Legal Alerts

Expand accordions

FEB 20 Hands Off My Money - Construction and Oilfield Receivables and the "Lender" Exception to the Trust Fund Statute

Hands Off My Money — Construction and Oilfield Receivables and the “Lender” Exception to the Trust Fund Statute
by Lee Collins & Josh Eberle
February 20, 2014

The lawsuit styled Performance Insulation Contractors, Inc. v. L&S Industrial Services, LLC, Case No. 2011-181303 in the 61st Judicial District Court of Harris County, Texas has set the stage for the First Court of Appeals to decide the right to funds owed an upstream contractor between competing claims of a factor and downstream construction contractor.  The issue concerns the interface between the Texas Uniform Commercial Code (UCC) and the Texas Trust Fund Statute (Trust Fund Statute), and will have an impact on Texas’ construction, oilfield services and factoring industries.

Factoring is known as the sale of accounts receivables at a discount of their stated amount to a factoring company, often called a “factor” — the sale of such receivables is governed by the UCC, Article 9.  Through the purchase, the factor assumes the risk on the receivables, and collects some or all of the difference between the invoice amount and the amount paid to the factoring client as its profit.  Factoring is a key mechanism by which small and medium companies are able to obtain liquidity for their operations.  While factors do have agreed upon mechanisms to protect their positions, they can find themselves in risky situations when the purchased invoices become subject to dispute or offset, or when another party asserts a competing claim to the invoice payments.  One such situation is exemplified by the application of the Texas Trust Fund Statute to invoices factored on construction projects under the UCC.

The Trust Fund Statute, codified at 162.001 et seq. of the Texas Property Code, creates an identifiable construction fund for the sole purpose of protecting payments due downstream subcontractors and suppliers from being diverted or misappropriated by upstream parties. Any party found to have wrongfully diverted funds due downstream subcontractors is potentially liable for the funds pursuant to the Trust Fund Statute.  The act deems any individual owner, officer, director, or agent a trustee that owes downstream contractors a fiduciary duty to act with the utmost good faith, candor, integrity of the highest kind, and fair and honest dealing. Because the Act confers "trustee status" on individuals and not just companies, personal liability can also fall to the individual, even if they were acting solely in the course and scope of their employment and in furtherance of their employer’s business.  Notably, however, “banks, savings and loans, and other lenders” are exempted from the provisions of the Trust Fund Statute.

The intersection of the UCC and Trust Fund Statute presents a circumstance where factors that have purchased a position in invoices of an upstream construction contractor are forced to compete with subcontractor claims to money due on a subcontract.  The upstream contractor who sells its invoices to a factor, may take or use the sale proceeds such that downstream subcontractors are not able to collect payments.  When the property owner is put on notice under the UCC to pay the purchased account to the factor, and not the upstream contractor, the downstream subcontractor often intercedes claiming that the funds are “trust funds” within the meaning of the Trust Fund Statute.  The downstream subcontractor often takes the position that the factor is an agent of the upstream contractor or that said funds are constructively being paid to the upstream contractor notwithstanding their receipt by the factor.   A factor’s response is often that they are a “lender” exempted from the Trust Fund Statute’s provisions; however, there is no definitive Texas case law as to whether a factor falls under such classification.

The Performance Insulation case presents the aforementioned circumstances.  Catalyst Financial Company (Catalyst), a factor, purchased invoices of a general contractor, L&S Industrial Services (L&S) on a construction project.  L&S allegedly did not pay its subcontractors with the sale proceeds, but instead used the money for other purposes.  When Catalyst later sued to collect the funds, subcontractors, including Performance Insulation, also filed suit asserting the funds due from the owner were trust funds properly payable to the subcontractors.  The subcontractors also sued Catalyst, L&S and its owners asserting misappropriation of trust funds, and contending that L&S’s diversion of previous contact payments to Catalyst was a trust fund violation giving rise to liability against L&S and its owners.  L&S’s legal contention was that the funds paid to Catalyst were “constructively” paid to L&S through Catalyst, as agent for L&S.  Catalyst, L&S and its owners contended that funds previously paid Catalyst were not “trust funds” because Catalyst was not L&S’s agent, rather, as financier of L&S’s accounts receivables, Catalyst fell within the “lender” exception to the Trust Fund Statute, and thus, the transaction between Catalyst and L&S was exempt from trust fund liability.

Most of the claims in the case were eventually settled, with the exception of Performance Insulation’s claims against L&S and its owners.  The case was tried on a stipulated set of facts, and the trial court found in favor of Performance Insulation and against L&S and its owners.  L&S and its owners appealed the decision, and one such ground is whether a factor properly qualifies as a “lender” under the Trust Fund Statute.  The matter is pending before Texas appellate courts.

The ultimate decision of whether a factor qualifies as a “lender” could have practical, far-reaching effects on the commercial real estate, oilfield services and factoring industries.  If factors are considered lenders, it poses the potential to prejudice the rights of construction and oilfield subcontractors who will likely become less willing to perform work on account, or without collateral of some kind, when working for an upstream contractor that utilizes a factor.  However, if factors are not considered lenders, factors are less likely to become involved in large construction projects, when subcontractors would presumably prevail on claims to funds due on a factor’s purchased accounts.  The result to Texas’ construction, oilfield services and factoring industries is significant.  The industries potentially face:

(i) decreased liquidity for contractors with a blow to the factoring industry, if factors are not afforded protection as lenders under the Trust Fund Statute; or

(ii) increased risk to subcontractors who face potential non-payment for services and materials rendered.

FEB 05 This Selfie will Self-Destruct: "Secured" Messaging in the World of E-Discovery

This Selfie will Self-Destruct: "Secured" Messaging in the World of E-Discovery
by Kasi Chadwick
February 5, 2014

During the discovery process, litigants request information from the opposing side or third-parties through requests for production or subpoenas. With the rise of social media, social media platforms have found themselves the recipient of these discovery requests in many situations. In employment litigation, employers may seek information contained on their employee’s social media sites via these discovery methods. Whether an employer is seeking information regarding non-compliance with the company’s morality policy or building a case to show an employee’s unauthorized sharing of the company’s proprietary information, no wall post, tweet, photo, email, text message, or even outlook calendar entry is securely outside the discovery process.

But what about “secured” message apps like Snapchat that allow its users to send “disappearing” messages? The answer, of course, is it depends.

By way of background, Snapchat is a smartphone application that enables users to send “disappearing” images. At least in theory, a Snapchat user can send photos, pictures, or short message (“Snaps”) to other Snapchaters and, after a designated time within the receipt of that Snap, (between 1-10 seconds depending upon the time limit set by the sender) the Snap will presumably disappear.

Yet, in the world of legal discovery, even Snaps could be the subject of a discovery hearing.

To begin, there are a variety of ways the content of a Snap could be compromised even without a discovery request. First, certain smartphones cache this sort of incoming information. This means a “secure” Snap, if sent to a recipient with this variety of smartphone, may be automatically saved in the recipient’s phone. Also, the recipient of a Snap could be using an app, like SnapHac Pro, which allows users to save their received Snaps to their smartphone photo gallery. Even without legal discovery tools, the security of the content of a Snap is not a sure thing.

Further, there may be ways to recover the content of a Snapchat via the discovery process. Because Snaps are only secure upon receipt, (assuming the recipient does not have a caching smartphone and is not using an app like SnapHac Pro) an unopened Snap may remain on the Snapchat servers for a period of time. Also, Snaps that are added to a recipient’s “Snapchat Stores” (which allows users to link Snaps in a sort of Snapchat timeline) also remain on the Snapchat servers for an extended time. If any of these things happen, the groundwork is set for a “secure” Snap to fall in the hands of a legal team seeking this information.

In the eyes of the law however, the content contained on social media sites generally is protected from civil discovery if the author of the content had “a reasonable expectation of privacy” at the time of the content’s creation. While protections for this type of content do exist, in the employment context, especially when an employer has obtained written authorization from her employee to access her employee’s social media accounts, there is a much higher likelihood that even a secure Snap could be compromised.

When an employer has written authorization from their employee, courts have allowed access to the content contained on other social media sites (e.g. Facebook and Myspace). As for the content of a Snapchat, only those Snaps still available on the Snapchat servers or cached on a Snap recipient’s phone may be subject to an employer’s request for access. If courts treat Snapchat content like the content of Facebook or Myspace, then an employer could, with employee authorization, obtain the content of certain Snaps via civil discovery devices. For now, because Snapchat is still a relatively new social media platform, only time will tell.

JAN 22 Houston's Holistic Approach to Mixed-Use Development

Houston's Holistic Approach to Mixed-Use Development
by Cassie B. Stinson
January 22, 2014

An increasingly large percentage of Houston’s workforce is comprised of Gen Y and Gen X, the groups that tend to see all aspects of their lives as being of equal importance. As a result, real estate developers are bringing projects to the market that address the increased demand for “live/work/play” environments.  These projects reflect a more “holistic” approach to real estate development.  “Holistic” is defined as something that is “characterized by comprehension of the parts of something as intimately interconnected and explicable only by reference to the whole.

The fundamental investment philosophy for successful mixed use is a holistic understanding and balancing of the interrelationship of the component parts of the project itself, as well as the relationship of the project with its surrounding community. When all components are taken into account, the developer gets the satisfaction of a successful project and also the gratification of making a positive impact on the community and the lives of the people who walk into and alongside the project every day.

Other than live/work units, which are successful in smaller projects, horizontal –or “side by side” – mixed use projects are more successful.  Early projects with vertical stacking, one use on top of a different use, have experienced some issues with incompatibility. Multi-family spaces above food and beverage establishments can be tricky due to noise, odors, traffic and conflicting hours. Retail establishments have learned the hard way that they can’t capture 100% of the multi-family occupants’ business and won’t be successful if their retail space lacks visibility and access from outside the project.  Rents and vacancy rates for upper floor commercial tenants in vertically stacked mixed use are not as favorable. 

Developers who historically have focused on a single product type may not have fully understood the complexities of the “other” product types in their mixed-use projects. In cases where the master developer has brought in expertise with “other” product types through joint development, when the project is hit with challenges like a sagging economy, each developer tends to look after his own component in the mixed-use project and has blinders on when it comes to the other components of the overall project.

In the past, lenders have focused on single product types, making financing a mixed-use project more difficult. Houston is now being viewed as the “third coast” gateway capital market.   According to Jonathan Brinsden at Midway, this is a major shift in the capital fueling Houston real estate development. Sources of capital such as Canyon Capital Realty Advisors have more of a developer mentality and understand how to underwrite projects with multiple uses.  With this new source of “smart money” we are likely to see more, better-planned and better-executed mixed-used projects in Houston.

The magic number for successful mixed use seems to be at least three types of activity generators, as long as they all interrelate. Most frequently, mixed use projects combine retail, residential and office.  Recreational and hospitality uses are valuable components too in the right context.

The location of the project must be selected carefully.  Hotels within walking distance and nearby residential space help support a mixed-use project. In inner-city locations, existing parking spaces are scarce and renting a parking lot is sometimes more expensive than renting the restaurant space that uses the lot.  Locating a new mixed-use project in a walkable environment, with well-lit, well-maintained sidewalks, bike racks and proximity to public transit is critical.  Also, providing for metered on-street parking generates revenue for the local municipality, and positive revenue generates positive support for the project with local governments.

Integration of the mixed-use project into its surrounding environment is important to success.  For example, providing wider sidewalks and outdoor terraces for retail and hospitality uses and allowing for private use of such spaces helps to bring the project activity generators to the exterior of the project in a way that engages the general public and pulls it in.  Outdoor cafes are a natural, such as the 2d floor terrace for the State Bar at Houston’s Rice Hotel.  Another great example near the Austin Convention Center is a ground floor tenant that will feature sculptural displays by local artists.

An exciting new mixed-use project by Midway Companies that is now coming out of the ground is Kirby Grove, located adjacent to Levy Park near Richmond Avenue and Eastside. In this project, Midway is the sole developer of all components in the project. Midway collaborated with the Upper Kirby Management District for the redevelopment of Levy Park, and the mixed-use project is located adjacent to the park. In the same vein as Discovery Green downtown, Kirby Grove is an example of how a good public park can stimulate good private development.

We can expect to start seeing development outside the core Inner Loop markets soon. Areas like Montrose, Midtown and East End are looking very interesting as potential development markets. Not coincidentally, all of these alternative markets are located within the boundaries of established management districts.  In Houston’s no-zoning environment, these districts provide helpful tools to address issues like traffic, parking, safety and enhanced public spaces in our inner city markets, like land-use regulation “lite”.  These districts can also be effective advocates for the developer’s project in the planning and permitting process.

Houston’s strong economy and relatively light burden with regard to the entitlement process, coupled with improved capital sources, all work to make Houston a great place for development of mixed-use projects.

JAN 02 New Law to Limit the Liability of Employers Hiring Individuals with Criminal Records

New Law to Limit the Liability of Employers Hiring Individuals with Criminal Records
by Josh Eberle
January 2, 2014

Thorough background checks have traditionally formed a significant part of the hiring process for companies considering new employees.  Hiring an employee with a criminal record poses many challenges for an employer, especially with respect to potential claims of negligent hiring and supervision.  On September 1, 2013, House Bill 1188 became effective and amended Texas Civil Practice and Remedies Code, Section 142.001 with respect to all causes of action accruing after the bill went into effect.  The statute limits the liability of  “an employer, general contractor, premises owner, or other third party solely for negligently hiring or failing to adequately supervise an employee based on evidence that the employee has been convicted of an offense.”

House Bill 1188’s stated purpose is to enhance public safety, raise employment levels, decrease recidivism, and allow job seekers with criminal records to become self-sufficient, law-abiding citizens.  Individuals with a criminal record seeking employment receive less than half as many job offers as persons without records. Thus, the new law is designed to encourage employment of individuals with criminal records who seek to re-integrate themselves with the workforce by diminishing certain obvious concerns for employers.

However, House Bill 1188 is not a complete insulation of liability.  Causes of action still remain against employers under an exception to Section 142.001, when:

  1. the employer, general contractor, premises owner, or other third party knew or should have known of the conviction; and
  2. the employee was convicted of:

    (A)  an offense that was committed while performing duties substantially similar to those reasonably expected to be performed in the employment, or under conditions substantially similar to those reasonably expected to be encountered in the employment, taking into account certain factors;

    (B) an offense to which judge-ordered community supervision does not apply, which offenses include murder,  capital murder, indecency with a child, aggravated kidnapping, aggravated sexual assault, and aggravated robbery; or

    (C)  a sexually violent offense.

While the law does ease concerns about hiring individuals with criminal records, employers should continue to perform extensive background checks on and vet workers to ensure they are suited to the specified job.

DEC 10 Class Action Waivers in Arbitration Agreements Given New Life

Class Action Waivers in Arbitration Agreements Given New Life
by Joseph "Trey" L. Wood, III
December 10, 2013

As I reported in January 2012, the National Labor Relations Board (NLRB) had held that class action waivers in arbitration agreements between employers and employees were a violation of the National Labor Relations Act (NLRA).1  The rationale behind the NLRB’s decision was "an individual who files a class or collective action regarding wages, hours, or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by [the NLRA]."  Thankfully for employers, that decision was recently overturned by the United States Fifth Circuit Court of Appeals in D.R. Horton Inc. v. National Labor Relations Board.

D.R. Horton is a homebuilder that required all employees to sign, as a condition of employment, an agreement requiring employees to arbitrate any disputes they may have against the employer, and waive the authority of the employees to proceed with class action claims against the company.  One of the company’s employee’s challenged the agreement before the NLRB on the grounds that the class action waiver agreement violated Section 7 of the NLRA which allows employees to band together in confronting an employer regarding the terms and conditions of their employment.  The Fifth Circuit noted, however, that no court decision had ever held that the right to engage in “concerted activities for the purpose of…other mutual aid or protection” prohibited class action waivers in arbitration agreements.

In overturning the NLRB, the Court found that pursuant to the Federal Arbitration Act (FAA), arbitrations are a favored means of resolving conflicts, and the FAA requires that arbitration agreements must be enforced according to their terms.  The court explored the NLRA’s language and examined Congressional intent, and found nothing to indicate that Congress intended the NLRA to override the FAA.

However, the Fifth Circuit did find that there were some problems with D.R. Horton’s agreement as it was written.  The Court found that the company had violated the NLRA by requiring employees to sign the agreement since there was nothing in the Agreement which specifically indicated that employees could still file NLRB charges. The court agreed with the NLRB that employees would reasonably interpret the mandatory arbitration agreement as prohibiting them from filing claims with the NLRB.

What this Means for You
This ruling is a victory for employers, but it also means that if you currently have an arbitration agreement in place, that it will savings clause to advise employees of their right to file NLRB charges.  Accordingly, it is important that these agreements be reviewed and revised by competent counsel.

1D.R. Horton Inc.

NOV 27 UPDATE: Implementation of New Hours of Service Rules

UPDATE: Implementation of New Hours of Service Rules
by Gus Bourgeois
November 27, 2013

In August, I reported here that earlier that month, a federal appeals court in Washington, DC upheld almost all of the controversial “hours of service” rules enacted by the Federal Motor Carrier Safety Administration (FMCSA) in late 2011. The rules included provisions:

  •  reducing a driver's seven-day workweek to 70 hours from 82 hours;
  • imposing  limits placed on drivers’ 34-hour minimum restart period, requiring it to occur once every seven days and requiring it to include two rest periods between 1 am and 5 am over two consecutive days; and
  • prohibiting truckers from driving more than eight hours without first taking at least a 30-minute off-duty break (although the Court rejected this provision as applied to short-haul (local delivery) drivers).

The battle over the most contentious of these rules has now shifted from the courts to Congress.  Late last month, a bill was introduced in the House of Representatives that would delay implementation of the 34-hour minimum restart period rule until the Government Accountability Office (GAO) can assess the methodology used by the FMCSA in crafting the rule.  Until that occurs, the bill would require the hours of service rules in place prior to the adoption of the 34-hour minimum restart period rule to be reinstated.

