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Practical Counsel – Enforceability of Non-Compete Agreements

On a weekly basis, we receive calls from employees and employers inquiring about the enforceability of non-competition agreements.  Non-competition agreements can be enforceable, but only if narrowly tailored to protect the legitimate business interests of the employer, not unreasonably restrict the employee from earning a livelihood, and are reasonable from public policy standpoint.

Non-Competition Restrictions:  For example, sometimes employers want to draft an agreement that prohibits their former employees from working for any competitor.  That would be unenforceable because it prohibits the former employee from doing ANY work for such competitor, even something completely unrelated to what the employee did for employer and/or unrelated to core business of employer.  It is broader than necessary to protect employer’s business and unfairly restricts employee’s ability to find job.

A valid non-competition provision should specifically (and narrowly) identify and define Competitor and the Scope of Work of the employee.  

Non-Solicitation Restrictions:  For some businesses, a non-compete agreement is not necessary or appropriate.  However, they still have valid interests to protect and should have employees sign a Non-Solicitation restriction.  A valid non-solicitation provision restricts the Scope of Work an employee can provide for current or prospective clients of employer.  It makes sense that employers do not want former employees starting their own business, going to work for a competitor, or working directly for a client and, as such, taking business from employer.  Protecting client relationships is a legitimate interest of employer.  A strong non-solicitation provision is more likely to be enforced than a non-compete provision.

A few other points to remember.  First, a non-compete agreement must be a legal binding agreement (it should not be in an employee handbook and needs to be supported by consideration).  Second, a good agreement should also include other provisions such as:  Non-Solicitation of Employees; Confidentiality; Intellectual Property Protection; Remedies/Injunctive Relief; and Non-Disparagement.

For more information and in-depth analysis, please review information on our website:  https://www.generalcounsellaw.com/practice-areas/labor-and-employment-law/non-competition/

If you are an employer or an employee with a Non-Compete Agreement that you are not sure is enforceable, contact Merritt Green at mgreen@gcpc.com or 703-556-0411 for free initial consultation.

Merritt Green leads the employment practice at General Counsel, P.C., a law firm located in McLean, VA representing businesses, non-profit organizations, and individuals throughout the DC Metro area.

May 22, 2017 0

Intern or Employee? Should Your Organization be Paying Your Interns?

Case: Mark v. Gawker Media, LLC, No. 13-cv-4347 (S.D.N.Y. Mar. 29, 2016)

Court Holding: The court granted summary judgment to the employer-defendant concluding that under the eight-factor primary beneficiary test, the plaintiff was an intern – not an employee and, as such, was not entitled to wages pursuant to Fair Labor Standards Act (“FLSA”).

Employment Counsel: An internship can be unpaid when the vocational and educational benefits received by the intern outweigh the benefits received by the employer for the intern’s work. Thus, if the intern spends most of his/her time performing professionally relevant work, even if the employer also benefits from such work, the intern does not need to be paid. However, if the intern is performing menial services that do not provide true vocational training (for example, getting coffee, running errands, photocopying, data entry), it is likely the intern needs to be paid wages to comply with FLSA.

Prior to commencing any internship, the organization and intern should define the relationship – both for the benefit of the intern and the organization. Further, during the internship, the organization must be diligent to ensure that the intern is actually performing professionally relevant work and receiving benefit from the internship (beyond resume building).

Case Summary: The defendant, Gawker, was a media company that employed unpaid interns. Plaintiff, Aulistar Mark, was one of Gawker’s unpaid interns who argued that he was a Gawker employee under the Fair Labor Standards Act (“FLSA”) and entitled to minimum wage for his work.

In determining that Mark was properly classified as an intern instead of an employee, the court employed an eight factor “primary beneficiary” test under which an unpaid internship is considered legitimate if the educational benefits the intern receives from the internship outweigh his contribution to the employer.

Eight factors to help a court determine who is the primary beneficiary of the internship, with their application to this case, are as follows:

The understanding between employer and intern that there is no expectation of compensation: Mark had no expectation of compensation for the internship.

Does the internship provide training that is similar to the clinical and other hands-on training that would be provided in an educational environment? Mark received educational benefits in the form of opportunities to learn journalism skills that Gawker employees were expected to already know.

Does the internship count for academic credit? Yes, Mark earned academic credit.

Does the internship accommodate the intern’s academic commitments by corresponding to the academic calendar? Gawker accommodated Mark’s academic commitments.

Was the length of the internship sufficiently limited to the time it took to learn new skills? Mark’s internship only lasted 3 months and he was provided with beneficial learning experiences for the entire duration of his internship.

Does the intern’s work complement, rather than displace, the work of paid employees? The majority of Mark’s work was complementary.

