Twelve Ways to Lessen Employee Legal Risks

12 Ways to Lessen Employee Legal Risk
Your business or organization can reduce tensions from and conflicts with employees… and help lessen the risks of employee-initiated legal actions by focusing on at least 12 areas.

1. Ensure managers and supervisors are qualified to coach and lead.

Studies of the root causes of employee turnover and employee legal actions often trace those underlying causes to unqualified or dysfunctional managers and supervisors. So the single, best way to protect against employee-caused problems is to fill supervisory and leadership positions with individuals who have the temperament and personality traits best suited for coaching and leading others.

2. Train managers and supervisors.

The managers and supervisors who work directly with employees on a day-to-day basis may cause difficulties with employees… or they will avert most of the problems and actually promote harmonious and productive behavior. One key to which results the managers and supervisors get is in the knowledge and training they receive in several areas. These areas include:

The organization’s policies and procedures and their role in applying them and enforcing them;
The myriad of laws and regulations that protect employees and how not to violate them;
How to avoid harassment and abusive interactions with others; and
How to skillfully coach employees.

3. Replace Dictatorial Discipline with Coaching Correction.

The typical, traditional way managers and supervisors went about attempting to correct employee misbehavior and poor performance has been the arbitrary, “dictator,” discipline approach: Tell the employee what they’ve done wrong, discipline them, and threaten them with termination in the future.

There’s a better way, coaching employees to correct behaviors. This approach involves:

Identifying — with the employee — the unacceptable behavior or performance.
Agreement with the employee on the required behavior or performance.
Setting a time/date-certain when the employee will behave or perform as required.
Explaining the consequences to the employee if the behavior or performance does not change.
Agreeing on any additional coaching, training, or education the employee may need to reach the required behavior or performance goal.

4. Hold performance achievement meetings.

Think of the performance achievement meeting as a replacement for the traditional performance review or performance appraisal. In many workplaces, the performance review is never done or is rarely done. In other workplaces, it’s done on schedule once a year. And when it’s done, it typically involves perfunctorily telling the employee what he or she has done right — and especially, wrong — in the previous year. Generally, it also involves giving the employees some kind of rating and telling them whether or not they qualify for a raise.

A performance achievement meeting is different. The focus is on what the employee has done, and is doing, right… and on what the employee can do in the future to do even better. The “agenda” for the meeting is something like this:

These are your (the employee’s) achievements since we talked last about your performance, these are achievement goals for you in the near future and longer-term, and these are the ways that we (the organization), I (the supervisor) and you (the employee) will work together to assure that you’ll reach these achievements.

5. Terminating employees when necessary.

One mistake many organizations and their managers and supervisors make is to avoid the disagreeable act of terminating employees who deserve termination. There are many reasons why some employees, from time to time, don’t belong in a workplace. Some just aren’t qualified and never should have been hired. Some become diehard troublemakers. Some become known under-performers. The other employees quickly learn who these employees are. And the longer management tolerates their presence in the workplace, the more their presence lowers the morale of the other employees.

What to do? Identify these employees. Treat them fairly. But when the “coaching correction” approach doesn’t work, make the decision to terminate. And stick with the decision.

6. Put the right people in the right jobs.

One cause of frustration for an employee is to get stuck working in the wrong job. The employee’s performance suffers and this has a negative impact on the organization’s results. Make it one of a manager’s and a supervisor’s responsibilities to identify employees who are better qualified for other positions. Develop systems in your organization that will channel these employees into new positions where they can excel.

7. Improve the hiring process.

The best way to avoid terminating deserving employees is to not hire undeserving applicants in the first place. So put more time and effort into recruiting and hiring the individuals who are the best fit for the jobs you have open. This means:

identifying the essential tasks and the essential qualifications for each position,
screening resumes to focus on interviewing only those individuals who appear to have the essential qualifications,
testing these applicants to identify those who actually have the qualifications, behavior style, and attitudes necessary for success in your workplace, and
checking on the background and work history of finalists.

8. Empower employees as much as possible.

Empowerment in the workplace means giving employees the opportunity and the responsibility to use their knowledge and talents to achieve the best possible results in their jobs. To see empowerment happen, employees have to know their expanded boundaries for making decisions. They have to know they have the right to make these decisions. And they have to know they’ll not be disciplined for making decisions that go wrong. (One of the manager’s and supervisor’s responsibilities, in turn, is to help employees learn from the experience when their decision doesn’t work out.)