The bill, called “The True Understanding of the Economy and Safety Act”, was sponsored by Rep. Richard Hanna (R-N.Y.), Rep. Tom Rice (R-S.C.) and Rep. Mike Michaud (D-Maine).  Rep. Hanna stated that the purpose of the bill was “to ensure the [34-hour minimum restart period] rule makes sense and will not actually harm the traveling public and the American economy.” The bill is supported by the Owner-Operator Independent Drivers Association, which represents the interests of small-business trucking professionals and professional truck drivers.

The 34-hour minimum restart period rule has long been criticized as being harmful to the economic interests of shippers, truckers and the public at large, but the bill strikes at the foundations of the rule by requiring GAO to take a second look at the FMCSA’s justifications in crafting it – in particular, whether the rule provides sufficient safety benefits to justify any such harmful economic effects.  It remains to be seen whether the bill will be passed and signed into law, but for now, the battle over the 34-hour minimum restart period rule continues.

SEP 24 How the Supreme Court's DOMA Ruling Affects Employers

How the Supreme Court's DOMA Ruling Affects Employers
by Joseph "Trey" L. Wood, III
September 24, 2013

The United States Supreme Court in United States v. Windsor found as unconstitutional the Defense of Marriage Act’s provision requiring federal laws to ignore same-sex marriages legally entered into under an applicable state law.  The full extent of the fallout from this ruling has not yet been felt.  However, the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS) have both chimed in following the ruling providing guidance on same-sex marriages which implicates employers.

The DOL recently released Technical Release 2013-4 which clarifies that the term "spouse" will be read to refer to any individuals who are lawfully married under any state law, including individuals married to a person of the same sex who were legally married in a state that recognizes such marriages, but who are domiciled in a state that does not recognize such marriages.  Similarly, the term "marriage" will be read to include a same-sex marriage that is legally recognized as a marriage under any state law.  The terms "spouse" and "marriage," however, do not include individuals in a formal relationship recognized by a state that is not denominated a marriage under state law, such as a domestic partnership or a civil union, regardless of whether the individuals who are in these relationships have the same rights and responsibilities as those individuals who are married under state law.  This guidance is important to those working with employee benefit plans, plan sponsors, plan fiduciaries, and plan participants and beneficiaries.  What is odd about this “guidance” is that the DOL also ruled that under the Family Medical Leave Act (FMLA), that a spouse for purposes of the FMLA is one who is recognized as such under the law in the state in which the employee resides.

In addition, the IRS has posted Revenue Ruling 2013-17 which confirms that a same-sex couple will be considered married for federal tax purposes if the couple was married in any jurisdiction—including a foreign country—that recognizes same-sex marriage.  Until the Windsor decision, benefits provided to same-sex couples were considered taxable income to the employee (unless the employee’s partner/spouse qualified as the employee’s tax dependent). This resulted in additional income imputed to the employee on his/her W-2.  Additionally, employees could not pay for a same-sex spouse’s/partner’s benefits on a pre-tax basis.  This Revenue Ruling now allows same-sex couples to file amended returns for past tax years to recoup any extra taxes paid as a result if “imputed income.”  However, along with this benefit, high, dual earning same-sex couples will also now face the dreaded “marriage penalty”  incurred by opposite sex married couples.

What these rulings in mind, it would be wise for employers to review their new-hire paperwork to make sure that gender-neutral language is used when asking for spousal information.  Also, employers should review their benefits plans to make sure that they take into account the federal government’s recognition of same-sex marriages.

AUG 28 Federal Appeals Court Upholds New Hours of Service Rules for Transportation Industry

Federal Appeals Court Upholds New Hours of Service Rules for Transportation Industry
by Gus Bourgeois
August 28, 2013

The hard fought legal battle over tough new “hours of service” rules enacted by the Federal Motor Carrier Safety Administration (FMCSA) in late 2011, intended to improve highway safety by reducing truck driver fatigue, appears to have finally been resolved in early August 2013, with a federal appeals court in Washington, DC upholding almost all of the controversial rules. The rules include provisions:

  • reducing a driver's seven-day workweek to 70 hours from 82 hours;
  • imposing  limits placed on drivers’ 34-hour minimum restart period, requiring it to occur once every seven days and requiring it to include two rest periods between 1 am and 5 am over two consecutive days; and
  • prohibiting truckers from driving more than eight hours without first taking at least a 30-minute off-duty break (although the Court rejected this provision as applied to short-haul (local delivery) drivers).

The American Trucking Association had argued against the rules, noting the increased costs that trucking companies would have to bear if the rules were upheld, and challenging the FMCSA’s conclusions as to the role of driver fatigue in accidents involving truck drivers.

The Court’s ruling likely will result in trucking companies having to hire additional drivers (with experienced drivers already in short supply) and put additional trucks into service, which critics noted will only increase traffic volumes, potentially leading to higher incidences of accidents involving such trucks. Time will tell whether these rules will have the intended effect – improvement in highway safety – but for now, the FMCSA issued a press release stating that it is moving forward with full implementation.

AUG 19 Affordable Care Act Delays Play or Pay Penalties

Affordable Care Act Delays Play or Pay Penalties
by Joseph "Trey" L. Wood, III
August 19, 2013

On July 2, 2013, the US Treasury Department announced that it is delaying enforcement of the employer “play or pay” penalties and reporting requirements found in the Affordable Care Act (ACA) for one year to 2015. The Treasury Department indicated that employers should still comply with the requirement to offer medical coverage to full time employees on a good-faith basis. However, without the penalties in place or the reporting requirements, this essentially gives employers another year to prepare for implementing plans compliant with the Act. However, it should also be noted that while these particular provisions have been delayed, other parts of the ACA have not been affected. One example is the requirement that employers provide notice to their employees of the health insurance exchange marketplace.

The purpose of the “play-or-pay” penalties is to expand healthcare coverage to many without it on employers with 50 or more full-time employees. Referred to as “shared responsibility payments,” they amount to penalties that will be paid for each employee who is not provided with the minimum coverage called for under the law.  Penalties are also called for on most individuals who do not have coverage (“individual mandate”). The delayed enforcement of the pay-or-play rules until 2015 has also caused many to urge that enforcement of the individual mandate also be delayed, particularly in light of uncertainty as to how the state and federal insurance exchanges will open in the fall and operate in 2014.

This delay will provide employers with additional time to evaluate how to best implement plans in the future, or whether to simply pay the penalty. Many employers will choose to continue with their original plan of covering full-time employees, but will now have additional time to determine how best to track employee hours. The delay in implementation may also allow employers to monitor the success of state health care exchanges in 2014, to determine whether simply paying the penalty is a reasonable option. 

AUG 13 Can You Keep a Secret? Texas Legislature Says Yes

Can You Keep a Secret? Texas Legislature Says Yes
by Chris Hanslik
August 13, 2013

After years of common law remedies for trade secret misappropriation, the Texas Legislature has adopted the Texas Uniform Trade Secrets Act (TUTSA) which becomes effective September 1, 2013.  Once effective, TUTSA is sure to change the way companies react to preserve information they consider and treat as a trade secret.  The new statute can be found in Texas Civil Practice & Remedies Code Chapter 134A.  Some of the important aspects of TUTSA are:

  1. TUTSA displaces any conflicting law in Texas providing civil remedies for misappropriation of a trade secret.  However, it does not affect any contractual remedies (whether or not based on misappropriation of a trade secret), other civil remedies that are not based on misappropriation of a trade secret, or criminal remedies (whether or not based on misappropriation of a trade secret).
  2. A "trade secret" gets defined.  Although Texas courts have provided various definitions of what a trade secret is, with TUTSA there is now a uniform definition for courts to apply.  The statute defines a "trade secret" as "information, including a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers."  However, the information identified above must meet two additional criteria.  First, the information must derive "independent economic value" from not being "generally known" or "readily ascertainable by proper means."  Second, the party claiming ownership of the "trade secret" must have taken "reasonable" efforts to maintain the secrecy of the information.
  3. Knowledge becomes a focus of establishing liability.  Under TUTSA, liability is established by showing that a third party "knows or has reason to know that the trade secret was acquired by improper means."  Accordingly, placing third parties on notice of the types of trade secrets the company believes may have been misappropriated.  While this has always been a good practice to follow under the injunction provisions of TUTSA it will now have a material effect on the remedies available.
  4. Limiting the time period for injunctions.  While "actual or threatened" misappropriation may be enjoined, upon request by a party, the court can terminate an injunction when the trade secret has ceased to exist.  This suggests that an injunction might end when a competitor could have discovered the information on its own or the information no longer warrants trade secret protection.
  5. An injunction can provide for the payment of a reasonable royalty.  Section 134A.003(b) provides that in "exceptional circumstances" an injunction may "condition future use upon payment of a reasonable royalty" for no longer than the "time for which use could have been prohibited."  The statute goes on to state that "exceptional circumstances include a material and prejudicial change in position" before a third party gains "knowledge" or a "reason to know" of the misappropriation.  This provision makes "notice" or "cease and desist" letters critically important under the statutory scheme.
  6. Preserving the secrets.  TUTSA mandates that "a court shall preserve the secrecy of an alleged trade secret by reasonable means."  This alleviates the hesitation by some in the past to pursue enforcement of their trade secret i.e. the fear of public disclosure.  In fact, the express language of TUTSA provides for a presumption in favor of granting protective orders to preserve the secrecy of trade secrets.
  7. Recovering attorney's fees.  Until TUTSA, an action for misappropriation of trade secrets under common law did not allow for the recovery of attorney's fees.  Section 134A.005 changes that if one of three requirements is met:  (a) a claim of misappropriation is made in bad faith; (b) a motion to terminate an injunction is made or resisted in bad faith; or (c) willful and malicious misappropriation exists.
  8. Uniformity.  Perhaps the most open-ended part of TUTSA is section 134A.008 which states "this chapter shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among states enacting it."  It is difficult to predict how Texas courts will apply the law from other jurisdictions, if at all.  To date, 48 states have adopted similar statutes.  The big question to be answered is which of those states are Texas courts likely to side with when there is a difference in interpretation.
MAY 21 If the Coca-Cola Formula is Not a Secret Anymore, What Is?

If the Coca-Cola Formula is Not a Secret Anymore, What Is?
by Andrew Pearce
May 21, 2103

A Georgia man claims he found the original Coca-Cola formula in a box of old papers from an estate sale. Now, it can be yours for the Buy-It-Now price of $15,000,000, although the starting bid on Cliff Kluge’s eBay listing is only $5,000,000. Coke denies the claim, saying the only real formula remains heavily guarded in a vault in Atlanta.

I often say there are two undisputed trade secrets in America: the Coca-Cola formula and KFC’s secret herbs and spices recipe. I must also acknowledge, however, that internet sites claim to reveal KFC’s secret recipe, so maybe we are down to one.

For everyone else seeking to protect information as confidential or a trade secret, the ability to effectively establish such information as confidential can be critical to the operation of their business. Texas courts have defined a trade secret as any formula, pattern, device or compilation of information which is used in one's business and presents an opportunity to obtain an advantage over competitors who do not know or use it. To determine whether a party has a trade secret, Texas juries have been asked to consider the following:

  1. the extent to which the information is known outside of Plaintiff's business;
  2. the extent to which it is known by employees and others involved in Plaintiff's business;
  3. the extent of the measures taken by Plaintiff to guard the secrecy of the information;
  4. the value of the information to Plaintiff and its competitors;
  5. the amount of effort or money expended by Plaintiff in developing the information; and
  6. the ease or difficulty with which the information could be properly acquired or duplicated by others.

Similarly, “confidential information” has been instructed to mean any process, information or compilation of information, formula, pattern or device which is used in one's business and which gives an opportunity to obtain an advantage over competitors who do not know of or use it. Matters of public knowledge or of general knowledge in an industry cannot be appropriated as confidential. The personal efficiency, inventiveness, skills and experience which an employee develops through his work belong to him and not his former employer.

Simply stated, courts require that to be entitled to common-law protection, a trade secret must be secret. Although simple on its face, this issue becomes extremely complicated in the context of seeking to prevent the alleged misuse of a party’s trade secrets, such as through injunctive relief, as well as determining the enforceability of non-competition agreements premised on the existence of confidential information.

MAY 16 New Texas Trade Secret Law Helps Businesses

New Texas Trade Secret Law Helps Businesses
by Joseph "Trey" L. Wood, III
May 16, 2013

On May 2, Texas Governor Rick Perry signed into law the Texas Uniform Trade Secrets Act (TUTSA). The new law helps clarify what are protectable trade secrets and the remedies available to businesses whose trade secrets are misappropriated. The TUTSA replaces existing, and often confusing, case law regarding misappropriation of trade secrets.

TUTSA prohibits the unauthorized acquisition, disclosure, and use of a trade secret. The Act also defines trade secrets to include the following: a process, financial data, or list of actual or potential customers, a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers, that:

  • Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.
  • Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

The law also makes claims of misappropriation easier to prove by providing that there is a presumption in favor of granting protective orders to preserve the secrecy of trade secret information. Courts may enter injunctions against individuals or other companies for actual or threatened misappropriation. Under the law, courts are also authorized to use reasonable means to protect a trade secret in litigation, and protective orders may:

  • Limit access to confidential information to only the attorneys and their experts.
  • Allow for in camera hearings.
  • Seal the records of the action.
  • Order any person involved in the litigation not to disclose an alleged trade secret without prior court approval.

Under the new law, claimants may also seek monetary damages for the actual loss caused by the misappropriation, as well as for unjust enrichment. In addition, a court may impose a reasonable royalty for an unauthorized disclosure or use of a trade secret. Exemplary damages and attorneys’ fees are recoverable upon a showing that the misappropriation was willful and malicious. Attorneys’ fees may also be awarded upon a showing that the misappropriation was in bad faith or if a motion to terminate an injunction is made or resisted in bad faith.

The TUTSA becomes effective September 1, 2013 and only applies to allegations of misappropriation that take place after that date. This new law is a big step forward for Texas businesses trying to keep their trade secrets protected.

APR 30 The Confidential Nature of Workplace Investigations: A Violation of the NLRA?

The Confidential Nature of Workplace Investigations:  A Violation of the NLRA?
by Joseph "Trey" L. Wood, III
April 30, 2013

Most policies on workplace investigations include language to the effect of, “To maintain the integrity of the investigation, employees are required to maintain in strict confidence all information related to the investigation.  Violations of this policy may subject the employee to discipline, up to and including termination.”  Not much thought was given to these policies until recently when the National Labor Relations Board (NLRB) again stretched its authority in non-union settings by maintaining that such blanket prohibitions violate Section 7 of the National Labor Relations Act (NLRA).

In Banner Health Systems, a hospital technician refused to follow his supervisor’s orders on an alternate method of cleaning surgical instruments. During the investigation of the technician’s failure to follow this order, the hospital provided the technician with a preprinted form which contained a request that employees not discuss the investigation with others. The employee was disciplined for his insubordination. He then filed an unfair labor practice charge with the NLRB claiming that such a request for confidentiality violated his Section 7 right to engage in protected concerted activity.

The NLRB found that a blanket prohibition like this was overly broad and a violation of the employee’s rights.  It held that employers can only request that employees not discuss a matter under ongoing investigation if there were “legitimate” and “substantial” justifications for maintaining the confidentiality of the investigation. It further found that such a request can only be made on a case-by-case basis after first determining that witnesses needed protection, evidence was in danger of being destroyed, testimony was in danger of being fabricated, or there was a need to prevent a cover up.

Since that decision, the NLRB has clarified it stance on the use of confidentiality policies during an investigation.  The NLRB’s Division of Advice (Advice) provides employers with guidance on policies and procedures and whether they may violate the NLRA.  Recently Advice reviewed the following policy found in Verso Paper’s Code of Conduct:

“Verso has a compelling interest in protecting the integrity of its investigations. In every investigation, Verso has a strong desire to protect witnesses from harassment, intimidation and retaliation, to keep evidence from being destroyed, to ensure that testimony is not fabricated, and to prevent a cover-up. To assist Verso in achieving these objectives, we must maintain the investigation and our role in it in strict confidence. If we do not maintain such confidentiality, we may be subject to disciplinary action up to and including immediate termination.”

Advice opined that this policy violated Section 7. However, it also indicated that Verso’s policy would be lawful if it deleted the last two sentences and replaced them with “Verso may decide in some circumstances that in order to achieve these objectives, we must maintain the investigation and our role in it in strict confidence. If Verso reasonably imposes such a requirement and we do not maintain such confidentiality, we may be subject to disciplinary action up to and including immediate termination.” Such a revision makes it clear that the employer’s policy of confidentiality does not apply in every situation, and it establishes that the employer’s interest in confidentiality must be balanced against the employee’s Section 7 rights.

This guidance from the NLRB provides employers with helpful information on drafting and enforcing policies pertaining to workplace investigations. It would be wise to review your current policy to see if it is compliant with the NLRB’s stance on such matters.

APR 18 New Rules Promise a Speedy Trial for Small Civil Cases

New Rules Promise a Speedy Trial for Small Civil Cases
by Edgar Saldivar
April 19, 2013

New amendments to the Texas Rules of Civil Procedure, which took effect on March 1, 2013, promise to speed up the process for parties filing claims for damages of $100,000 or less.  The expedited process for cases under $100,000 is comprised of new Rule 169 and amendments to Rules 47 and 190 as well as Texas Rule of Evidence 902. This alert brings you some highlights of the changes with a brief background on the reasons for such changes.

Following the initiative of Texas House Bill 274 to reduce the expense and delay of litigation, the Texas Supreme Court promulgated a new set of rules in its stated effort to improve the efficiency of the Texas court system by compelling expedited procedures in smaller cases. These rules follow the directive of Government Code § 22.004(h), which calls for “rules to promote the prompt, efficient, and cost-effective resolution of civil which the amount in controversy, inclusive of all claims for damages of any kind, whether actual or exemplary, a penalty, attorney’s fees, expenses, costs, interest, or any other type of damage of any kind, does not exceed $100,000.”

