely Unenforceable Non-Compete Agreement Can Be Effective . . . Right Up Until It Actually Needs to Be Enforced.
    A non-compete agreement is pretty self-explanatory.  It’s an agreement between an employer and an employee, where the employee agrees not to work for a competitor or start his own competing business for a set period of time after leaving his employment with the company.  Employers often require employees to sign non-compete agreements at the start of their employment to protect against a former employee gaining a competitive edge through inside knowledge of their former employer’s trade secrets, customer lists, marketing plans or other confidential information.  It’s estimated that 40% of American workers have been subject to a non-compete agreement at some time in their work history.  
    Non-compete agreements usually also contain non-solicitation provisions, where former employees agree not to contact their former customers, or try to hire their former co-workers for a set period of time.  Non-compete agreements also usually contain confidentiality agreements, where the former employees agree to not disclose or utilize their former employer’s trade secrets or other confidential or proprietary information.
    The dirty secret of non-competes is that even unenforceable agreements can be effective, because the average employee who signs one at the beginning of their employment, along with the other pile of papers they are handed, assumes it is enforceable, and abides by its terms.  The real trouble occurs when a valuable former employee, who can do real damage to your business and customer base, quits and goes to work for a competitor.  That is a bad time to find out whether or not you can enforce your non-compete agreement.
    In Mississippi and most other states, these type of “restrictive employment covenants” are generally not favored, because they are a restraint on free trade, but will be enforced by the courts if the terms of the agreement are reasonable under the particular circumstances.  Generally, there are three requirements:  (1) the employer has a valid business interest to protect; (2) the geographic restriction is not overly broad; and (3) a reasonable time limit is given.  The employer bears the burden of proving the reasonableness of the agreement.  The reason these types of agreements are construed very narrowly is that most courts recognize that an employer is not entitled to protection against ordinary competition from a departing employee.”
    So what is a “valid business interest” that an employer is entitled to protect with a non-compete agreement?  In Mississippi, examples of protectable business interests include trade secrets, confidential information, proprietary information, customer lists, vendor relationships, business practices, and the employer's investment in training and education of an employee.  Mississippi courts have enforced covenants not to compete when former employees who, like Banks, have peculiar knowledge of and relationships with the employer's customers and vendors. 
    When is a geographic restriction reasonable and when is it overly broad?  It depends on the business and the circumstances.  For some companies, restricting a former employee from competing in a three county area may be a reasonable restriction to protect the company’s valid business interests, and restricting the former employee from competing anywhere in the state of Mississippi would clearly be unreasonable.  However, in the instance of an internet-based tech company that has a nationwide customer base, a much larger geographic restriction might be reasonable under the circumstances.  In Mississippi, time restrictions from one to two years will almost always be enforceable.
    Non-compete agreements are typically governed by state law, which can vary depending on where you live or operate a business.  For instance, in the state of Georgia, a non-compete agreement will be enforced only if the employee possesses selective or specialized skills, abilities, customer contacts, customer information, and confidential information that that they have obtained as the result of working for the company. In Tennessee, Texas and Maryland, such agreements are enforceable only against employees who had access to or were entrusted with the employer’s trade secrets or other confidential or proprietary information.  In other states, such as California, non-compete agreements are generally unenforceable.
    Courts are reluctant to enforce non-compete agreements if they deprive a former employee of the ability to make a living, especially if the employee is a low level employee without any access to trade secrets or confidential information.  This was illustrated a few years ago by the sandwich shop chain Jimmy John’s.  Jimmy John’s attracted some unwelcome attention by requiring low-level employees to sign two-year non-compete agreements as a condition of employment.  After the story first broke nationally, Congressional Democrats sent a letter to the Federal Trade Commission (“FTC”) and the U.S. Department of Labor (“DOL”), describing the restrictive covenants as “clearly anti-competitive and intimidating to workers.”  The House Democrats asked for the FTC and the DOL to investigate the sandwich chain.
    The Attorney General of Illinois subsequently filed a lawsuit against Jimmy John’s, alleging the sandwich maker’s non-compete agreements were illegal under Illinois law “[b]y locking low-wage workers into their jobs and prohibiting them from seeking better paying jobs elsewhere, the companies have no reason to increase their wages or benefits.”  Under Illinois law, non-compete agreements must be premised on a legitimate business interest and narrowly tailored in terms of time, activity and place.  The State of New York was apparently about to take similar legal action, however, Jimmy John’s reached an agreement with New York’s Attorney General, in which the sandwich chain agreed to stop including sample non-compete agreements in the hiring packets it sends to its franchisees.  In addition, the company subjected itself to a lot of bad publicity.  Illinois’s Governor subsequently signed into law the “Illinois Freedom to Work Act”, which went into effect on January 1, 2017.  The Act prohibits employers from requiring employees to sign non-compete agreements if they make less than $13 per hour.
    In most matters involving the successful enforcement of non-compete agreements, the employees in question were either highly trained individuals in technical or creative fields, with direct access to their employer’s trade secrets, or were high level sales people with similar access to confidential customer information.  It is a very unlikely scenario where a fast food employer would legitimately need to have a crew worker enter into a non-compete agreement, no matter how good the sandwich.  So, in crafting an enforceable non-compete agreement, here are some points to remember:
    Be realistic.
    Pointless to have a low level unskilled employee sign a non-compete.
    Non-compete agreements should be confined to key employees, sales people or executives whose knowledge of trade secrets and other confidential information, or their relationships with customers, could cause serious damage if they went to work for a competitor.
    “What is our business, and what are we really trying to protect?” – Narrowly tailored non-compete agreements are more effective and more likely to be enforced by the court.
    Articulate valid business interests to be protected in a way that is rational and reasonable as opposed to vindictive retribution against former employees.
    Non-solicitation provisions and who owns social media?
    Pay attention to differences in state law.
    Non-compete / trade secret litigation very expensive – Actual damage?
    G. Ugly Truth #7:  Ignoring a Non-Compete Agreement Can Get You Sued.
    Not surprisingly, when a company finds out that a competitor has hired a former employee, they want to take legal action in support of the non-compete agreement signed by the former employee.  However, oftentimes, those very same companies can be very casual about wanting to hire top performers who formerly worked for their competitors, and who also are subject to a non-compete agreement.  This can expose the company to a lawsuit for tortious interference with contract.  To prove such a claim, the other company would have to show (1) the acts were intentional and willful; (2) their acts were calculated to cause damage to its lawful business; (3) the acts were done with the unlawful purpose of causing damage and loss, without right or justifiable cause; and (4) actual damage and loss resulted.”  Before you hire that employee, here are a few important steps to take:
    Expressly ask the prospective employee if they are subject to a non-compete agreement or any other restrictive covenant from their former employer, and obtain a copy for legal review.
    Any offer letter or employment contract to be signed by the employee should contain a statement attesting that they are not bound by a restrictive covenant.
    A statement attesting that they have not retained any confidential information from their former employer and will not utilize or disclose any such information during the course and scope of their employment with your company.
    Employee handbooks and non-compete agreements are valuable tools in effectively running your company and protecting your valid interests.  Careful attention to tailoring both to your particular business is the best way to avoid a recipe for litigation.