9. Set up an ongoing employee idea program.

Call it a suggestion program if you like, but don’t limit it to the old suggestion box type program in which employees submit suggestions… and never hear from management. Go beyond that. Commit to responding quickly to all employee ideas. And empower the employee who submits the suggestion to implement it, or to have a part in implementing it, whenever possible.

10. Help employees feel needed and important.

This desire to feel needed and important is one of the basic desires of nearly all employees. Employees who feel they are needed at work and that what they do is important to the company’s or organization’s success are more likely to feel positively about their employer. And they are less likely to see grievances where there are none.

So gather supervisors and management staff together and brainstorm ideas to help employees feel needed and important. Design a plan to carry out which is intended to increase employees’ feelings that they are needed in their jobs, that their jobs are important, and that what they do is appreciated.

11. Use caution before disciplining or terminating an employee.

Before disciplining or terminating an employee, review the individual’s work history carefully. In addition to the negatives about the employee, consider also the positives. Review the positive qualifications that influenced the hiring of the employee and ask, What have I overlooked? Are the positive qualifications still present? Can this person still contribute positively? What commitments will we make, and what commitments will we ask the employee to make, to continue employment with us? What are the penalties for failing to improve?

Also, before disciplining or terminating an employee, consider the individual’s age, sex, race, and any other legally protected trait or qualification the employee may have. Ask this question: Will a jury or human rights hearing officer believe our actual intent was to “target” or “get rid of” a person in a protected class?

Important: Document discipline actions in writing. Describe the employee’s conduct or performance and why it is unsatisfactory. Also describe any steps you have given the employee to improve and any deadlines for improvement.

In all dealings with your employees, be courteous and respectful. For example, when terminating an employee give as much advance notice as possible. Also, when communicating with employees, do not speak aggressively, do not belittle them and do not use disrespectful or insulting words.

[NOTE: Information and guidance in this story is intended to provide accurate and helpful information on the subjects covered. It is not intended to provide a legal service for readers’ individual needs. For legal guidance in your specific situations, always consult with an attorney who is familiar with employment law and labor issues.]

Noncompetition Agreements in the Employment Context

Despite what you may have heard to the contrary through the years, noncompetition (or noncompete) agreements can be enforceable in Texas, and it makes no difference that Texas is an “at-will employment” state. However, if the only promise made by the employer in the agreement is to hire the employee on at at-will basis, the agreement will fail for lack of consideration. In general, for a noncompetition agreement to be enforceable in Texas, the agreement must contain either an express or implied promise (agreement) by the employer to provide confidential information to the employee. Also, the agreement should contain a corresponding promise by the employee not to use the confidential information for his or her own benefit or for someone else’s, and should also restrict or prohibit the disclosure the employer’s confidential information. Together, these promises can create a binding noncompetition agreement in Texas.

Prior to 2006, Texas courts regularly failed to uphold or enforce noncompetition agreements that arose in the context of at-will employment because there was a gap in time between when the employee signed the noncompetition agreement and when he or she received the consideration (i.e., confidential information) from the employer. Texas courts reasoned that since the employer theoretically could have terminated the employee between the time he signed the agreement and the time when the employer conveyed the information, the employer’s promise to provide the information was “illusory” (meaningless) when it was made. Thus, even if the employer did in fact provide confidential information to the employee, the noncompetition agreement would be held to be unenforceable. It left employers in the situation of having to hand over confidential information at the exact moment the noncompetition agreement was being signed in order to avoid being invalid and unenforceable.

In 2006, the Texas Supreme Court handed down its opinion in the Sheshunoff case. Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006) (see copy of case online here: http://www.supreme.courts.state.tx.us/historical/2006/oct/031050.htm) In that case, the court held that a “unilateral contract formed when the employer performs a promise that was illusory when made can satisfy the requirements of the Act.” Thus, in a situation in which (a) an employee was employed “at will”; (b) the non-compete agreement contained a promise by the employer to provide confidential information to the employee; and (c) the employer provided confidential information to the employee, the agreement would become enforceable at the time the confidential information was conveyed. This decision created a dramatic shift in Texas employment law regarding noncompetition agreements.

Even with this shift, for noncompetition agreements to be enforceable in Texas, they must be supported by adequate consideration. In the employment context, the only kind of consideration that the courts have consistently held to be adequate is the employer’s provision of confidential information to the employee. This is not to say that financial consideration—such as the providing of company stock, a promotion, or monetary payment—can never be sufficient. However, generally speaking, for a non-compete agreement to be enforceable in the employment context, the employer must provide confidential information to the employee. This has been the case in Texas before the Sheshunoff case, and remains that way today.