Rule 47 of the Texas Rules of Civil Procedure was amended to require a more specific statement of the relief sought by a party. The rule is mandatory for cases filed on or after March 1, 2013, except those filed in justice court.  Original pleadings, including petitions, counterclaims, cross-claims and third-party claims must contain now contain the following:

A. a short statement of the cause of action sufficient to give fair notice of the claim involved;

B. a statement that the damages sought are within the jurisdictional limits of the court;

C. except in suits governed by the Family Code, a statement that the party seeks:
  1. only monetary relief of $100,000 or less, including damages of any kind, penalties, costs, expenses, pre-judgment interest, and attorney fees; or
  2. monetary relief of $100,000 or less and  non-monetary relief; or
  3. monetary relief over $100,000 but not more than $200,00; or
  4. monetary relief over $200,000 but not more than $1,000,000; or
  5. monetary relief over $1,000,000; and
D. a demand for judgment for all the other relief to which the parties deems itself entitled.

A party who fails to comply by not providing a statement of monetary relief as described above will not be allowed to conduct discovery until the pleading is amended to comply.  Clearly, Rule 47 is designed to identify the cases appropriate for an expedited actions process under the newly-created Rule 169.

Rule 169 applies an expedited process to suits in which all claimants, other than counter-claimants, affirmatively plead that they seek only monetary relief totaling $100,000 or less.  The process does not apply to suits in which a party has filed a claim under the Family Code, the Property Code, the Tax Code, or a medical liability claim under Chapter 74 of the Civil Practices & Remedies Code. 

The expedited process involves the following changes:

  1. Discovery is governed by the newly-amended Rule 190 (explained further below)
  2. A trial date must be set within 90 days after the conclusion of discovery and only two trial continuances are allowed, not to exceed 60 days total.
  3. Each side is allowed no more than 8 hours for trial, though on motion the court may extend the time to 12 hours per side.
  4. Unless the parties have agreed not to engage in alternative dispute resolution (ADR), the court may order ADR once, which must not exceed a half-day in duration (and with a limited cost), and must be conducted no later than 60 days before trial.

Rule 190, which goes hand in hand with Rule 169, sets forth the discovery limitations on expedited actions.  The new discovery process for the expedited actions process in Rule 169 includes the following changes:

  1. All discovery must be concluded by 180 days after the first request for discovery of any kinds is served on a party.
  2. Each party may have no more than 6 hours in total to examine and cross-examine all witnesses in oral depositions.  Total time for depositions may go up to 10 hours by the parties’ agreement, but not more except by court order.
  3. Interrogatories have been reduced from 25 to 15.
  4. There is now a limit of 15 written requests for production that a party may serve.
  5. Written requests for admissions are now also limited to 15.
  6. Among the standard requests for disclosure, a party may now also request disclosure of all documents, electronic information, and tangible items that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses.

Finally, Rule 902(10)(c) of the Texas Rules of Evidence was added to provide a form affidavit for proof of medical expenses in order to comport with Section 41.0105 of the Civil Practices & Remedies Code, which allows evidence of only those medical expenses that have been paid or will be paid, after any required credits or adjustments.

Like the new Rule 91a regarding groundless actions, which was also promulgated by the Supreme Court at the same time as these, the new or amended rules will force parties to be more thoughtful in their desired relief, and, therefore, their pleadings, especially if they want to submit to a new speedy trial process — or avoid one.

APR 10 Don't Buy More than You Bargained For

Don't Buy More than You Bargained For
by Joseph "Trey" L. Wood, III
April 10, 2013

Download Article Summary

If your company is trying to decide whether to purchase another company, it is important to know that the transaction could end up with you having to pay for the sins of another. A recent Seventh Circuit U.S. Court of Appeals decision1 emphasizes the need to be mindful of potential successor liability under the Fair Labor Standards Act (FLSA).

In the case, JT Packard & Associates (Packard) was sued in a collective (class) action by its employees for overtime violations under the FLSA. Packard entered into a settlement agreement with the class of employees to the tune of $500,000 and subsequently became insolvent, issuing its stock to a third party, which then sold the stock to a bank. Thomas & Betts subsequently purchased the assets of Packard through a receiver’s auction, with full knowledge of the settlement agreement. One condition specified in the transfer of assets to Thomas & Betts was that the transfer be “free and clear of all liabilities” that the buyer had not assumed, and a related but more specific condition was that Thomas & Betts would not assume any liability that Packard might incur in the FLSA litigation. Following the asset purchase, Thomas & Betts continued to run the business as it had been run in the past, with little being changed.

When a company is sold in an asset sale as opposed to a stock sale, the buyer acquires the company’s assets but not necessarily its liabilities; whether or not it acquires them is the issue of successor liability. Most states limit such  liability to  sales  in  which  a  buyer  (the successor) expressly or implicitly assumes the seller’s liabilities. But when liability is based on a violation of a federal statute relating to labor relations or employment, a federal common law standard of successor liability is applied that is more favorable to plaintiffs than most state-law standards to which the court might otherwise look. Since this case involved violations of federal law, the Seventh Circuit applied the federal common law. The federal law considers the following factors:

  1. Whether the successor had  notice of  the  pending lawsuit, which Thomas & Betts unquestionably had when it bought Packard at the receiver’s auction; this is a factor favoring successor liability.
  2. Whether the predecessor (Packard) would have been able to provide the relief sought in the lawsuit before the sale. The answer is no, because of Packard’s insolvency. The answer counts against successor liability by making such liability seem a windfall to plaintiffs. But this depends on how long before the sale one looks.
  3. Whether the predecessor could have provided relief after the sale (again no—Packard had been sold, with the proceeds of the sale going to the bank, along with Bray’s remaining assets). The predecessor’s inability to provide relief favors successor liability, as without it the plaintiffs’ claim is worthless.
  4. Whether the successor can provide the relief sought in the suit—Thomas & Betts can—without which successor liability is a phantom (this is a “goes without saying” condition, not usually mentioned).
  5. Whether there is continuity between the operations and work force of the predecessor and the successor, as there was between Packard and Thomas & Betts, which favors successor liability on the theory that nothing really has changed.

The court decided that successor liability is appropriate in suits to enforce federal labor employment laws—even when the successor disclaimed liability when it acquired the assets in question— unless there are good reasons to withhold such liability. Lack of notice of potential liability—the  first criterion in the federal standard as usually articulated—is an example of such a reason. In the end, the court concluded among other things that, if an acquiring employer could contractually disclaim liability in this fashion, the "statutory goals" of the FLSA would be frustrated, and "a violator of the Act could escape liability or at least make relief much more difficult to obtain."

What You Should Do
While the court’s reasoning seems to discourage due diligence. After all, the court referred to the purchaser’s knowledge of the FLSA lawsuit as a factor favoring successor liability.  However, that should not be the take-away. The court also mentioned some instances under which a court might not impose successor liability even if the purchaser had knowledge of the liability. Instead, due diligence should be the course of conduct and if the company to be acquired has any liabilities under federal labor and employment laws, determine whether under the facts of the purchase, successor liability would be found, and whether there is a way to structure the transaction to avoid this type of unexpected liability.

1 Teed v. Thomas & Betts Power Solutions LLC.

APR 03 Space City: Houston City Council Approves a New Parking Ordinance

Space City: Houston City Council Approves a New Parking Ordinance
by Blake Royal
April 3, 2013

After months of discussion, the Houston City Council approved an overhaul of the City of Houston’s Off-Street Parking and Loading ordinance – Article VIII of Chapter 26 of the Code of Ordinances – in March 2013.  The changes to the ordinance are the first since the ordinance was first adopted in 1989 and do not apply to existing businesses at their current locations, which are only required to meet the previous ordinance standards.  For new businesses, or new locations for current businesses, the minimum distance between a business and its off-site parking (which can comprise up to 25% of the total self-parking spaces) has been increased from 250 feet to 800 feet and can be increased further to 1,000 if the business provides pedestrian amenities that are sufficient, in the eyes of the City, to mitigate the extended distance.  Options for shared parking have also been increased.  In addition, new commercial, retail and office development are now required to provide bicycle parking, and the ordinance allows for the minimum parking standards to be decreased if the bicycle parking facilities exceed the minimum requirements.   

The biggest change affects the dining and hospitality industry: restaurants and bars are now divided into eight classifications – the previous ordinance had only two groups, bars and restaurants – and each classification has a different minimum parking standard that is based on the gross floor area of the establishment, including outdoor decks, patios and outdoor seating areas in most instances.  The classifications range from take-out restaurants, which are required to have 4 parking spaces for every 1,000 square feet of gross floor area, to bars, clubs and lounges (businesses that derive more than 50% of their gross revenue from the sale of alcoholic beverages for on-site consumption), which are required to have 14 parking spaces for every 1,000 square feet of gross floor area, including outdoor decks and patios.

The new ordinance also requires annual certifications for businesses that utilize parking lease arrangements and for off-site lots used only for valet parking.  The valet-only lots are permitted to use alternate layouts, but valet service must be provided at all times to qualify.

Overall, the new parking ordinance provides greater flexibility for businesses to meet the minimum parking standards of the City of Houston. 

MAR 28 Series LLCs Revisited

Series LLCs Revisited
by Lyndsay Weber
March 28, 2013

At first glance, the series limited liability company (SLLC) appears to be a better version of a limited liability company (LLC). With a SLLC, an individual can enjoy the advantages of multiple LLCs wrapped up in one SLLC; an individual files one document to create an SLLC and then can designate sub-LLCs, otherwise known as “series” or “cells”, as needed, each with its own distinct assets, rights, powers and duties. The assets of each series are shielded from the liabilities of other series and of the umbrella LLC. The advantages seem obvious – reduced costs and administrative burdens, and each series is afforded protection from the debts and liabilities of the other series and umbrella LLC – what’s not to love?

While the advantages of a SLLC are appealing, it is not without potential pitfalls. Numerous unresolved issues involving nearly every facet of SLLCs, from foreign jurisdiction recognition to taxation to bankruptcy, plague the SLLC and could potentially diminish the advantages. Consider foreign jurisdiction and the implications on liability protection. The majority of states have not adopted SLLC statutes and the efficacy of SLLCs in those states has not been widely tested – not to mention, courts in jurisdictions with SLLC statutes, have yet provided any case law interpreting the SLLC statutes. This is cause for concern particularly with regard to whether the SLLC internal liability shield will be upheld both within and outside of the jurisdiction of formation. 

Another area of ambiguity is how a SLLC will be treated in bankruptcy. Bankruptcy courts have yet to weigh in on pertinent issues such as the effect on the other series and the umbrella LLC if just one series or just the umbrella LLC files for bankruptcy protection.

Taxation, at both the state and federal level, is yet another unsettled aspect of SLLCs. The IRS provided some insight in the September 2010, proposed Treasury Regulations, which state that each series will be treated, for federal tax purposes, as a separate entity regardless of whether the series is considered legally distinct under local law. However, to date, these proposed regulations have not been finalized. Other unresolved taxation issues range from availability of offsets between series to how to handle tax returns.

In light of the numerous unresolved issues regarding SLLCs, the true potential of the SLLC remains to be seen. Business owners and business practitioners should carefully consider the potential risks and pitfalls inherent to SLLCs in determining whether to proceed with the use of a SLLC, especially if the intent is for the SLLC to do business in states without SLLC statutes. Further, until taxation issues are settled and the SLLC statutes have been tested in federal and state courts, business owners and practitioners choosing to use a SLLC should proceed with caution.

MAR 14 Texas Supreme Court Rules that City of Houston's Attempt to Trump the TCEQ Full of Hot Air

Texas Supreme Court Rules that City of Houston's Attempt to Trump the TCEQ Full of Hot Air
by Tim Heinrich
March 13, 2013

The Texas Supreme Court has recently ruled, in Southern Crushed Concrete, LLC v. City of Houston, that a city may not pass an ordinance that effectively moots an air quality permit issued by the Texas Commission on Environmental Quality (TCEQ).

In October 2003, Southern Crushed Concrete, LLC (SCC) applied to the TCEQ for an air quality permit to move an already-permitted concrete-crushing facility to a new location in Houston.  A permit for this type of operation is required pursuant to the Texas Clean Air Act (TCAA).  The rules adopted by the TCEQ under the TCAA prohibit the operation of a concrete-crushing facility within a quarter mile (1,320 feet) of any school and other enumerated land uses, measured from the nearest points of the buildings in question.

While the application for the TCEQ permit was pending, the Presbyterian School Outdoor Educational Center was built near the property that SCC had proposed to use for its facility.  In May 2007, after actively participating and opposing SCC’s application, the City of Houston passed an ordinance requiring concrete-crushing facility operators to obtain a municipal permit.  The location requirements under the ordinance are more restrictive than those imposed by the TCAA and TCEQ rules.  Specifically, the ordinance prohibits concrete-crushing operations within 1,500 feet of a school facility and other enumerated land uses.  Further, the distance is measured from property line to property line, not building to building.

The TCEQ granted SCC’s request for a permit in August 2009. However, when SCC applied for the municipal permit, the City of Houston denied the permit because the concrete operation would violate the city ordinance’s location restriction.

SCC sued the City of Houston seeking, among other matters, a declaration that the city ordinance is preempted by the terms of the TCAA, which provides, that a city ordinance “may not make unlawful a condition or act approved or authorized under [the TCAA]” . 

Among other arguments presented by the City, the City contended that the TCEQ permit was only for the purpose of protecting air quality, not for general purposes, and that the city ordinance regulated land use, not air quality.  The Texas Supreme Court refused to recognize any such distinction, stating that if the City’s contentions were true, a city could almost always circumvent the provisions of the TCAA and vitiate a permit issued by the TCEQ by passing an ordinance that purports to regulate something other than air quality.

Although the City has announced that it will continue to oppose SCC’s permit, this ruling by the Texas Supreme Court should provide some assurance that state permits issued pursuant to the TCAA will not be trumped by city ordinances.  

MAR 06 Facebook isn't Just for Friend Requests: Texas Legislation Would Allow Service of Lawsuits through Social Media

Facebook isn't Just for Friend Requests: Texas Legislation Would Allow Service of Lawsuits through Social Media
by Andrew Pearce
March 6, 2013

When a lawsuit is filed, the first thing a plaintiff must do is properly serve the defendant with a copy of the lawsuit. Once service is accomplished, the defendant is on the clock to file an answer and the lawsuit is effectively underway.

The traditional methods of service have been by personal delivery, typically through a process server, or by mail. In instances where the defendant is difficult or impossible to locate, courts have been authorized to approve other methods of service, such as through a notice published in the classified section of a newspaper.

Now, as further proof of the digital age we live in, proposed legislation in Texas would expand a court’s ability to authorize service through sites such as Facebook, Twitter and LinkedIn.

On February 27, 2013, Rep. Jeff Leach, R-Plano, introduced HB 1989, which would allow an “electronic communication sent to defendant through a social media website” to accomplish service in a Texas lawsuit.

The bill follows in the footsteps of a British case in which UK High Court Judge Nigel Teare approved the unusual request after the lawyers were unable to reach the defendant at a physical address or through email. Instead, the lawyers had notice that the defendant accepted two friend requests on Facebook. As a result, Judge Teare approved the use of Facebook to serve legal documents.

The bill raises obvious questions regarding the reliability of such service, given concerns over false identities and fake accounts. Even so, and regardless of whether the bill passes, the impact of social media and the efforts of Texas legislators and courts to adjust accordingly are undeniable.

FEB 22 Court Decision Casts Doubt on Whether Reverse Triangular Mergers May Constitute "Assignment by Operation of Law"

Court Decision Casts Doubt on Whether Reverse Triangular Mergers May Constitute "Assignment by Operation of Law"
by Jeff Lin
February 22, 2013

Reverse triangular mergers are a common M&A transaction structure in which an acquiring entity will create a shell subsidiary to be merged with and into a target company with the target company’s owners receiving stock or equity consideration in exchange for their ownership interests in the target company. Under this structure, the target company becomes a subsidiary of the acquiring entity. Reverse triangular mergers have traditionally been assumed to have advantages over other transactional transaction structures including (1) usually requiring the approval of less than all of the target company’s owners, and (2) having the target company continue to survive and exist, which reduces the need to assign contracts of the target company, among other things.  However, an April 8, 2011 Delaware Chancery Court decision, Meso Scale Diagnostics v. Roche Diagnostics, has cast some doubt on whether contracts do not need to be assigned following a reverse triangular merger.

In the Meso Scale Diagnostics case, there was controversy over whether a reverse triangular merger constituted an “assign[ment] ... by operation of law or otherwise” for purposes of a license agreement relating to certain proprietary technology.  While opining that Delaware law is clear that a stock purchase agreement (another, more common, M&A transaction structure) would not constitute an assignment by operation of law, the Delaware Chancery Court declined to grant a motion to dismiss the case.  This was based on the argument that a reverse triangular merger was similarly not an assignment by operation of law, ruling that a question on that matter still existed given (1) the lack of clear precedent on the subject under Delaware law, and (2) some indications of the intent of the parties, particularly the decision by the acquiring entity after the transaction to terminate all the employees of the acquired entity and abandon nearly all of the acquired entity’s assets.  The court further cited an unpublished federal court decision in the Northern District of California, SQL Solutions, Inc. v. Oracle Corp., where a similar decision was reached.

Although the Meso Scale Diagnostics decision was made only at the motion to dismiss stage of the litigation, and although the decision was founded upon a particular and unique fact pattern, the Meso Scale Diagnostics case has introduced uncertainty to the traditional assumption of legal professionals that a reverse triangular merger produces much of the same legal effect as a stock purchase transaction.  Specifically, the decision has introduced doubt that contracts of the target entity do not need to be assigned to the acquiring entity in a reverse triangular merger, given the continuing existence of the target entity. 

In light of the Meso Scale Diagnostics decision, M&A practitioners should exercise caution with regard to the use of reverse triangular mergers, including giving particular attention to the assignability of contracts and the intentions of the acquiring entity after the consummation of the transaction.  Further, until Delaware law provides greater clarity on the topic, contract drafters should be aware of the potential effect of the use of the language “assignment by operation of law” in the assignment provisions of contracts, lest such language produce results contrary to the intent of the parties.