Is there an understanding that there will be a paid position for the intern at the conclusion of the internship? There was no expectation of a paid position following Mark’s internship.

Was the intern the primary beneficiary under the totality of the circumstances? Under a totality of circumstances, Mark was properly classified as an unpaid intern because he received significant vocational benefits. Mentors edited his work, helped him publish a piece for his portfolio, and he received academic credit for his internship.

For additional information about this case or other employment law matters, please contact Merritt Green at mgreen@gcpc.com or (703)556-6505. Mr. Green leads General Counsel, P.C.’s Employment Law Practice and has been representing employers (and occasionally employees) for 20 years.

May 11, 2017 0

Unauthorized Computer Access by Former Employee – Protection of Trade Secrets

Case: Estes Forwarding Worldwide LLC v. Cuellar, (E.D. Va. Mar. 09, 2017)

Holding: The U.S. District Court for the Eastern District of Virginia denied former employee’s motion to dismiss finding that employer sufficiently plead facts to assert violations of Computer Fraud and Abuse Act and the Stored Communications Act.

Employment Counsel: State and Federal laws protect computer and other electronically stored information from unauthorized computer access.  Employers must establish, maintain, and monitor employee access to such electronic databases and ensure that at termination of employment, access is terminated.  Further, employment agreements should specifically identify post-employment restrictions to any employment related electronically stored information. Finally, there are numerous state and federal laws protecting trade secrets and electronically stored information.  Employers should be aware of such laws and utilize them to protect their confidential information.

Case Summary:  In 2010, Marcelo Cuellar, the defendant, began working for the plaintiff, Estes Forwarding Worldwide LLC (“EFW”) in its San Francisco operations unit.  As part of his employment, Cuellar created a Google Drive account (“the account”) that he and other EFW employees used to record daily company transactions.  EFW considered these recordings to be trade secrets. In February 2015, EFW fired Cuellar. He subsequently went to work for a competitor. However, a year after his termination, Cuellar accessed the EFW account, downloaded information from it, and changed its password. Google notified EFW about the unauthorized access, which then prompted EFW to pursue a costly investigation to discover the identity of the unauthorized user.

Upon discovering that the user was Cuellar, EFW filed a complaint against him alleging eight (8) causes of action, including: (1) breach of contract (confidentiality agreement); (2) violations of the Computer Fraud and Abuse Act (“CFAA”); (3) violation of the Defend Trade Secrets Act of 2016; (4) violation of the Stored Communications Act; (5) misappropriation of trade secrets pursuant to VA Code Ann. §§59.1-336; (6) violation of Virginia Computer Crimes Act; and (7) seeking preliminary and permanent injunction.

Cueller filed a motion to dismiss challenging the CFAA and SCA causes of action.  

The court held that in order to establish that Cuellar violated the CFAA and the SCA, EFW had to show that Cuellar’s use of the Google account that he helped create was unauthorized or exceeded his authorization. Cuellar argued that his access to the account was authorized because when a person provides personal information to create an account with Google, it is the service provider, not the employer, who grants authorization for account access. The court, however, pointed out that Cuellar created the account while “acting in the course and scope of his employment and for the benefit of EFW, not for personal use.”  It then pointed to the Fourth Circuit’s reasoning that a person “exceeds authorized access” when “he has approval to access a computer, but uses his access to obtain or alter information that falls outside the bounds of his approved access.” Since the account was not Cuellar’s personal account, but rather created in the scope of his employment and used for EFW’s benefit, the court reasoned that Cuellar’s access to it post-employment was unauthorized.

For additional information about unauthorized computer access, and about this case or other employment law matters, please contact Merritt Green at mgreen@gcpc.com or (703)556-6505.  Mr. Green leads General Counsel, P.C.’s Employment Law Practice and has been representing employers (and occasionally employees) for over 19 years.

April 27, 2017 0

Employers Beware of Retaliation Claims

Case: Egei v. Johnson, 192 F Supp. 3d 81 (D.D.C. 2016)

Issues: Title VII Retaliation

Holding:  The United States District Court for the District of Columbia held that employer retaliated against employee for terminating employee where employer believed that employee had made false sexual harassment claim.  The court held that Title VII’s participation clause safeguards an employee from “adverse employment action taken on the basis of the substance of a charge or testimony” given during EEO proceedings.

Employment Counsel: More employers violate Title VII (and other anti-discrimination laws), through retaliation than outright discrimination.  In August 2016, the EEOC issued Enforcement Guidance on Retaliation and Related Issues providing valuable insight and guidance for employers.  When an employee makes an allegation of discrimination or harassment, the employer must not take any negative actions towards that employee based upon such allegations – even if the employer reasonably believes such allegations to be false.