Until 2009, it had also been true in Texas that a non-compete agreement, to be enforceable, had to be worded in a certain way. Specifically, the agreement had to contain an affirmative promise by the employer to provide confidential information to the employee. Thus, in some cases, Texas courts held that covenants not to compete were unenforceable because they did not contain a promise by the employer to provide confidential information to the employee (and this was so even if the employee did, in fact, subsequently receive confidential information from the employer).

In April 2009, the Mann Frankfort case changed this as well. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844 (Tex. 2009) (see copy of that case online here: http://www.supreme.courts.state.tx.us/historical/2009/apr/070490.htm) In that case, the Texas Supreme Court held that a non-compete agreement could be enforceable even if it did not contain an explicit promise by the employer to provide confidential information. The court held that, in some situations, the employer’s promise to provide confidential information could be “implied.” The court noted: “When the nature of the work the employee is hired to perform requires confidential information to be provided for the work to be performed by the employee, the employer impliedly promises confidential information will be provided.”

After the Mann Frankfort case, in certain circumstances, a court will find in a noncompetition agreement an implied promise to provide confidential information, even though the agreement does not contain such an explicit promise. The primary inquiry is whether the employee’s job duties are such that the conveying of confidential information would be required. If that is the case, and if confidential information is in fact disclosed to the employee, then the agreement may be enforceable.

If a noncompetition agreement in Texas is properly worded and supported by adequate consideration, the next question is whether the restrictions contained in the agreement are reasonable. Texas courts have regularly ruled that the scope of the restrictions should bear some relationship to the activities that the employee performed for his former employer. For example, if an employee performs work for his employer only in the Austin metropolitan area, a non-compete agreement that keeps him from competing with his employer anywhere in the State of Texas or throughout the United States might be too broad. In light of the fact that our world getting smaller and potential sales territories getting larger on account of the internet, the facts of each case must be assessed on their own merits, and sometimes even a world-wide restriction could be deemed reasonable. Texas courts have typically focused upon where an employee performed his job duties for the employer.

Courts also have to consider the duration of the noncompetition agreement’s restriction on competing employment. There is no “across the board” bright-line test that provides that less than “this amount” is okay, and more than “that amount” is not. Courts generally look at the totality of the circumstances. In many cases, restrictive periods of 6 months to a year are upheld, while restrictive periods of more than 2 years are often found to be too long. But neither of those describes all cases, and there is a wide range of results along that spectrum as well.

Finally, what is confidential information? Texas courts have long held that an employer’s provision of confidential information can constitute valid consideration for a noncompetition agreement. But it can be difficult to apply this widely accepted premise, as was demonstrated in a recent case. In the case, an insurance broker signed an agreement in which he acknowledged that he would receive confidential information:

This information (hereinafter referred to as “Confidential Information”) includes, but is not limited to, data relating to AJG and the Corporation’s unique marketing and servicing programs, procedures and techniques; the criteria and formulae used by AJG and the Corporation in pricing its insurance and employee benefits products and claims management, loss control and information management services; the structure and pricing of special insurances packages that AJG and the Corporation have negotiated with various underwriters; lists of prospects compiled by AJG and the Corporation’s management and research staff; the identity, authority and responsibilities of key contacts at AJG and the Corporation accounts, including accounts of the Acquired Business; the composition and organization of accounts’ businesses; the peculiar risks inherent in their operations, highly sensitive details concerning the structure, conditions and extent of their existing insurance coverages; policy expiration dates; premium amounts; commission rates; risk management service arrangements; loss histories; and other data showing the particularized insurance requirements and preferences of the accounts. The Executive recognizes that this Confidential Information constitutes a valuable property of the Corporation, developed over a long period of time and at substantial expense.

As can be seen above, the broker was to receive various types of confidential information. The broker argued to the court that much of this information could not be considered “confidential” because it could be obtained from public sources.

The company countered, and argued that its confidential information (a) took years to acquire; (b) was only shared with the company’s employees and agents on a “need to know” basis; (c) was not “readily ascertainable by competitors”; and (d) gave the company a “valuable competitive advantage in the insurance brokerage industry.” The company also argued that it spent substantial resources developing and acquiring the information, and that it took reasonable precautions to prevent the disclosure of what it included in the definition of “confidential information.”

In the end, the court decision was in favor of the company. The court there found it compelling that the company had spent substantial time and resources developing and acquiring the information, it had taken reasonable precautions to prevent disclosure of the information to third parties, the information was not readily available to competitors, and the information gave the company a valuable competitive advantage in the industry. Based upon these factors, the court held that the confidential information was sufficient to make the non-solicitation agreement enforceable.

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