FEB 20 Are You an Accommodating Recruiter?

Are You an Accommodating Recruiter?
by Joseph "Trey" L. Wood, III
February 20, 2013

By now, most all employers are aware that the Americans With Disabilities Act Amendment Act (ADAAA) has greatly expanded the definition of what conditions are protected disabilities. However, not as many employers are aware that the ADAAA protects not only employees, but applicants as well. A recent case in Arizona serves as an example of what employers need to do in order to comply with the Act.1

Rochelle Duran has been hearing impaired since she was born. In 2005, she applied for a Direct Support Professional position with Creative Networks. Ms. Duran was informed that she would be required to complete orientation and pre-employment training as part of the application process. Ms. Duran requested an interpreter for orientation and was told that the company would not supply an interpreter for the orientation, but would supply an interpreter for training. Because of this, when Ms. Duran showed up for orientation she was unable to understand most of what was said. Ms. Duran also completed Creative Network’s written job application around the time of the orientation. She was contacted by Creative Network and told that her application had been reviewed and the company wanted her to come in for pre-employment training. When told about Duran’s need for an interpreter, the company informed her that she would be responsible for finding her own interpreter, but the company would pay $200 for interpreter services. The training in question lasted 24 hours over a six-day period. Ms. Duran informed the company that $200 would not cover the cost of an interpreter for the training in question. The company indicated that it was policy to only provide $200 for the cost of an interpreter, but that Ms. Duran could bring in a friend or family member to interpret. Ms. Duran indicated that she did not have anyone who could interpret for her. Creative Network then placed Ms. Duran’s application in its inactive files.

What the Court Found
After filing a Charge of Discrimination with the EEOC, the Commission filed suit against the company for discriminating against Ms. Duran on the basis of her disability. Specifically, the EEOC alleged that Creative Network failed to reasonably accommodate Ms. Duran during the hiring process. The ADAAA provides that once an employer becomes aware of the need for an accommodation by an employee or applicant, that employer has a mandatory obligation to engage in an interactive process with the employee to identify and implement appropriate reasonable accommodations. Interestingly enough, Creative Networks did not argue that paying more than $200 for a sign language interpreter would be an undue burden, which is a defense to the requirement to accommodate. In fact, one of Creative Network’s own witnesses testified that limiting the company’s coverage of interpreter services to $200 was unreasonable. What Creative Network did argue was that Ms. Duran was not hired because she never became an eligible applicant due to the fact that she did not take the required pre-interview training. The court shot this argument down immediately finding that Ms. Duran was not required to complete every step of the application process, or even apply, when discriminatory hiring processes deter her from doing so.

What This Means For Employers
This ruling is a harsh reminder for employers that the duty to accommodate extends not only to your current employees, but also applicants. In fact, the court has pointed out that if a company has in place an inherently discriminatory application process, liability may be imposed without someone even filing an application. Accordingly, it would be a good idea to make sure that your application/hiring policies do not create unnecessary hurdles for those with disabilities, such as limiting the amount that will be spent on interpreters. The best practice is to treat all applicants alike and openly engage in the interactive process with disabled applicants in an effort to identify and implement a reasonable accommodation.

1 EEOC v.Creative Networks, L.L.C., 2012 WL 6127311 (D. Ariz.).

FEB 13 Frivolous Lawsuits Stand Less of a Chance in Texas

Frivolous Lawsuits Stand Less of a Chance in Texas
by Edgar Saldivar
February 13, 2013

The Texas Supreme Court recently proposed a new rule, which calls for the dismissal of cases that have no basis in law or fact. Rule 91a of the Texas Rules of Civil Procedure, “Dismissal of Baseless Causes of Action,” is effective March 1, 2013 and implements the legislative policy initiative embodied in Texas House Bill 274, which amended Government Code § 22.004(g) to call for rules “for the dismissal of causes of action that have no basis in law or fact on motion and without evidence … [to be] granted or denied within 45 days of the filing of the motion to dismiss.” 

Rule 91a requires the following steps to dismiss a baseless cause of action. First, a party must file a motion that (1) states it is made pursuant to Rule 91a, (2) identifies each cause of action sought to be dismissed, and (3) states specifically the reasons the cause of action has no basis in law, no basis in fact, or both. Rule 91a.1 defines a cause of action as having no basis in law “if the allegations, taken as true, together with inferences reasonably drawn from them, do not entitle the claimant to the relief sought.” The rule defines a cause of action as having no basis in fact “if no reasonable person could believe the facts pleaded.” Unlike a motion for summary judgment under Rule 166a, the parties cannot supply evidence for the court’s consideration as the court must decide the motion based solely on the pleading of the cause of action, together with proper pleading exhibits. This gives the court significant discretion to determine the reasonableness of the pleadings.

The movant must file the motion within 60 days after being served with the pleading containing the challenged cause of action. Next, the movant must set a hearing on the motion at least 21 days but not more than 45 days after filing the motion. Like Rule 166a governing motions for summary judgments, Rule 91a requires that the motion be filed at least 21 days before it is heard and that any response to the motion be filed no later than 7 days before the hearing. Nevertheless, the court must rule on the motion to dismiss within 45 days unless the motion, pleading, or cause of action is withdrawn, amended, or dismissed as specified in Rule 91a.5. An amended motion filed in accordance with the new rule restarts the 45 day ruling period.

Clearly, Rule 91a is designed to streamline the dismissal of cases that should never have been brought to court. Conceivably, if there are no withdrawals, amendments, or dismissals pursuant to Rule 91a.5, the whole process to dismiss a baseless case could take as short as 21 days but not more than 105 days, depending on when the motion is filed and the hearing set.

The new proposed rule is also designed to make litigators more thoughtful about their pleadings. For one, the content of pleadings and attached exhibits, if any, become significantly more important because litigators will now need to consider further whether causes of action have sufficient basis in law or fact. In addition, Rule 91a provides for an award of costs and attorneys’ fees to the “prevailing party” and allows the court to consider evidence regarding costs and fees in determining the award, including fees for preparing or responding to the motion to dismiss. Therefore, improper or insufficient pleadings could be costly for the party who does not prevail.

FEB 06 Landstar Owner-Operator Litigation Quietly Ends

Landstar Owner-Operator Litigation Quietly Ends
by Gus Bourgeois
February 6, 2013

Earlier this month, Landstar System, Inc., a non-asset based provider of transportation and logistics services, announced the end of its decade-long litigation with the Owner-Operator Independent Drivers Association, Inc. (OOIDA). The litigation, which commenced in 2002, stemmed from allegations brought by OOIDA that Landstar’s motor carrier leases with its owner-operators violated certain federal regulations. Under such leases, owner-operators leased their tractors to Landstar, and then operated such tractors as independent contractors. OOIDA sought damages, injunctive relief and attorney’s fees.

The litigation, widely considered to be one of the most important recent cases in the ongoing battle between the industry and OOIDA over the requirements of such complex federal regulations, had already yielded important decisions as to the terms of such motor carrier leases. For example, one of OOIDA’s key allegations had been that Landstar had acted unlawfully when it provided certain products and services to its owner-operators and charged back these items against compensation owed to the owner-operators at prices higher than the amounts paid by Landstar for such products and services – a common practice in the industry. A Florida federal court upheld such practice in 2006, but required that Landstar provide such owner-operators with access to documents to ascertain whether they are being charged properly. At the time, Landstar expressed confidence that it could provide such documents and had calculated the charge backs properly.

While both Landstar and OOIDA presented the ending of the litigation in positive terms, it should be noted that Landstar ultimately did not have to pay any damages, and that, according to its press release, its current motor carrier leases were found to be valid under federal law. The ending of this litigation should therefore provide a measure of clarity to the transportation industry as to its obligations under federal regulations with respect to such leases.

FEB 04 Are You Relying on the Right Kind of Expert for Disability Assessments?

Are You Relying on the Right Kind of Expert for Disability Assessments?
by Joseph "Trey" L. Wood, III
February 4, 2013

Sara, one of your employees approaches you to tell you that she has a particular condition/disability that requires an accommodation in order to perform the essential functions of her job. The disability that Sara is claiming to have is not readily apparent from just looking at her.  Under such a circumstance, the ADA permits an employer to have the employee examined by a physician to determine the nature and extent of the disability and if there are any particular accommodations that would permit the employee to perform her job. You ask Sara to go to a doctor that your company uses for post-offer physicals and provide the doctor with a copy of the job description. The doctor examines Sara and the job description and informs you that there is no way the employee can safely perform the job. What do you do?  This type of situation recently happened to Oakland County, Michigan when a deaf applicant applied for a lifeguard position.[1]

Nicholas Keith had been deaf since his birth in 1980. He communicates primarily with sign language, but he is able to hear noises including whistles, alarms, and loud voices. In 2007, through the use of an interpreter to relay verbal instructions, Keith completed Oakland County’s lifeguard training course, successfully executing all lifesaving tasks and training techniques himself. He applied for a lifeguard position with the county requesting only that an interpreter be present at staff meetings and any further instruction. The position was offered to Keith conditioned upon his passing a post–offer physical. The county’s doctor reviewed Keith’s medical history and stated “He’s deaf; he can’t be a lifeguard,” and also commented that he (the doctor) would be sued if “something” happened.

Based upon this, the county placed the offer of employment on hold and contacted a group of aquatic safety/risk management consultants. The county inquired as to whether any accommodation could be provided to allow Keith to perform the essential functions of the job. The consultants expressed concern over whether Keith could function effectively as a lifeguard, despite not having any background or experience regarding the ability of deaf people to work as lifeguards. Based upon the doctor’s recommendation as well as the opinion of the consultants, Keith’s job offer was withdrawn.

Keith sued the county for disability discrimination under the ADA. While the district court granted the county’s request that the case be dismissed, the Sixth Circuit court of appeals reversed, finding that there were questions of fact that a jury should be allowed to consider as to whether Keith could perform the essential functions of the lifeguard position with or without reasonable accommodation. One of the keys to the court’s reversal was the fact that Keith had a witness who had worked extensively with hearing impaired individuals and was a certified training instructor who had worked with deaf individuals in the field of life guarding and aquatics, certifying over 1000 deaf lifeguards through American Red Cross training programs. Keith also provided testimony from a physician specializing in neurodevelopmental disabilities who had worked with hearing impaired individuals for over 30 years, and who stated an opinion that in a noisy swimming area, recognizing a potential problem is almost completely visually based. It was this doctor’s opinion that Keith’s deafness should neither disqualify him as a lifeguard nor require constant accommodation. In the end, the court found that the county had relied upon the advice of those who did not have proper experience where the ADA requires an individualized assessment of whether a disabled employee can perform the essential functions of the job, with or without reasonable accommodation.

While this case may still ultimately be decided by a jury in the employer’s favor, it does provide a valuable lesson to employers. When relying upon the expertise of a third party in making disability assessments, it is important for you to determine if the opinions expressed by the third party resulted from an individualized assessment of the employee or general assumptions without any real backing. If the “expert” is only professing his opinions on such assumptions, the employer would be better served sending the employee to someone who has real expertise in the matter.

JAN 31 New HSR Reporting Thresholds for Mergers and Acquisitions

New HSR Reporting Thresholds for Mergers and Acquisitions
January 31, 2013

The Federal Trade Commission has announced its 2013 adjusted thresholds under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) to be effective February 11, 2013. The purpose of the HSR Act is to provide notice and information to the Federal Trade Commission and the Department of Justice before certain large proposed transactions, namely mergers and acquisitions, are consummated – either by a sale of equity or by a sale of assets.

Reporting under the HSR Act involves disclosure of certain business information, a filing fee of at least $45,000, and may delay the proposed acquisition until the applicable waiting period outlined in the HSR Act is over. Any transaction that does not meet the threshold, however, is not required to report. A submittal under the HSR Act by both parties to the proposed transaction will trigger a 30-day waiting period, during which, the Federal Trade Commission and the Department of Justice will review the transaction.

The HSR Act sets forth certain dollar amounts, below which, a proposed transaction will be exempt from the requirements of the HSR Act. These thresholds, which were the subject of the above-mentioned Federal Trade Commission adjustment, apply principally to two tests:  1) the size of transaction test and 2) the size of person test. The size of transaction test asks whether, as a result of the transaction, the value of the buying party’s interest in the seller’s assets or equity would meet the minimum threshold. The size of person test asks whether the two parties to the transaction have sales or assets above a certain threshold. If a proposed transaction does not meet the requirements of either the size of transaction test or the size of person test, then the transaction is not subject to the HSR Act.

Every year, the Federal Trade Commission adjusts the threshold according to revisions in the country’s gross national product. The new minimum threshold for the size of transaction test is $70.9 million, and any transaction valued under the threshold is not reportable under the HSR Act. Last year’s threshold was $68.2 million. Similarly, the new minimum threshold of sales or assets for the size of person test is $141.8 million for the larger party and $14.2 million for the smaller party, and if the parties do not satisfy these thresholds, then the transaction is not reportable under the HSR Act. Last year’s thresholds for the size of person test were $13.6 million and $136.4 million, respectively.

JAN 18 Let's Keep It Between You and Me: Not So Fast Says the NLRB

"Let's Keep It Between You and Me": Not So Fast Says the NLRB
by Joseph "Trey" L. Wood, III
January 18, 2013

Employers have long tried to keep confidential certain aspects of the employee/employer relationship. For example, many employers do not want employees discussing their compensation packages with other employees and typically include such language in confidentiality agreements. In addition, during the course of periodic workplace investigations, employers typically request that employees being interviewed keep confidential the matters being discussed and further maintain the confidentiality of witness statements taken during the investigations. However, three recent decisions by the National Labor Relations Board (NLRB) make it clear that the NLRB is not in favor of confidentiality in the workplace.

First, a little back-drop: The National Labor Relations Act (NLRA) applies equally to non-union employers as it does to unionized employers and Section 7 of the Act protects employees' "concerted, protected activity". Essentially, employees are allowed to communicate with co-workers about the terms and conditions of employment. An employer's attempt to hinder or interfere with those rights is a violation of the NLRA which could lead to an unfair labor practice charge being filed on the employees' behalf by the NLRB. With that in mind, let us examine the three NLRB decisions.

Confidentiality and Non-Disparagement Agreements Must be Narrowly Drafted
The first decision involved Quicken Loans (a non-union employer) in a lawsuit that was originally brought by the employer against one of its former employees, Lydia Garza (a non-union employee) for violating the confidentiality and non-disparagement provisions of the parties’ employment agreement. Ms. Garza filed an unfair labor practice claim with the NLRB claiming that the two provisions violated the NLRA.

The confidentiality provision required employees to maintain as confidential: “non-public information relating to the Company's business, personnel...all personnel lists, personal information of co-workers...personnel information such as home phone numbers, cell phone numbers, addresses and email addresses.”

The non-disparagement provision provided that employees could not "publicly criticize, ridicule, disparage or defame the Company or its products, services, [or] policies."

The administrative law judge (ALJ) who ruled on Ms. Garza’s complaint found that “there can be no doubt that these restrictions would substantially hinder employees in the exercise of their Section 7 rights.” Specifically, the NLRB feels that this type of language is too broad because it could “chill” employees from engaging in protected activity such as making comments that the employer is “not treating employees fairly or paying them sufficiently.”  The end result of this was fairly tame: The ALJ ordered that the agreements be redrafted. But it still it threw a wrench into the works for the non-compete suit.

While this ruling will most certainly be appealed, it is likely that the NLRB will uphold the ALJ’s ruling. It will then probably be appealed to one of the appellate circuits which will likely overturn this, but in the meantime it would be wise to make sure that any confidentiality/non-disparagement agreements be carefully worded to avoid this type of result.

Confidentiality During Investigations
The second decision comes to us from a case in which an employee filed an internal whistle-blower complaint with his employer, Banner Health Systems. He alleged that he received instructions from his supervisor that he felt would endanger patients. An HR consultant, who received the complaint, instructed the employee not to discuss the matter with co-workers while it was being investigated. The NLRB found that this instruction violated the employee’s Section 7 rights. The Board found that while an employer could require its employees to maintain the confidentiality of an investigation, it must first determine whether that step is really necessary. To do this, the employer must look at whether the witnesses are in need of protection, whether there is a danger that evidence will be destroyed, whether testimony is in danger of being fabricated, and whether there is a need to prevent a cover-up.

So, the next time your company is faced with the task of conducting an internal investigation for harassment, discrimination, etc., it would be prudent for you to document the need for maintaining the confidentiality of the investigation following the factors above as an outline for your decision.

Witness Statements Not Always Protected as Confidential
The third decision involved a situation where a union was trying to obtain witness statements from the employer following the termination of an employee for sleeping on the job. The employer refused to provide the witness statements that were generated during its investigation, which were protected from disclosure under long standing Board precedent. The union filed an unfair labor practice charge to try and force the production of the statements.

The NLRB, which is the most liberal Board we have seen in many years, agreed with the union and found that the old Board precedent was “flawed.” Instead, it adopted a balancing test to determine if witness statements should be provided to the requesting party. That balancing test sets forth that if the requested information is relevant,  the party refusing to produce the information on the basis of confidentiality must prove “that a legitimate and substantial confidentiality interest exists, and that it outweighs the requesting party’s need for the information.”

This decision is yet another example of a pro-employee/pro-union Board. While this decision may be limited to a union’s request for statements, no longer may employers assert a blanket refusal to provide unions with witness statements used in internal investigations.  Instead, employers must now show that confidentiality concerns outweigh the requesting party’s need for the information.

JAN 03 All Hat, No Cattle: Bills Proposing Big Changes for Texas Courts May Start a Discussion...