Case Summary:  In this case the court considered whether an employer could lawfully terminate an employee for making false or malicious charges or statements in the course of an Equal Employment Opportunity (“EEO”) proceeding.  The plaintiff, Ominoba Egei, worked as a disaster assistance employee for the Federal Emergency Management Agency (“FEMA”).  FEMA sent Egei to Texas after Hurricane Ike.  Egei alleged that while there, her supervisor, Jean Jacques Fequiere, sexually harassed her.  According to her complaint, Fequiere requested that Egei massage him, asked her to his hotel room where he appeared from the bathroom half naked, requested that she shower with him, and threatened to send her home after she refused his advances.  

Shortly after these incidents, Egei was “right-sized” or sent home to be reassigned.  Egei filed an EEO administrative complaint under Title VII, but during the proceedings, she was impeached because FEMA showed that Egei had picked up a rental car during the timeframe that she claimed the sexual harassment had occurred. The ALJ judge rejected Egei’s claim on the basis that she did not prove her claim and that FEMA had shown the events did not occur.

A year and a half later, FEMA informed Egei that she was terminated for the false charges she had brought. Egei again filed suit, this time alleging that FEMA unlawfully retaliated against her for making an EEO claim. In response, FEMA argued that although an employer cannot terminate an employee for making an EEO claim, it can terminate her for making false or malicious statements.   

Circuit Split: Absolute vs. Qualified Protection: The participation clause of Title VII’s retaliation provision states that an employer cannot retaliate against an employee because she has “’made a charge, testified, assisted or participated in any manner in an investigation, proceeding or hearing’ governed by Title VII.”  The court acknowledged a circuit court split as to the question of whether this clause provides the employee an absolute privilege from the substance of her testimony –even if that testimony is later deemed to be false or malicious by an ALJ judge- or whether the protection is qualified and an employee’s claim must be made in good faith.

In siding with the interpretation that an employee is fully shielded from adverse action on the basis of testimony given during an EEO proceeding, the court reasoned that (1) case precedent favors an unqualified protection, (2) a straightforward reading of the statute’s unrestrictive language suggests that the substance of all claims and testimony provided during an EEO proceeding is protected, (3) the remedial purpose of Title VII would be chilled with a narrower interpretation since if the outcome of an EEO claim can later justify an employee’s termination, then others could be discouraged from filling legitimate claims against their employers.

Despite ruling in favor of broad protection, the court emphasized that this protection does not apply to those cases where an employee admits to lying or for example, “an employee maliciously divulges secrets on the public record in a Title VII action.”

The court granted partial summary judgment to Egei. Since the “fundamental premise of FEMA’s argument is that it fired Egei because of her statements, not because she chose to avail herself of the EEO process,” FEMA’s actions constituted a violation of Title VII’s retaliation clause.

For additional information about this case or other employment law matters, please contact Merritt Green at mgreen@gcpc.com or (703)556-6505.  Mr. Green leads General Counsel, P.C.’s Employment Law Practice and has been representing employers (and occasionally employees) for over 18 years.

 

April 11, 2017 0

NVR Non-Compete Held Unenforceable

Case: NVR, Inc. v. Nelson, No. 1:16-cv-1328, (E.D. Va. Feb 14, 2017)

Issues: Non-Compete Agreements

Holding: The court found that NVR’s non-compete agreement was ambiguous and overbroad, and, as such, unenforceable.

Employment Counsel:  Non-compete/Non-solicitation agreements are important documents that all employers should consider for employees – especially key employees.  However, to be enforceable, the agreement needs to be narrow in scope and clear in application solely to protect the legitimate interests of the employer and not unduly restrict the employment rights of the employee.  

Case Summary:

In this case, the plaintiff, NVR, Inc. (“NVR”), sold and constructed homes in 14 states, including North Carolina. It sought to enjoin one of it’s former employees, David Nelson, from working for Simonini Homes, Inc., another home developer and construction company.  Before Nelson was terminated for underperformance in August 2016, he was a Division Manager in the Charlotte area who dealt with sales, profits and losses, home construction projects, and the company’s strategic decisions.  In October 2016, Nelson joined Simonini.

Nelson signed a non-compete agreement that specified that for a year following the termination of his employment with NVR, Nelson was prevented from working in the areas of “residential homebuilding, mortgage financing, or settlement services” for any NVR competitor in the “Restricted Area” which included “those counties…in which the Company engaged in…business activities… [and] over which you had any management responsibility at any time during the twenty-four months prior to termination of your Service.” NVR argued that by joining Simonini, Nelson violated his non-compete agreement.