All Hat, No Cattle: Bills Proposing Big Changes for Texas Courts May Start a Discussion, but have Little Chance of Becoming Reality
by Andrew Pearce
January 3, 2013

As the Texas Legislature prepares to go back into session, members have already filed nearly 350 pieces of proposed legislation, including legislation that could have a significant impact on Texas lawyers and, more specifically, Texas courts. Although commentators have concluded that most of the legislation is unlikely to become law, the proposals do stand to garner state-wide attention and, if nothing else, may advance the conversation regarding changes in the way Texas courts operate.

Senate Bill (SB) 103, filed by Sen. Dan Patrick (R-Houston) would eliminate straight-party voting of judges in the high courts, district courts and county courts. The Austin-American Statesman speculated Sen. Patrick was motivated by the fact that Harris County voted Democrat in the past two presidential elections, but also believed the bill might make otherwise partisan voters “think a bit before casting a ballot.” Although the bill has been described as a long shot, the fact that a Republican senator has proposed the idea makes the possibility of bipartisan support more likely. It is worth noting, however, that the legislation is being proposed in the face of “a marked rise in the percentage of voters who cast ballots using the straight-ticket method,” according to Peck Young, director of Austin Community College’s Center for Public Policy and Political Studies.

House Bill (HB) 129, filed by Rep. Richard Pena Raymond (D-Laredo) would require the judges of the two high courts to recuse themselves from a case if any party, people or groups connected to the party, the party’s lawyer or his firm, had made political contributions greater than $2,500 to the judge in the previous four years. When filing anything in the high courts, the political contributor would have to disclose his political contributions. Jordan Smith of the Austin Chronicle said the legislation was “utterly sensible,” but then joked (I think) that the legislation, if it passed, would likely leave Texas without an appeals court and is therefore “dead on arrival.”

House Joint Resolution (HJR) 37, also introduced by Rep. Raymond, proposes a constitutional amendment that would change the terms of office for district judges from four to six years. The Legislature rejected similar legislation in 2011, but not before the resolution made it to a floor vote.

Finally, Rep. Raymond’s House Bill (HB) 134 and House Joint Resolution (HJR) 36 propose abolishing the Texas Court of Criminal Appeals and shifting its criminal jurisdiction to the Texas Supreme Court. Characterized as a “perennial Hail Mary” by Smith of the Austin Chronicle, the bill is predicted to stall early.

Meanwhile, the Texas Judicial Council, which is the policy making body for the Texas judiciary, unanimously passed resolutions asking the Legislature to increase judges’ salaries, establish a court technology fee to cover the cost of eFiling, and institute other measures designed to improve the efficiency of Texas courts.

In 2009, Rep. Raymond told Mary Alice Robbins of the Texas Lawyer that his goal in proposing to abolish the Court of Criminal Appeals was to “get this conversation going.” That sentiment may be true of each of the proposed bills, but the conversation does not appear likely to result in any substantive changes to Texas courts. And even though the legislation to end straight-party voting and extend the terms for district judges appears to be an effort to minimize the effect of an increasingly polarized Texas electorate that results in good judges of both parties being voted off the bench, avoiding such a reality is going to take more than just talk.

NOV 15 A Force Majeure Primer - Hurricane Sandy Edition

A Force Majeure Primer - Hurricane Sandy Edition
by Gus Bourgeois
November 15, 2012

Force majeure clauses typically excuse a party to a contract from performance – or allow for a delay in performance – if such party is prevented from performing due to an Act of God, or some other catastrophic event typically listed in the clause. Such events often include natural disasters such as “wind, storm, flood, fire and earthquake” as well as man-made events such as “closing of the public highways” and “terrorist acts or threats” (this last one, sadly, became de rigueur following the attacks on September 11, 2001).  A catch-all phrase – typically, “and other events beyond the reasonable control of the affected party” – generally follows.

The arrival of Hurricane Sandy a few weeks ago, and it’s devastating aftermath, remind us not only of the importance of having a force majeure clause in contracts, but of truly understanding the meaning and the nuances of such clauses.

Here are a few things to think about when drafting your force majeure clause, as well as when a force majeure event strikes:

  1. It’s important to understand whether the force majeure clause allows the affected party to excuse performance, or merely delay it, as noted above. If the latter – when must performance be rendered? As soon as the event concludes?  You should consider adding language giving yourself a little extra time to get up and running.
  2. Remember that there has to be a causal link between the force majeure event and your inability to perform. If you are about to invoke the force majeure clause, be certain that such a causal link exists. In particular, if the inability to perform is a result of your negligence, in whole or part, then the force majeure clause may not apply.
  3. Similarly, many force majeure clauses contain a requirement that the event be “not be reasonably foreseeable” in order to qualify as a force majeure event, which adds an element of subjectivity that is often problematic. If you live on the Gulf Coast, for example, a hurricane strike is certainly foreseeable, but should that disqualify it from being a force majeure event?
  4. Many force majeure clauses require the affected party to provide the other party with notice of the occurrence of a force majeure event within a certain amount of time – which will probably not be the first thing on your mind at that moment. Be sure to draft this provision so as to give yourself enough time to react, if you agree to such a notice requirement.
  5. Similarly, many force majeure clauses allow the other party to terminate if the force majeure event persists beyond some stated amount of time. If you are dealing with such a requirement, is the time period long enough?
  6. Don’t rely on the “catch-all” phrase noted above, if you can avoid it. If you live in an area prone to certain kinds of force majeure risks, or if your industry faces particular force majeure risks, you should list those risks very specifically in your force majeure clause.
Force majeure clauses tend to be overlooked when drafting contracts, but careful drafting can help you avoid problems before they arise – so that you can focus on getting your business back in operation as quickly as possible.
NOV 14 Unfriending Employers: New Laws Restrict Access to Employees' Social Media Accounts

Unfriending Employers: New Laws Restrict Access to Employees' Social Media Accounts
by Ryan Bardo
November 14, 2012

Over the past few months, several states have passed laws restricting an employer’s ability to ask employees for passwords or access to their social media accounts such as Facebook. Until recently, prevailing court case law leaned toward a presumption that employees do not have a reasonable expectation of privacy when they use their workplace computers for personal reasons, thus allowing employers to monitor email, review electronic files stored on a work computer, and request access to social media accounts. Lawmakers now appear to be pushing back. Employers should be aware of these trends and changes and modify their policies and procedures accordingly, especially if they have employees in any of the following states.

Maryland became the first state to enact workplace privacy legislation in May when its governor signed the User Name and Password Privacy Protection and Exclusions Act, which prohibits employers from:

  • requesting or requiring that an employee or applicant disclose any user name, password, or other means for accessing a personal account or service through certain electronic communications devices;
  • taking, or threatening to take, certain disciplinary actions for an employee’s refusal to disclose certain password and related information; or
  • failing or refusing to hire an applicant as a result of the applicant’s refusal to disclose certain password and related information;

The Maryland law does allow an employer, however, based on the receipt of information regarding the use of certain Web sites or Web–based accounts, to conduct investigations related to securities fraud and trade secret misappropriation.

Illinois followed suit in August when it enacted the Right to Privacy in the Workplace Act, which prohibits an employer from:

  • requesting or requiring an employee or applicant to provide any password or other related account information in order to gain access to their account or profile on a social networking website or
  • demanding access in any manner to an employee's or applicant’s account or profile on a social networking website.

Violations of this law expose the employer to actual damages plus costs, a criminal petty offense, and, if willful and knowing, a civil penalty and attorney’s fees.

In September, California passed the Employer Use of Social Media bill, which prohibits employers from:

  • requesting or requiring that employees or applicants disclose social media log-in credentials;
  • requesting or requiring that employees or applicants access personal social media in the employer’s presence;
  • requesting or requiring that employees or applicants divulge any personal social media content; or
  • discharging, disciplining, threatening to discharge or discipline, or retaliating against an employee or applicant for not complying with any prohibited request or requirement.

The only exception to this law allows employers to request that an employee divulge social media content (i.e., a screen shot or printout) reasonably believed to be related to an investigation of employee misconduct or violation of law.

As many as 15 other states and the federal government are also considering restrictions on employer access to employee social media accounts through legislation and enforcement of existing laws. Business-friendly Delaware, the registered home for many companies that operate in other states, has not enacted any legislation covering employers but, in July, passed the Higher Education Privacy Act, which prohibits Delaware academic institutions from requesting or requiring that a student or applicant disclose any password or other account information to gain access to their social networking accounts. Protections for job applicants, if not existing employees, cannot be far behind.

At the federal level, US Senators Chuck Schumer (D-NY) and Richard Blumenthal (D-CT) have asked the Department of Justice and Equal Employment Opportunity Commission to investigate whether an employer asking employees and applicants for social media account access is a violation of federal law, namely the Stored Communication Act and the Computer Fraud and Abuse Act. They are also considering legislation to fill any potential gaps in existing laws that would allow such employer inquiry.

In this environment, all employers would be well served to review their policies and procedures regarding requests for social media account information from applicants and employees, not only to avoid potential criminal or civil liability but, perhaps more importantly, to prevent unfavorable judgment in the courts of public opinion, which are increasingly shaped by social media website activity.

OCT 18 Things a Lawyer Should Know About the Enforcement of Rule 11 Agreements

Things a Lawyer Should Know About the Enforcement of Rule 11 Agreements
by Craig Dillard
October 18, 2012

Attorneys who practice law in State Courts in Texas are invariably familiar with Texas Rule of Civil Procedure 11, or as it is more commonly referred, the “Rule 11 Agreement.”  The Rule 11 Agreement can apply to anything from extending the deadline for objections and responses to written discovery to more complex settlement terms concerning the expenditure of company funds while an agreed temporary injunction is in place, any many things in between.  However, and far less common, is a full understanding of the proper procedural steps to enforce a Rule 11 Agreement after a breach or differing interpretations of the agreement occurs.

For example, in Harris County District Court, I recently observed attorneys arguing over a “Motion to Enforce Rule 11 Agreement” related to the payment of funds “in the normal course of business.”  The dispute arose over whether one side’s payment of attorney’s fees was a payment “in the normal course of business.”  In response to this filing, the Court asked counsel the following:

  1. Have you amended your pleadings to bring a cause a action for an alleged violation of the Rule 11 Agreement?
  2. How do you respond to the case law that holds that amending your pleadings is required prior to filing a motion to enforce the Rule 11 Agreement?

Counsel had no response.

Texas Rule of Civil Procedure 11 provides that no agreement between attorneys or parties touching any suit pending will be enforced unless it is in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record.  The Court explained in Trudy's Tex. Star, Inc. v. City of Austin that Rule 11 Agreements are contracts relating to litigation.  In ExxonMobil Corp. v. Valence Operating Co., it was cited that the purpose of Rule 11 is to ensure that agreements of counsel affecting the interests of their clients are not left to the fallibility of human recollection and that the agreements themselves do not become sources of controversy. Trial courts have a ministerial duty to enforce valid Rule 11 agreements.

If fact issues are raised or a party has withdrawn consent, the only method available for enforcing a Rule 11 Agreement is through summary judgment or trial. In Baylor College of Med. v. Camberg, the non-breaching party raised its claim to enforce the disputed agreement “through an amended pleading or counterclaim asserting breach of contract.” Nothing in the record indicates that Baylor employed a proper procedure for enforcing a Rule 11 settlement agreement once the parties proffered differing interpretations of the agreement. Baylor did not file a motion for summary judgment seeking interpretation of the Rule 11 Agreement. To allow enforcement of a disputed Rule 11 Agreement simply on motion and hearing would deprive a party of the right to be confronted by appropriate pleadings, assert defenses, conduct discovery, and submit contested fact issues to a judge or jury.

Again, as ruled in ExxonMobil Corp. v. Valence Operating Co., a party may revoke their consent to a Rule 11 Agreement at any time before rendition of judgment. A court is not precluded from enforcing a Rule 11 Agreement once it has been repudiated by one of the parties, but an action to enforce a Rule 11 Agreement to which consent has been withdrawn must be based on proper pleading and proof.  An action to enforce a settlement agreement pursuant to Rule 11, where consent is withdrawn, must be based on proper pleading and proof. If a party revokes his consent to a Rule 11 Agreement, the opposing party may attempt to enforce the Rule 11 agreement under contract law. Where consent to a Rule 11 Agreement has been withdrawn, a court may not render judgment on the settlement agreement, but may enforce it only as a written contract. Hence, the party seeking enforcement must pursue a separate breach of contract claim which is subject to the normal rules of pleading and proof.

Accordingly, remedying a conflict in interpretations over a Rule 11 Agreement should first begin with an amendment to the pleadings (or a counterclaim) to assert a breach of contract claim for the alleged violation of the Rule 11 Agreement.  The party seeking to enforce the Rule 11 Agreement must then follow the normal rules of pleading and proof (i.e. motion for summary judgment) seeking a judicial determination that the other party breached the Rule 11 Agreement.  Of course, as with any breach of contract claim, attorney fees can be recovered for such a claim. 

Given the amount of cost and expense involved in litigating conflicting interpretations of Rule 11 Agreements, attorneys should be intentional in the language used in Rule 11 Agreements to ensure clarity. 

SEP 05 U.S. Third Party Logistics Market Predicted to have Grown by 6.3% in 2012

U.S. Third Party Logistics Market Predicted to have Grown by 6.3% in 2012
by Gus Bourgeois
September 5, 2012

According to published reports, Research firm Armstrong & Associates estimates that the US third party logistics (3PL) market will finish the year with increased growth over 2011, but will continue to struggle in light of concerns abroad. The consulting firm predicted that the U.S. 3PL market will report gross revenues of $142.2 billion, a 6.3% increase over 2011 figures. While the estimate of 6.3% year-over-year growth, which would be more than three times estimated US GDP for the same period, is less than the industry’s average of 10% growth since 1997, the numbers nonetheless reflect that the industry continues to rebound from lows experienced in 2009, at the height of the Great Recession.

While this report is good news for the 3PL industry, and for the US economy in general, there are significant headwinds in the world economy – in particular, continued economic turmoil in Europe and a slowdown in growth in Asia. On the local front, however, continued activity in the oil & gas sector, coupled with a traditionally strong first year of a new presidential term and the anticipated impact of the completion of the Panama Canal expansion in 2014, point to more growth in local 3PL activity in 2013, as companies continue to focus their efforts and resources on growing their core businesses and expand their presence locally. These factors should allow local and regional 3PL’s the opportunity to compete for new business, and to continue to grow at a fast pace in the upcoming year.

AUG 07 Transportation Industry Wins Latest Battle Over Classification of Owner-Operators

Transportation Industry Wins Latest Battle Over Classification of Owner-Operators
by Gus Bourgeois
August 7, 2012

In a win for the transportation industry, a federal court in New Jersey recently dismissed a lawsuit brought under the federal Fair Labor Standards Act by six owner-operators who performed services for Ironbound Express, Inc., an intermodal freight company.  Luxama v. Ironbound Express, Inc. et al., Civil Action No. 2:11-cv-02224 (D.N.J. June 28, 2012). The plaintiffs alleged that they should have been classified as employees of Ironbound Express (rather than independent contractors), and were therefore entitled to minimum wages, overtime pay and other benefits under the FLSA and state wage and hour laws.

The plaintiffs each owned their own tractors and leased them to Ironbound Express pursuant to standardized lease agreements, which clearly identified the plaintiffs as independent contractors and not employees. Nevertheless, the plaintiffs argued that they should have been classified as employees because “… they perform the integral and main services of Defendants’ regular business, work for years exclusively for Ironbound [Express] and have no separate or distinct occupation or business, are not highly skilled, must be available for service at the option and upon demand of the Company, use Company signs and permits, can be and have been terminable at will upon only thirty days’ notice, submit paperwork and quarterly reports to Ironbound [Express] on forms provided by the Company, receive training from time to time ... and operate trucks within the guidelines and destination points and pickup and delivery times set by the Company.”

The court considered six factors in evaluating the plaintiffs’ claims:

  1. the degree of the alleged employer’s right to control the manner in which the work is to be performed;
  2. the alleged employee’s opportunity for profit or loss depending upon his managerial skill;
  3. the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;
  4. whether the service rendered requires a special skill;
  5. the degree of permanence of the working relationship; and
  6. whether the service rendered is an integral part of the alleged employer’s business.

As to the first factor, the court held that the company's setting a work schedule and requiring plaintiffs to report to a given location at a given time was not the degree of control required to establish an employer-employee relationship, and that such actions by the company were consistent with the terms of the lease agreements, which required that the company exercise only “minimal control” over the plaintiffs’ work.  The court found that plaintiffs generally exercised a greater degree of control over their work by determining, for example, driving routes, the method of securing their loads, and the maintenance, repair, financing and insuring of their vehicles.

In addition, the court held that he plaintiffs had an opportunity for profit and loss because they were paid on a per trip basis and had the opportunity to acquire additional trucks and employ drivers.  The court further held that the plaintiffs also invested in their own equipment under the terms of the lease agreement, and had a special skill because they possessed commercial drivers' licenses.

However, the court stated that the long length of the working relationship between the company and the plaintiffs, and the exclusive nature of the relationship with the company, weighed in favor of an employer-employee relationship.  In addition, the court held the plaintiffs’ services were integral to the company's business.  Nevertheless, the court determined that "the circumstances of the whole activity" weighed against a finding that the plaintiffs were employees and dismissed the suit. 

This “win” for the transportation industry is especially meaningful, having occurred in a state that has recently been at the forefront of organized labor’s attempts to push through new laws limiting the use of owner-operators.  Carriers must continue to be careful that their written contracts with owner-operators, as well as their actual practices, will stand up to scrutiny if an owner-operator makes claims similar to those made by the plaintiffs in the Luxama case.

JUL 16 Texas Oil and Gas Well Operators Can Receive Protection from Threatened Liens

Texas Oil and Gas Well Operators Can Receive Protection from Threatened Liens
by Jeremy J. Sanders
July 16, 2012

Protection is now available for oil and gas well operators subject to threatened liens by drilling contractors’ subcontractors. A Texas court has recently upheld a temporary injunction preventing a drilling contractor’s subcontractor from filing liens against oil and gas wells when certain proactive steps were taken by the operator. The court reasoned that an operator has the right to protect property from liens and encumbrances by pleading and proving the essential elements of a proper temporary injunction. In addition, the court also held that a cash deposit into the registry of the court will suffice to satisfy the requirement of filing a bond with the court. 

In Adobe Oilfield Services, Ltd. v. Trilogy Operating, Inc., 305 S.W.3d 402 (Tex. App.—Eastland 2010, no pet.), the court held that injunctive relief granted to prevent threatened liens from being filed by the drilling contractor’s subcontractors was proper. Pursuant to multiple drilling contracts, Adobe, the drilling contractor, drilled multiple wells for Trilogy, the operator. Trilogy was contacted by a bank which claimed a right to Adobe’s accounts receivable pursuant to a security interest perfected under the Uniform Commercial Code. With the bank and Adobe both claiming the right to receive payment, Trilogy deposited the remaining amount owed to Adobe under the contracts into the registry of the trial court. When Adobe’s subcontractors threatened to file liens on the property, Trilogy filed suit seeking injunctive relief to protect the properties from the threatened liens and to have the trial court determine the parties entitled to the money in the registry. The trial court granted the temporary injunction, Trilogy posted a cash bond, and subcontractors appealed.

A temporary injunction preserves the status quo of the litigation’s subject matter pending trial on the merits. An applicant for temporary injunction must plead and prove three specific elements: (1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim. 

To prove an irreparable injury, the injured party cannot be adequately compensated in damages or damages cannot be measured on a monetary basis. During the hearing on the temporary injunction, Trilogy’s president testified that Trilogy was contractually obligated to protect the land from liens, and, if the liens were filed, the liens would prevent Trilogy from being able to raise money and would negatively affect its reputation. Proof at the hearing also showed that Trilogy would pay the remaining amounts held in suspense if it knew whom to pay. Accordingly, the court added: “Trilogy brought forth evidence showing a probable right to the relief sought and probable, imminent, and irreparable injury that could not be measured by any certain pecuniary standard.” 

Further, when the lawsuit was filed, the subcontractors had not filed a lien on the properties. The temporary injunction sought to prevent such liens from being filed, and, therefore, granting the temporary injunction maintained the status quo. Chapter 56 of the Texas Property Code provides that an owner of land or a leasehold may not be subjected to liability greater than the amount agreed to be paid in the contract for furnishing material or performing labor. Because Trilogy had paid the full contractual obligation to Adobe or into the court, Trilogy had a probable right to the relief sought. As a result, the trial court granted the temporary injunction, and the Court of Appeals upheld the injunction because Trilogy was able to show that it had a cause of action against Adobe, it had a probable right to the relief sought, and that there would be probable imminent and irreparable injury if the liens were filed.

Another important issue decided in the case involved whether or not the deposit of a sum of cash into the trial court’s registry is sufficient to satisfy the requirement of filing a bond with the court. The case held that anytime a surety bond is required, a party may instead deposit cash in lieu of filing the bond. Here, the cash that the operator deposited with the clerk of the trial court insured that the operator would abide by the decision in the case and would pay all sums of money and costs adjudged against it if the temporary injunction was dissolved. Thus, the cash deposit of the operator constituted a proper bond under Texas Rules of Civil Procedure 684 and 14c.

The significance of this case is that 1) a temporary injunction may be granted to prevent the filing of subcontractor’s liens against oil and gas wells when the contractor has been fully paid or the balance due has been paid into the court, and 2) cash in lieu of a bond meets the statutory requirements.

JUL 09 FCPA Update - The Compliance Defense

FCPA Update — The Compliance Defense
by Gus Boureois
July 9, 2012

In the recent blog post titled FCPA Reform Effort in Light of the Walmart Mexico Bribery Case, I mentioned that, particularly with respect to the addition of a compliance defense, “[t]he Walmart matter will likely spell the end of any serious efforts at reforming the FCPA in 2012.” Interestingly, however, at the same time, informal recognition of a compliance defense by the Department of Justice (DOJ) took center stage in the second quarter of 2012, with the DOJ relying very specifically on the existence of an employer’s robust compliance program, and an employee/defendant’s clear efforts to circumvent the same in the course of violating the FCPA, in declining to prosecute the employer in connection with such violations.

The matter in question involved Garth Peterson, a former managing director for Morgan Stanley’s real estate business in China. On April 25, 2012, Mr. Peterson pled guilty for his role in a conspiracy to evade internal accounting controls that Morgan Stanley was required to maintain under the FCPA (the conduct in question involved bribing a Chinese governmental official to steer business to Morgan Stanley). However, as to Morgan Stanley’s culpability, the DOJ noted in its press release that Morgan Stanley maintained a robust FCPA compliance program:

“Morgan Stanley maintained a system of internal controls meant to ensure accountability for its assets and to prevent employees from offering, promising or paying anything of value to foreign government officials.  Morgan Stanley’s internal policies, which were updated regularly to reflect regulatory developments and specific risks, prohibited bribery and addressed corruption risks associated with the giving of gifts, business entertainment, travel, lodging, meals, charitable contributions and employment. Morgan Stanley frequently trained its employees on its internal policies, the FCPA and other anti-corruption laws. Between 2002 and 2008, Morgan Stanley trained various groups of Asia-based personnel on anti-corruption policies 54 times. During the same period, Morgan Stanley trained Peterson on the FCPA seven times and reminded him to comply with the FCPA at least 35 times. Morgan Stanley’s compliance personnel regularly monitored transactions, randomly audited particular employees, transactions and business units, and tested to identify illicit payments.”

The DOJ’s press release then went on to note:

“After considering all the available facts and circumstances, including that Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials, the Department of Justice declined to bring any enforcement action against Morgan Stanley related to Peterson’s conduct.”  

While this is not the first time that the DOJ has informally recognized a compliance defense in declining to prosecute an employer for FCPA violations of an employee, it is perhaps the most explicit example of such recognition, and is especially noteworthy in light of the DOJ’s recent stance of aggressive prosecution of FCPA violations. Of course, it’s impossible to determine whether this instance is an outlier – perhaps the egregiousness of Mr. Peterson’s conduct, or the fact that he also defrauded Morgan Stanley, played a role in the declination of prosecution of Morgan Stanley – but for the proponents of a formal compliance defense, this matter at least provides an argument that a compliance defense could be added to the mix without substantially undermining the effectiveness of the FCPA. And finally, this matter emphasizes once again the value to an employer of implementing and maintaining a strong FCPA compliance program, which cannot be understated.

JUN 22 Texts, Tweets and Metadata - Effective Preservation Letters for Electronic Evidence Require More Than You Might Think

Texts, Tweets and Metadata — Effective Preservation Letters for Electronic Evidence Require More Than You Might Think
by Craig Dillard
June 22, 2012

In preparation for the filing of a lawsuit, careful consideration should be given to the creation of a preservation letter to the opposing party. The preservation letter, which sometimes will precede the lawsuit itself, will often act as a shot across the bow alerting the other side to the issue and serve as a warning to retain documents and electronic information that is relevant to the lawsuit.

Traditionally, retaining and preserving paper documents was easy: simply set the original (or a copy) aside.  However, based on how business is conducted today, preserving electronic data or even knowing what electronic data to retain poses unique challenges in litigation because:

  • Touching or opening the electronic data changes its metadata
  • Digital evidence is often not formatted for printing
  • Electronic data often must be interpreted to be useful
  • The vast numbers of sources of electronic data subject to preservation

An effective electronic evidence preservation letter must clearly identify the materials requiring protection, educate the other side about preservation options and expressly lay out the consequences for failing to preserve the evidence.   Some essential tips for those seeking to craft a successful preservation letter:

Halt Any Routine Destruction or Overwriting
An effective preservation letter must, as a preliminary matter, seek to halt all routine business practices of disposing of or “writing over” potential evidence. Many companies today have policies in place to make sure that only the latest version of documents (often only ever kept in electronic form) are maintained on the company’s servers. If these prior versions of documents are potentially relevant sources of information, once litigation is reasonably anticipated, copies should be retained along with any associated metadata. 

Get Specific
Focus on items specifically bearing on the underlying claim or in the lawsuit. This will identify the relevant business units, time periods and relevant employees at issue. Electronically stored information to be retained should be defined as broadly as possible to cover all potentially relevant information. For example:

  • E-mails and all Digital communications (e.g. Outlook PST files, voice mail, instant messages, text messages)
  • Databases (e.g. Oracle, Access, etc.)
  • Calendar, Contact and Relationship Management Data (e.g. Outlook, Outlook PST, Yahoo)
  • Online Access Data (Temporary Internet Files, History, Cookies, etc.)
  • Back Up and Archival Files (e.g. Zip files, Offsite data storage contractors, etc.)

If your current preservation letter is essentially “save everything, from everyone, on every computer” it is time to re-write it because not only will it not get enforced in Court, but it may potentially be seen as discovery abuse. The ideal preservation letter compels broad retention while appearing to ask for no more than the bare essentials. 

Request Immediate Intervention to Preserve the Metadata
A well crafted preservation letter also instructs the opponent to immediately preserve all potentially relevant electronically stored information with the earlier created or “last modified” date on or after the relevant date for the litigation through the date of the preservation demand. 

If you open a Microsoft Word document or copy that document to a CD or thumb drive, you have just irretrievably changed that electronic document’s system metadata. Metadata is “data-about-data”, such as the document’s last access date or the document’s creation date – dates that may themselves be key pieces of evidence in the case. If you reasonably anticipate that metadata will be important, be sure to clearly direct the opposing party to preserve it and warn of the risks that can potentially destroy or corrupt the document’s valuable metadata. 

As an example of the potential importance of metadata, in a recent complex trade secrets dispute the plaintiff’s “confidential” technical manuals were discovered through an Internet Google search on a publicly available website maintained by a Houston Oil & Gas company. The metadata of those specific documents, including the author, the creation date and the “posting” date (to show how long the documents had been available online) all became important pieces of evidence in the dispute.    

Always Remember the “Good for the Goose” Rule
Only craft a preservation letter or request that your opponent preserve data to the same extent that your client is prepared to preserve data, as you just may find yourself the recipient of an eerily similar preservation letter yourself. Also, if you cannot articulate why a particular type of electronic evidence is potentially relevant, that is a good indication to carefully consider whether to demand its retention in the first place. 

Don’t Forget the Paper!
Some attorneys become so obsessed in their quest to obtain all relevant electronic evidence that they fail to direct their opponent to retain paper copies of key documents. While paper documents become scarcer and scarcer as technology and companies begin moving “into the cloud” – paper evidence will likely hold critical pieces of evidence. For instance, paper that is printed out may often contain a user’s handwritten notes or other annotations that may not show up on the e-mail or electronic document. While ensuring preservation of electronic data is critically important, do not forget about the paper. 

Know When NOT to send a Preservation Letter
Finally, despite the multitude of benefits of sending out a preservation letter early on, there may be strategic reasons to delay in sending out the preservation letter.  For example, once a preservation letter is sent, the other side will generally hire an attorney which will trigger the “anticipation of litigation” privilege and potentially shield documents and communications that would otherwise not be privileged. This is particularly an issue with “on-going investigations.” The timing of sending the preservation letter should be given careful consideration in the light of the overall strategy in the case.     

Whether it is sent at the beginning or held on a particular occasion for strategic reasons, the preservation letter will often times be the first impression of you and the merits of your case. A well crafted preservation letter forces the recipient to carefully weigh the potential costs (which can be significant) and the business interruption in collecting and maintaining the relevant information during the litigation (which can be even more significant). It is important that the preservation letter is clear, effective, and sent at the right time for your case.

JUN 19 Exempt Reporting Advisers Must Monitor Political Contributions

Exempt Reporting Advisers Must Monitor Political Contributions
by Philip A. Dunlap
June 19, 2012

The U.S. Securities and Exchange Commission (SEC) recently amended Rule 206(4)-5 of the Investment Advisers Act, otherwise known as the “Pay to Play” Rule, so that it applies to exempt reporting advisers also.  Exempt reporting advisers are those who (i) advise solely venture capital funds or (ii) advise solely private funds having less than $150 million aggregate assets under management.  Rule 206(4)-5 provides the following prohibitions:

  1. a ban on an adviser receiving compensation for services provided to a government entity for a two-year period after a political contribution has been made by the adviser or any of its “covered associates” to officials of such entity;
  2. a ban on an adviser using third-party solicitors who are not registered broker-dealers or registered investment advisers subject to the pay-to-play restrictions; and
  3. a ban on an adviser or any of its “covered associates” attempting to solicit or coordinate other persons or PACs to make political contributions to certain officials of a government entity to which the adviser is attempting to provide advisory services.

Under Rule 206(4)-5, a “covered associate” includes (i) any partner, managing member or executive officer, (ii) any employee who solicits a government entity for the adviser and (iii) any PAC controlled by the adviser or a covered associate.

An “official” includes incumbents, candidates or successful candidates for elected office of a governmental entity if such office can directly or indirectly influence the outcome of the hiring of an investment adviser by a government entity.

The prohibition on receiving compensation for two years applies whether or not the adviser has actual knowledge of the contribution that triggered the two-year “time-out”.  However, as a fiduciary to its clients, the adviser may be required to continue providing advisory services during any “time-out” period.

Rule 206(4)-5 also contains a “look back” provision pursuant to which advisers must look back in time to ascertain if covered associates have made prohibited contributions.  Any contributions made by a person within two (2) years of becoming a covered associate (if the covered associate solicits clients) and six (6) months if the covered associate does not solicit clients, will be attributed to the adviser.  As a result, the adviser will be subject to a “time-out” for the remainder of the applicable period (2 years or 6 months) that such person is a covered associate of the adviser.  Because of this provision, advisers should carefully consider the past actions of its covered associates (and potential covered associates) to determine if any “time-out” applies to the covered associate and would be attributed to the adviser.

Thankfully, the SEC has provided an exception to the prohibited contributions.  A natural person covered associate may contribute (i) up to $350 to an official per election (primary and general elections are considered separate elections) if the covered associate was entitled to vote for such official at the time of the contribution and (ii) up to $150 if the covered associate was not entitled to vote for such official at the time of the contribution. 

Furthermore, if a “time-out” period is triggered because such covered associate was not entitled to vote for the official at the time of the contribution, the adviser may cure such inadvertent contribution if (i) the contribution was $350 or less, (ii) the adviser discovers the contribution within four (4) months of the date of the contribution and (iii) ensures the return of the triggering contribution within sixty (60) days of discovering the triggering contribution.

As a result of the revisions to Rule 206(4)-5, it is especially important in this election year for advisers to (i) ensure that its employees are aware of the prohibitions on political contributions, (ii) conduct proper due diligence on previous political contributions of existing covered associates and potential new hires that would be covered associates and (iii) engage a compliance officer to develop internal policies for political contributions, monitoring of employee’s political activity and contact with placement agents or other third-party solicitors.

The final adoption of Rule 206(4)-5 can be found at

If you have questions about Rule 206(4)-5 and its impact on your business, please contact BoyarMiller.

JUN 07 FCPA Reforms Efforts in Light of the Walmart Mexico Bribery Case

FCPA Reforms Efforts in Light of the Walmart Mexico Bribery Case
by Gus Bourgeois
June 7, 2012

Reform of the Foreign Corrupt Practices Act has been a hot topic recently, both in legal compliance circles and in the broader business community. World events had seemingly aligned to spur the reform effort forward – notably, the persistence of the Great Recession and its effect on U.S. businesses doing business globally. The argument in favor of government taking steps to enhance the ability of such businesses to effectively compete abroad by reforming the FCPA was publicly made by the U.S Chamber of Commerce’s Institute for Legal Reform, which, with the backing of many  prominent names in the business community, proposed several FCPA reforms for consideration, including the addition of a compliance defense (which would require prosecutors to give consideration to whether, and to what extent, a company had in place an FCPA compliance program, in making enforcement decisions) and clarification of the definition of “foreign official”.

The concept of reforming – or at least providing clarification to – the FCPA should not, on the surface, be controversial. The FCPA is more than 30 years old, and yet there have been comparatively few cases interpreting its provisions. The reason is simple – since the effects of a successful FCPA prosecution against a corporate defendant could be disastrous, most cases settle.  But that fact has left businesses with little guidance as to compliance.

But any reform effort would certainly require an expenditure of political capital by lawmakers backing the effort, in the face of claims by opponents that such reforms represented at best an effort to weaken the FCPA, and at worst an attempt to decriminalize bribery. Serious lobbying efforts in favor of the Institute for Legal Reform’s proposals quickly commenced, and for a time reception on Capitol Hill seemed almost favorable.

And then came Walmart. Headline: “Vast Mexico Bribery Case Hushed Up By Walmart After Top-Level Struggle” (New York Times, online edition, April 21, 2012).

Opponents of FCPA reform were quick to pounce. On April 25, 2012, two members of the House of Representatives (Rep. Elijah E. Cummings, D-Maryland, and Rep. Henry A. Waxman, D-California) not only launched a Congressional inquiry into Walmart’s role in the bribery case, but openly questioned Walmart’s involvement in the Institute for Legal Reform’s FCPA reform efforts, writing, in a letter to Chamber President Thomas A. Donohue: “[w]e are concerned about the role that Walmart  officials may have played  in the Chamber's Institute for Legal Reform. It would appear to be a conflict of interest for Walmart officials to advise on ways to weaken the Foreign Corrupt Practices Act at a time when the leadership of the company was apparently aware of corporate conduct that may have violated the law.”

The Walmart matter will likely spell the end of any serious efforts at reforming the FCPA in 2012.  Nevertheless, proponents note that reform of any major legislation usually takes time, and are continuing to press their case – although in the current U.S. political climate, “time” may be an understatement indeed.

MAY 29 Understanding the Litigation Process: Summary Judgments

Understanding the Litigation Process: Summary Judgments
by Craig Dillard
May 29, 2012

A summary judgment is a motion brought by either a plaintiff or a defendant that asks the Court to decide that the other side has no claims or defenses which require a trial. In its traditional form, a motion for summary judgment requires the Court to find that there are no genuine issues as to any “material fact.” 