The court determined that it only needed to give detailed analysis to the agreement’s restriction on employment functions and its geographic scope.

(1) Restricted Employment Functions: the court did not find the non-compete overly broad. Although the agreement detailed a wide range of employment activities, Virginia courts have found similar restrictions on employment functions to be valid.   

(2) Geographic Scope: The court’s finding that the non-compete agreement was invalid arose out of a provision that limited Nelson from working in regions “from which [he] received, as part of your work duties, Confidential Information regarding such business activity.”  The court pointed out that since NVR failed to narrowly define “Confidential Information” and “what it means for [that] information to come from an area” the provision was ambiguous and overbroad. For example, a Chicago NVR employee could send a package, or even an email, containing Confidential Information to Nelson, and Nelson could interpret his non-compete as enjoining him from working in similar employment in Chicago. Thus, Nelson’s non-compete placed an unreasonable burden on him to determine which geographic areas he was barred from working in. Accordingly, the court determined that the non-compete agreement was unenforceable.

For additional information about this case or other employment law matters, please contact Merritt Green at mgreen@gcpc.com or (703)556-6505.  Mr. Green leads General Counsel, P.C.’s Employment Law Practice and has been representing employers (and occasionally employees) for over 18 years.

April 5, 2017 0

Construction Contractors Determined to be Joint Employers for FLSA Liability

Case: Salinas v. Commercial Interiors, Inc., No. 15-1915, (4th Cir. Jan 25, 2017)

Issues: Fair Labor Standards Act (“FLSA”), Joint Employment

Court Holding: For the purposes of plaintiff’s FLSA claim, joint employment existed between the two defendants.

Employment Counsel: To avoid a joint employer determination, entities should be careful to avoid codetermining the key terms and conditions of workers’ employment.  In the context of a construction space, this means that a court might find such a joint employer relationship between a contractor and a subcontractor when the contractor extensively supervises the projects of a subcontractor’s employees, the contractor provides most of the materials needed for the work, or the workers are subject to the contractor’s daily workplace protocols (such as regular update meetings, sign-in and out procedures, etc.)

Case Summary:  Plaintiffs were direct employees of J.I. General Contractors, Inc. (“J.I.”) a framing and drywall subcontractor.  Commercial Interiors, Inc. (“Commercial”) provided J.I. most of its work. Plaintiffs argued that J.I. and Commercial were joint employers, and in violation of FLSA and the Maryland Wage and Hour Law, the defendants failed to pay regular and overtime wages.

The 4th Circuit’s test for determining that J.I. and Commercial were joint employers under the FLSA included two steps. Joint employment exists (1) when two or more entities codetermine, directly or indirectly, “the essential terms and conditions of a worker’s employment” and (2) “the two entities’ combined influence over the essential terms and conditions of the worker’s employment render the worker an employee as opposed to an independent contractor.”

The Circuit Court outlined six factors which, though not exhaustive, should help lower courts determine whether two entities codetermine the essential terms and conditions of a worker’s employment and are joint employers for FLSA purposes. Using these six factors, the Circuit court concluded that Commercial’s relationship with the plaintiffs constituted such an employer-employee relationship. The six factors, with their application to this case, are as follows:

(1) Whether putative joint employers share power to direct workers: Commercial and J.I. both supervised the plaintiffs through informal instruction and formal, mandatory meetings. Commercial also required plaintiffs to wear uniforms with the Commercial logo and so outwardly identify as Commercial employees.

(2) Whether putative joint employers share the power to hire and fire workers or modify the terms or conditions of their employment: Commercial dictated the plaintiffs’ work schedule and even required overtime work.

(3) The “degree of permanency and duration of the relationship” between the two employers.

(4) Whether one putative joint employer is controlled by another putative joint employer: the defendants had a long standing business relationship and J.I. contracted almost exclusively with Commercial.

(5) Ownership of the premises that work is performed on: Commercial was in control of the premises that plaintiffs worked on.

(6) Whether putative joint employers jointly determine “functions ordinarily carried out by an employer”: Commercial provided plaintiffs with all the necessary tools and equipment needed to compete their work, it maintained plaintiffs’ hours on timesheets, and it demanded that Plaintiffs sign in and out daily.   

After this analysis, the 4th Circuit reversed the district court’s decision, finding that J.I. and Commercial were joint-employers for the purposes of the FLSA claim.   

For additional information about this case or other employment law matters, please contact Merritt Green at mgreen@gcpc.com or (703)556-6505.  Mr. Green leads General Counsel, P.C.’s Employment Law Practice and has been representing employers (and occasionally employees) for over 18 years.

March 29, 2017 0

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