The ultimate purpose of going to trial is for the jury (or sometimes the judge) to hear and weigh conflicting evidence and make an ultimate determination on the issues in the case. In a summary judgment, you demonstrate to the Court that the important, or material, facts are not disputed. Or, essentially, you tell the Court “even if you believe all of the other sides’ facts, I still win.” For example, if you allege another individual breached a written contract you had with them but you wait more than 4 years to bring a lawsuit.  You, as the defendant in the suit, can file a motion for summary judgment saying that even if everything the plaintiff alleges were true, they waited too long to file suit and because of the statute of limitations, there are no “material facts” at issue in the case and their claims must be dismissed without having to go to trial.  When filing for summary judgment, all of the evidence for the Court to consider must be attached to the motion (i.e. affidavits, deposition testimony, answers to written discovery, etc.). It is essentially a trial “on paper” and all of the evidence the Court can consider must be in, or attached to, the summary judgment motion. The other side must also be given at least 21 days notice of the hearing before the Court can take up the motion.

In a recent federal trade secret case, BoyarMiller was able to successfully obtain summary judgment on several alleged “trade secrets” relating to a large Oil & Gas company’s down-hole clean out tools.  We argued certain alleged trade secrets could not be “secret” as a matter of law because they were externally visible features, were common and well known in the industry, or had been listed in technical information published over the internet.  The Court agreed and eliminated many of the trade secrets from the case entirely and dramatically narrowed the key issues in the case.           

There is also what is called a “no evidence” summary judgment.  Unlike a traditional motion for summary judgment, here a movant doesn’t point out that key facts are undisputed, but rather, that the other party has no evidence to back up its claim or defense.  However, “no evidence” summary judgments require the expiration of an adequate time for discovery.  Traditional motions for summary judgments, on the other hand, can be filed at any time.  No evidence summary judgments are also a useful tool in forcing the other party to show the evidence they are going to use to support a claim at trial or risk their claim being dismissed.

When used properly, traditional and “no evidence” summary can be a very formidable weapon against a frivolous claim or a defense in your case. 

MAY 23 Someone Stole My Website: A Potentially Cheaper and Faster Alternative to Recover Website Domain Names

Someone Stole My Website: A Potentially Cheaper and Faster Alternative to Recover Website Domain Names
by Sara Richey
May 23, 2012

If someone is using a website domain name that contains the name of your business or your trademark, you may be able to obtain the domain, or have it shut down, for relatively little cost and in less than two months. While litigation can be costly and potentially take years, ousting cyber squatters can be cheaper and easier with the use of a special process specifically created to resolve domain name disputes: the Uniform Domain Name Dispute Resolution Policy (UDRP). The UDRP was established by the Internet Corporation for Assigned Names and Numbers (ICANN) and is designed to provide an efficient and cost-effective means for resolving domain name disputes.

The UDRP provides for resolution of domain name disputes through mandatory administrative proceedings. All those who register domain names — including .com, .net and .org — must agree to abide by the UDRP, which permits the owner of a trademark to initiate an administrative complaint against an alleged cybersquatter.

For example, the NCAA has actively used the UDRP to obtain several web addresses. According to the NCAA’s general counsel, many parties transfer contested domain names rather than engaging in dispute resolution procedures pursuant to the UDRP. Among the domain names which the NCAA has been able to acquire from other parties are, and

At BoyarMiller, we have successfully used the ICANN process to achieve quick and cost effective resolutions for our clients.  In one such case our client was able obtain domain names his former employer registered in bad faith.  When the client resigned and started his own business, the former employer quickly registered eight domain names containing the name of the client’s new company.  Within 60 days of filing a UDRP complaint, all eight domain names were transferred to our client by the former employer.

The complaint is decided by a panel of one or three decision-makers who render a written, published decision as to the registration of the disputed domain name. The total cost for a complaint involving one to two domain names with the National Arbitration Forum (one of the approved ICAAN Dispute Resolution Service Providers) is only $1,300 for a single-member panel or $2,600 for a three-member panel. Plus, the average time from filing to decision is only 52 days.

For a complainant to prevail in the UDRP proceedings, it must prove that:

  1. the registrant's domain name is identical or confusingly similar to its trademark,
  2. the registrant has no rights or legitimate interests in the domain name, and
  3. the registrant has registered the domain name in bad faith. 

If the complainant establishes these elements, the panel that arbitrates the UDRP proceedings has the authority to cancel or transfer the registrant's domain name.

Under the UDRP, the domain name registrant maintains the domain name's status quo during the course of a dispute resolution proceeding. However, the registrant is prohibited from selling or otherwise transferring the domain name while a proceeding is in progress. If a UDRP panel decides that a domain name should be cancelled or transferred, the defendant is required to wait 10 business days before implementing the decision. At the end of the 10-day period, the decision will be implemented unless the registrant has commenced a lawsuit against the complainant in a qualified jurisdiction.

So, if someone has registered web domains containing your trademark or company name, before engaging in costly litigation, it is prudent to consider the UDRP process as a means of resolution. 

MAY 18 New Guidelines Encourage Biodiesel Production in Texas

New Guidelines Encourage Biodiesel Production in Texas
by Jeremy J. Sanders
May 18, 2012

The Texas Commission on Environmental Quality (TCEQ) has introduced new state guidelines which allow for biodiesel to be blended at any ratio into any compliant fuel. This means former limitations, such as having to use more additives within the biodiesel and producers having to report blending requirements, are now non-existent.  This is an important development, as these requirements have been viewed as impediments to biodiesel sales and use in the state’s non-attainment zones for years.

Biodiesel is a domestic, renewable fuel for diesel engines. Made from agricultural co-products and byproducts such as soybean oil, other natural oils, and greases, it is an advanced biofuel. To be called biodiesel, it must meet the strict quality specifications of ASTM D 6751. Biodiesel can be used in any blend with petroleum diesel fuel.

The TCEQ concluded in 2011 that air quality is simply not a reason for concern regarding biodiesel volumes associated with federally required use and instituted the new guidelines in 2012. The federal renewable fuel standard (RFS2) calls for minimum amounts of renewable fuel use across the country. After reviewing the rule and how biodiesel works with the state’s TxLED (Texas Low Emission Diesel) program as well as biodiesel emissions, TCEQ introduced the new guidelines that allow biodiesel to be added to any compliant fuel, at any ratio.

“Texas has embraced the importance of biodiesel’s role to create jobs and support America’s energy independence,” said National Biodiesel Board CEO Joe Jobe. “This move recognizes biodiesel as the only commercial-scale advanced biofuel available nationwide and reflects biodiesel’s clean air benefits.”

Biodiesel is also exempt from excise tax in Texas, even when used in a blend with diesel, and recent changes in the tax code simplify the regulations for biodiesel sales. These exemptions and simplifications, in addition to the ease in blending guidelines, help open the biodiesel market in Texas to petroleum distributors and refiners.  These new guidelines and modifications should make biodiesel more widely available to consumers and will make Texas a more favorable market for meeting the RFS2 requirements.

MAY 17 Jury Waivers: An Alternative to Arbitration

Jury Waivers: An Alternative to Arbitration
by Joseph "Trey" L. Wood, III
May 17, 2012

The practice of requiring employees to sign mandatory arbitration agreements has become more widespread, and the enforceability of those agreements are routinely accepted by the courts. The pros and cons that are typically associated with arbitration include the following:

  • Avoidance of Juries: Conventional wisdom is that arbitrators tend to be both more predictable in decision making and reasonable in awarding damages. However, others argue that arbitrators tend to “split the baby.”
  • Less expensive? Some say yes, some say no.  Attorneys’ fees may be reduced, but the costs shouldered by the employer for administering a private dispute resolution system may increase.
  • Private
  • Speed
  • Informality
  • Finality: No route to appeal absent exigent circumstances.
  • Potential Increase in Claims: Some employers have a concern that employees may pursue more claims if they can do so easily and relatively cheaply through arbitration.
  • More cases are decided on the merits than in traditional litigation.  More cases settle through traditional litigation than go to trial.
  • Use of screening mechanisms such as pretrial motions are done away with.
However, lately, employers have been trying something different to get the best of both arbitration and the judicial system: Jury waivers. Dispute resolution with employees may return to a judicial forum without the uncertainty of a jury, and without having to shoulder the financial burdens imposed on employers for administering arbitration.  Recently, the Texas Supreme Court ruled that an employer may make initial or continued employment conditional on an employee’s waiver of the right to a trial by jury. In In re Frank Motor Co., the Court found “There is no reason to treat the effect of the at-will relationship on a waiver of jury trial differently from its effect on an arbitration agreement. Arbitration removes the case from the court system almost altogether, and is every bit as much a surrender of the right to a jury trail as a contractual jury waiver.”

What This Means For You
If you currently require your employees to execute a binding arbitration agreement as a condition of continued employment, or you have been considering that alternative, you may wish to reconsider your practice and implement mandatory jury waivers. It could provide the best of both worlds.
MAY 13 NLRB Notice - Posting Rule Declared Unconstitutional

NLRB Notice — Posting Rule Declared Unconstitutional
by Joseph "Trey" L. Wood, III
May 15, 2012

On April 13, a federal district court in South Carolina ruled that the National Labor Relations Board did not have authority to issue its notice-posting rule.  This is in contrast to a ruling by a federal district court in Washington D.C. which held the rule was valid.  Unfortunately, the South Carolina court did not prevent enforcement of the rule with an injunction, which means that, technically, the rule still takes effect on April 30, 2012. 

While the case arising out of the Washington D.C. federal court is currently on appeal, it is virtually certain that the NLRB will appeal the South Carolina ruling.  However, there has been no indication as to whether the Board will once again postpone the implementation of the rule at the end of the month.  Accordingly, employers would be well advised to discuss the risks associated with a decision not to post the notice.  Finally, since posting the notice will likely lead to questions being raised by employees, employers should train supervisors on the new rule and what can legally be said with respect to the company’s position on unions.

MAY 09 Houston's Economic Engine - Driving Forward

Houston's Economic Engine - Driving Forward
by Tim Heinrich
May 9, 2012

“Happiness is the Great Recession in the Rearview Mirror”— at least that’s the view Patrick Jankowski presented at the Economic Forecast Luncheon organized by O’Connor & Associates on April 25, 2012. Jankowski, Vice President of Research for the Greater Houston Partnership, stated that if you had to live through the Great Recession anywhere in the United States, then Houston was THE place to be.

Measuring the beginning and the end of the Great Recession by job loss and job creation, respectively, Jankowski presented the following facts:

  • Houston, together with Washington D.C., was the last of the top 20 metropolitan areas in the United States to experience job losses. Houston did not start to experience net job losses until the middle of 2008, nearly 6 months to a year after most other cities.
  • Houston’s net job loss during the Great Recession was only about 4.5% of all jobs, the third lowest percentage among the top 20 areas in the United States.
  • Houston started to realize net job creation in January or February 2010, making the length of the Great Recession in Houston only about 16 months long. Most of the other major metropolitan areas experienced at least 2 or 3 years of net job losses before starting to realize net job creation.
  • Houston had fully recovered from the Great Recession by the fourth quarter of 2011, having recovered as many jobs as had been lost.  Washington D.C. is the only other major metropolitan area in the United States that has recovered all of the jobs lost during the Great Recession. However, several industries in Houston, specifically construction, manufacturing and transportation, have not recovered many of the jobs lost in the Great Recession.

Jankowski also noted that the economic recovery should continue to be strong in Houston, based on several key indicators:

  • Oil prices have increased from a low of $40 per barrel in 2009, recently averaging $95.53 per barrel over the past 6 months. This is the upper range for the pricing sweet spot of $75 to $100 per barrel.  Below this range, oil production suffers; but above this range, the overall US economy tends to suffer.
  • Advances in exploration technology, specifically hydraulic fracturing, are a boom to the Houston economy. (Hydraulic fracturing is a capital intensive operation, and much of this technology and equipment is provided by Houston based companies.) 
  • The levels of US based exploration and production are increasing dramatically. For example, in the Texas Eagle Ford Shale, the number of drilling permits issued increased from 94 in 2009 to 2,828 in 2011, while the number of barrels of oil produced increased from 308,139 barrels in 2009 to 30,453,253 in 2011.
  • Exploration and production activities similar to the Eagle Ford Shale are also being conducted in a number of other regions of the country and the world. 
  • Foreign trade continues to flow through Houston, with exports in 2011 increasing 26.7% over 2010 levels.
  • Houston’s population continues to grow, currently at the rate of approximately 110,000 people per year. Over half of this growth is natural growth, as Houston experiences 65,000 more births than deaths each year.  In-migration from other parts of the country and the world should continue as well, based on projected job growth for 2012.

Overall, Jankowski painted an optimistic picture of Houston’s economy and its continuing staying power in challenging economic times.  We agree with him and that's what we're telling our clients.

MAY 03 Recent Trade Agreements Signal the Future of China - Mexico Trade Relations

Recent Trade Agreements Signal the Future of China - Mexico Trade Relations (en Español below)
by Edgar Saldivar
May 3, 2012

The Xinhua News Agency recently reported on a meeting in April between Chinese Vice President Xi Jinping and Mexican Foreign Minister Patricia Espinosa in Beijing to reinforce the two countries’ strategic partnership and celebrate the 40th anniversary of diplomatic ties between the two nations.  As part of the official celebration of diplomatic ties, Mexico and China signed a cooperation agreement on April 6, 2012 during the fifth meeting of the two nations’ Permanent Binational Committee that promised increased trade between them.  The increased cooperation and trade between China and Mexico is an effort to improve relations that have had periods of tension as both countries have competed for the U.S. market.  In light of the significance of the U.S. to their relations, it is worth taking a brief look at their recent trade history to understand what it bodes for their future relations.

China is Mexico’s second largest trading partner behind the U.S., while Mexico is China’s No. 2 trade partner in Latin America behind Brazil, which ranks 9th among China’s trade partners.  The most significant trading partner for both China and Mexico is clearly the United States.  Nevertheless, China and Mexico have seen increasing trade between each other in recent years.  The last decade saw Sino-Mexican trade increase from $3 billion in 2000 to almost $35 billion in 2011, according to official Chinese figures.

Though there has been growing trade between China and Mexico since they forged diplomatic ties 40 years ago, there remains a large trade deficit between them, as there is between China and most countries, including the U.S. For example, China’s exports to Mexico in 2011 were about $24 billion, while imports from Mexico were about $9.4 billion; China’s exports to the U.S. in 2011 were about $400 billion, while imports from the U.S. were about $104 billion.  While both the U.S. and Mexico seek to balance the trade deficit, Mexico has had the added pressure of competing with China for the U.S. market and has complained in recent years about China dumping cheap goods into the Mexican market.  The April 6 agreement between China and Mexico, which promised to boost cooperation between various industries like biotechnology, traditional medicine, and television, and authorized additional exports of pork from Mexico, signals efforts by China to appease any tension with Mexico, address the trade deficit, and create a strategic partnership considering their relation to the U.S.

Reinforcing the cooperation agreement, Reuters reported on April 20, 2012, that Mexico reached an agreement with China aimed at promoting a fairer balance of trade and announcing business deals worth $560 million.  “This new relationship looks to answer the imbalance that affects Mexico and establish a basis for more balanced and sustainable trade in the long term,” the Mexican Foreign Ministry said.  Among the terms of the April 20 agreement, China agreed to stop certain unfair trade practices relating to Mexico’s complaint about flooding it with cheap imports.

These recent agreements signal that China is making efforts to address the trade deficit with Mexico and strengthen relations with a trade partner who is key to China’s presence in North America.  Additionally, it is worth noting that the rhetoric from the current Mexican presidential campaigns signal changes to come in the near future for Mexico’s state-owned oil monopoly, PEMEX.  If the prospects of opening up Mexico to future foreign investment in oil are real, then China’s relation with Mexico is evidently part of a larger energy strategy.

Acuerdos Recientes Entre México y China Señalan el Futuro de Sus Relaciones

La agencia de noticias Xinhua informó recientemente de una reunión en abril entre el Vicepresidente chino Xi Jinping y Ministro de Relaciones Exteriores mexicana Patricia Espinosa en Beijing para reforzar la asociación estratégica de los dos países y celebrar el 40 aniversario de relaciones diplomáticas entre las dos naciones.  Como parte de la celebración oficial de lazos diplomáticos, México y China firmaron un acuerdo de cooperación el 06 de abril de 2012 durante la quinta reunión del Comité Binacional Permanente de las dos naciones que prometió un aumento del comercio entre ellos. El aumento de cooperación y comercio entre China y México es un esfuerzo para mejorar las relaciones que han tenido períodos de tensión porque ambos países han competido para el mercado estadounidense.  Tomando en cuenta la importancia de los Estados Unidos a sus relaciones, vale la pena tomar un breve vistazo a su historia reciente de comercio para entender lo que señala para sus futuras relaciones.

China es el segundo mayor socio comercial detrás de los EE.UU., mientras que México es el socio comercial de China No. 2 en América Latina después de Brasil, que ocupa el noveno lugar entre socios comerciales de China.  El más importante socio comercial de China y México es claramente los Estados Unidos.  No obstante, China y México han visto incrementar el comercio entre ellos en los últimos años.  En la última década hubo aumento en el comercio chino-mexicano de 3.000 millones de dólares en el 2000 a casi 35.000 millones de dólares en 2011, según las cifras oficiales chinas.

Aunque ha habido crecimiento del comercio entre China y México desde que forjaron lazos diplomáticos hace 40 años, sigue existiendo un gran déficit comercial entre ellos, igual como existe entre China y la mayoría de los países, incluyendo Estados Unidos. Por ejemplo, las exportaciones de China a México en 2011 eran unos 24 mil millones de dólares, mientras que las importaciones procedentes de México eran unos 9,4 mil millones de dólares; las exportaciones de China a los Estados Unidos en 2011 eran unos 400 mil millones de dólares, mientras que las importaciones procedentes de los Estados Unidos eran unos 104 mil millones de dólares.  Mientras que Estados Unidos y México buscan equilibrar el déficit comercial con China, México ha tenido la presión añadida de competir con China para el mercado estadounidense y ha denunciado en los últimos años  el vertimiento de productos baratos en el mercado mexicano por parte de China.  El acuerdo entre China y México del 6 de abril, que se comprometió a impulsar la cooperación entre diversos sectores como la biotecnología, la medicina tradicional, y la televisión, y autorizó las exportaciones adicionales de carne de cerdo de México, señala los esfuerzos de China para apaciguar la tensión que haya con México, enfrentar el déficit comercial, y crear una asociación estratégica teniendo en cuenta a su relación con los Estados Unidos.

Reforzando el acuerdo de cooperación, Reuters hizo un informe el 20 de abril de 2012, que México llegó a un acuerdo con China enfocada a promover una balanza comercial más justa y anunciar convenios de negocios por valor de $560 millones de dólares.  “Esta nueva relación espera contestar el desequilibrio que afecta México y establezca una base para el comercio más equilibrado y sostenible a largo plazo,” dijo el Ministro de Asuntos Exteriores mexicano.  Entre los términos del acuerdo del 20 de abril, China consintió en parar ciertas prácticas comerciales injustas que se relacionan con la queja de México sobre la inundación de ello con importaciones baratas.

Estos acuerdos recientes señalan que China hace esfuerzos de dirigirse al déficit comercial con México y reforzar relaciones con un compañero comercial que es clave a la presencia de China en Norteamérica. Además, vale la pena notar que la retórica de las campañas presidenciales mexicanas actuales señalan cambios para venir en el futuro próximo para el monopolio de petróleo nacional de México, PEMEX. Si los pronosticos de una apertura en el petróleo de México a la futura inversión extranjera son verdaderos, entonces la relación de China con México es claramente parte de una estrategia china de energía más profunda.

MAY 02 EEOC Provides Guidance to Employers Using Criminal Background Checks

EEOC Provides Guidance to Employers Using Criminal Background Checks
by Joseph "Trey" L. Wood, III
May 2, 2012

On April 25, 2012 the EEOC issued its updated guidance on the extent to which employers may use an individual’s criminal history in making employment decisions. The EEOC has long held that the use of criminal histories in the hiring process is most likely illegal as a violation of Title VII of the Civil Rights Act of 1964 if the hiring decision relied solely on the individual’s criminal history.

The new guidelines prescribe that employers may use criminal histories if the employer can show that it considered three factors:  1) The nature and gravity of the offense; 2) The amount of time since the conviction; and, 3) The relevance of the offense to the type of the job being sought.  In determining whether a policy to review criminal history is job related, the EEOC has suggested that employers must distinguish between unacceptable and acceptable risks in candidates with criminal histories, and exclusion policies must link specific criminal conduct, and its dangers, with the risks inherent in the duties of a particular position.

The new guidelines do not outlaw criminal background checks, but the EEOC has stated that policies that exclude everyone with a criminal record are not job related and consistent with business necessity and will violate Title VII, unless it is required by federal law.  Additionally, the EEOC has indicated that it believes that employers who rely upon arrest records, as opposed to a record of convictions, are not satisfying the law’s requirement that the policy be job related and consistent with business necessity.  Lastly, the EEOC has recommended that employers not ask about criminal histories on job applications.  This is in keeping with many state efforts to “ban the box,” a reference to a box checked on an application regarding the existence of criminal history.

What Employers Should Do
It is vitally important that if employers have a policy to consider criminal histories in their hiring process, that the policy be very narrowly tailored.  Also, the employer should identify specific job duties and determine what it is about those job duties that present a risk with the hiring of someone who has been convicted of a specific criminal offense.  Finally, train all individuals who are involved in the hiring process about the EEOC’s new guidelines to make sure that they are following your hiring criteria.

APR 30 Fracking Is Likely to Produce Something in Addition to Oil and Gas - Litigation

Fracking Is Likely to Produce Something in Addition to Oil and Gas — Litigation
by Chris Hanslik
April 30, 2012

One of the root causes of the current economic boom in Texas (as well as several other states) is the use of hydraulic fracturing,  or “fracking” as it is commonly referred , to extract oil and natural gas from underground shales.  This hot topic – whether you are for or against its use – is shaping today’s domestic exploration.

Fracking is a process used to permeate and expand subsurface formations so that oil and gas can flow more freely to a wellbore.  This process was first used in the oil and gas arena in 1947 and the current fracking technique was first used in the 1990s in the Texas Barnett Shale.  Though used in more than a million wells since that time, only recently has fracking received substantial attention and become controversial – mainly over concerns and fears that fracking might adversely affect underground water aquifers which are an important source of drinking water for most parts of Texas.  Despite those fears, more than 44,000 wells have been hydraulically fractured in the US to date with no reported cases where fracking the wellbore has influenced the water table.

As with any environmentally controversial issue, fracking has raised environmental and legal challenges spawning litigation in Texas and other US states.  While there are only a handful of fracking-related cases in Texas, claims by landowners against the companies that are drilling, operating and servicing wells in the various shale regions are expected to increase.  But, what type of claims will be asserted?

In Harris v. Devon Energy (a suit pending in the US District Court for the Eastern District of Texas) allegations were made that illustrate the types of claims potential plaintiffs may assert against exploration and production companies as the development of these natural resources continues. They include:

In the context of fracking, there are several scenarios where this might occur:

  1. subsurface trespass resulting from the fractures themselves extending into a neighbor’s property and draining the minerals;
  2. subsurface contamination of a neighbor’s property; and
  3. at and above surface pollution resulting from the drilling operations.

The first scenario was resolved by the Texas Supreme Court in Coastal Oil v. Garza where a neighboring land owner alleged that the operator’s fracturing created a trespass by draining the neighbor’s minerals.  Rooted in the common law principle of “rule of capture,” the court made clear that no trespass claim will stand where the allegations are that a frac extended onto a neighbor’s property and drained their oil or gas.

The second scenario deals with subsurface pollution and may be more viable, but will require proof of actual, permanent harm to the property to maintain a trespass action.  To establish a nuisance, a plaintiff must prove that the activity was intentional, substantial and unreasonable.  Whether an activity is unreasonable is determined by balancing the utility of the activity alleged to be a nuisance with its harm.  Additionally, companies operating within the parameters of a Railroad Commission permit will attempt to use it as a liability shield.  How well that will work remains to be seen.

The third scenario will likely be the easiest for neighboring landowners to pursue.  Pollution that occurs at or above the surface is easier to detect and prove substantial or permanent harm.  In the nuisance context, the adverse affects are also easier to describe and quantify in terms of harm.  This last category is also more consistent with traditional claims of trespass and nuisance which courts have been dealing with for years.

NOTE:  Something the courts will likely consider is that subsurface trespass/nuisance claims are inherently different than traditional surface claims and, as the Texas Supreme Court indicated in a 2008 case, flying a plane through the airspace two miles above property is not trespass…and the same rule should apply two miles below the surface.

A negligence claim imposes liability on one who causes harm to another if their conduct fails to meet the standard of what a reasonable person would do in the same or similar circumstance.  In the oil and gas arena, there are many legislative or regulatory rules that govern exploration activities.  However, the existence of regulations or statutes does not per se establish the standard of care in a negligence claim.  In Texas, the adoption of such legislative mandates as the standard of care is left to judicial discretion.  In cases where a company fails to comply with a regulation, plaintiffs will undoubtedly use the regulations as evidence of the appropriate standard of care.  Of course, the converse is true too.  A company sued for negligence but who is in compliance with the regulations governing its activities will argue that it can’t be found negligent for following the law.

Fraudulent Concealment
In Harris v. Devon Energy the plaintiff asserted a claim for fraudulently concealing the dangers of the drilling process.  This claim was dismissed by the court based on facts that supported the allegation.  It is hard to envision how such a claim might survive in the future given all that has been written about fracking in recent years.  In addition, the recent enactment by the Texas Railroad Commission of rules requiring disclosure of chemicals used during the fracking process now makes most of this information part of the public domain.

Breach of Contract
Exploration and production of oil and gas typically occurs pursuant to written contracts – an oil and gas (or mineral) lease and in some cases a surface use agreement.  These written agreements set forth the parties obligations towards each other and can lay the ground for a potential claim if not honored. 

Private Citizen Suits
Certain statutes, especially those governing environmental issues, contain “citizen suit” provisions.  These provisions permit, with some limitations, a private citizen to pursue the violation of an environmental regulation if the government does not bring an enforcement action.  A company sued in this situation should first examine the statute and factual circumstances to determine if the “private citizen” has standing to bring the claim.

As the various shale plays across Texas and the rest of the country continue to be developed, an increase in litigation can be expected.  As new lawsuits are filed and proceed through the judicial process, these as well as other theories of liability, will receive intense judicial scrutiny.

APR 27 Divisional Merger Potential Solution in Asset-Sale Transactions

Divisional Merger Potential Solution in Asset-Sale Transactions
by Stephen Johnson
April 27, 2012

I was recently involved in a large asset-sale transaction faced with an issue where one of the assets being sold was an interest in a joint venture (JV) in which our client owned a limited partner interest through a wholly owned subsidiary (Holdco).  The other partner in the JV had the right to consent to an assignment, conveyance or transfer of Holdco’s interest in the JV.  The partner in the JV, who was recently acquired by another company, tried to use the request for consent as leverage for its desire to buy Holdco out of the JV.  Not only was Holdco not interested in selling the interest, the price offered by the other partner was unacceptable. 

After trying unsuccessfully to resolve the issues (which was delaying the much larger asset transaction), we investigated merging Holdco into a new buyer entity; however, Holdco also owned an interest in another JV (JV2) that was not part of the assets going to the buyer and which was prohibited from being transferred by the terms of its governing documents without the consent of the other partners in JV2.  Like the partners in JV, the JV2 partners had been trying to buy-out Holdco’s interest in JV2 for some time but had not made any acceptable offers to Holdco.  After careful consideration, we determined that we could accomplish our client’s objectives by using a divisional merger.

In addition to the more traditional forms of merger, where all of the assets and liabilities of the merging entity become the assets and liabilities of the surviving entity, Section 1.001(55)(A) of the Texas Business Organizations Code (TBOC) also defines “merger” as “…the division of a domestic entity into two or more new domestic entities or into a surviving domestic entity and one or more new domestic or foreign entities…”.  Furthermore, Section 10.008(a)(2)(C) of the TBOC states “when a merger takes effect, all rights, title and interests to all…property owned by each organization that is a party to the merger is allocated to and vested…in one or more of the surviving or new organizations as provided in the plan of merger without:...(C) any transfer or assignment having occurred…”.

By using these provisions, and absent any other language in the company agreement of the JV expressly deeming any merger as a prohibited assignment, we were able to merge the assets and liabilities that we wanted to move (including the interest in JV) into a new domestic entity owned by the buyer and to leave behind in Holdco the assets and liabilities that Holdco was prohibited from assigning (including the interest in JV2).  Since the statute states by its terms that the merger is not an “assignment or transfer,” no violation of the company agreement of JV occurred. 

The divisional merger was a useful tool to deal with our situation; however, whether or not a divisional merger is useful depends on the specific facts and circumstances one is dealing with.  It is critical to pay particular attention to the language in the governing documents regarding assignability, transfer and conveyance of interests in determining whether the divisional merger can accomplish your goals. 

APR 24 Supreme Court of Texas Continues to Expand the Reach of Arbitration Clauses

Supreme Court of Texas Continues to Expand the Reach of Arbitration Clauses
by Chris Hanslik
April 24, 2012

The Supreme Court of Texas has held that parties to an arbitration agreement can grant third parties the right to enforce arbitration as though they had signed the agreement themselves.  In In re Rubiola, the court was faced with the issue of whether parties who were not signatories to the agreement containing the arbitration clause could compel parties who did sign the contract to arbitrate.  Generally speaking, only parties to a contract can enforce or be required to arbitrate.   While not necessarily rewriting the prior case law, the court held that under the circumstances present in Rubiola, the nonsignatories could compel arbitration.

In Rubiola, a dispute arose out of the sale and financing of a home.  The sellers of the home were Greg Rubiola and his wife.  Mr. Rubiola and his brother J.C. also owned a mortgage company, Rubiola Mortgage Company.  The purchasers decided to finance the home through Rubiola Mortgage Company.  As part of the financing for the transaction an arbitration agreement was signed between the purchasers and Rubiola Mortgage Company.  J.C. Rubiola signed the agreement on behalf of the company.

The agreement contained a broad definition of “parties” to include “individual partners, affiliates, officers, directors, employees, agents, and/or representatives of any party to such documents . . .”

The arbitration clause in the agreement provided:  “Arbitrable disputes include any and all controversies or claims between the parties of whatever type or manner, including without limitation, all past, present and/or future credit facilities and/or agreements involving the parties.”

Several months after closing the purchasers sued the Rubiolas.  They sought to rescind the transaction and collect damages under theories of fraud and DTPA.  All defendants moved to compel arbitration based on the agreement signed between the purchasers and Rubiola Mortgage Company.  The trial court denied the motion to compel.

The supreme court found that the Federal Arbitration Act (FAA) governed the provision at issue.  The court also concluded that whether a nonsignatory could compel arbitration was subsumed within whether there was a valid arbitration clause and was therefore a question for the court, not an arbitrator.  The court then held that the Rubiolas, who had not signed the arbitration agreement, could compel the purchasers, who signed the agreement to arbitrate.  Specifically, the court stated:

“The arbitration agreement’s broad definition of parties, at a minimum, made J.C. and Greg Rubiola parties to the arbitration agreement.  Rubiola Mortgage Company signed the arbitration agreement, and the Rubiola brothers are clearly officers and representatives of the mortgage company and thus non-signatory parties to the arbitration agreement under the agreement’s terms.  Because the arbitration agreement expressly provides that certain non-signatories are considered parties, we conclude that such parties may compel arbitration under the agreement.”

With this, holding parties can no longer just assume that a nonsignatory to a contract is immune from an arbitration clause.  Consistent with other recent opinions, the Texas Supreme Court continues to allow parties the freedom to expand the scope of arbitration clauses depending on the language they include in the agreement.  

APR 23 A Lesson from Howard Stern: Say What You Mean and Mean What You Say

A Lesson from Howard Stern: Say What You Mean and Mean What You Say
by Andrew Pearce
April 23, 2012

A New York court has dismissed a lawsuit filed by Howard Stern against Sirius in which Stern claimed that the satellite radio broadcaster failed to pay him $300 million in stock awards. In doing so, the court’s decision serves as a cautionary tale for any person that enters into an agreement without fully understanding its terms, or believing it is okay for an agreement to say one thing, but mean something else.

When Howard Stern left traditional radio to join Sirius, Stern and Sirius entered into an agreement that provided, among other things, a “Performance Based Compensation” clause. This clause enabled Stern to receive up to five separate common stock awards valued at $75 million each, which would be triggered by certain Sirius subscriptions totals.

In 2006, Stern received $75 million in common stock based on Sirius subscribers for that year, but the number of Sirius subscribers in 2007 did not reach the total necessary to trigger any bonus. The dispute arose in 2008, when Sirius merged with XM Radio. If only Sirius subscribers were counted, the bonus would not be triggered. However, if the more than 9 million XM Radio subscribers were counted, the Performance Based Compensation clause would be triggered and Stern would receive an additional $300 million.

Sirius filed a motion for summary judgment, seeking dismissal of Stern’s lawsuit because the “Performance Based Compensation” clause did not include subscribers obtained through the XM merger. In an affidavit opposing Sirius’ motion, Stern stated that:

There was no doubt in my mind that all of these subscribers were supposed to be counted for the purpose of determining if the stock awards were payable. When we were negotiating the Agreement, it was clear to everyone that the stock award was based on all of the company's subscribers. Sirius did not ask us to exclude any subscribers from these awards.

Stern further stated that he understood that Sirius was now saying that it did not have to pay because half of its subscribers came in through the acquisition of XM, rather than through the company's own internal growth. According to Stern, this position made no sense because the parties “never discussed or agreed to any such distinction.” Stern stated:

Our Agreement is clear — the stock awards are based upon the total number of subscribers that the company has at the end of any given year. When we were negotiating the agreement, Don [Buchwald, Stern’s agent] raised with Sirius the possibility that Sirius and XM might combine. Sirius never said that if that happened, it would not count the new subscribers for purposes of the stock awards.

The court disagreed with Stern, noting that while it may be true that Stern hoped and expected to reap the benefits from any significant growth experienced by Sirius, such a subjective expectation did not override the clear, unambiguous language of the parties’ agreement.

Further, according to the court, the parties contemplated the relevance of new subscribers acquired by a merger in a separate section of the agreement entitled “XM Merger,” which provided specific compensation to Stern in the event of a merger with XM Radio. Thus, the court held that “the plain language of the agreement is inconsistent with any reading that the parties intended subscribers acquired by merger with XM to be considered when calculating plaintiffs’ ‘Performance Based Stock Compensation.’”

All too often, I meet with individuals that are facing the same dilemma as Howard Stern. Parties may verbally agree to certain terms intended to have certain results, but the terms of the agreement that they sign lead to an entirely different outcome. It is critically important that parties to an agreement understand the agreement’s terms and conditions. If the agreement is unclear, contains incomprehensible legalese, fails to convey the parties’ actual intentions, or says something different from what the parties verbally agreed to, then you must protect yourself and refuse to sign the document until it says what you mean.

APR 19 Why Were You Absent? Inquiring Minds Want To Know

Why Were You Absent?  Inquiring Minds Want To Know
by Joseph "Trey" L. Wood, III
April 19, 2012

If one of your employees is absent for work due to illness, does your company’s policy require the employee to identify the nature of the health-related reason for absence?  If so, your policy may be unlawful under the American’s With Disabilities Act (ADA).  In EEOC v. Dillard’s, a federal district court in California ruled that just such a policy violated the ADA.

In the case, an employee was absent for a week for health-related reasons.  The employee provided her employer with a note from her doctor which simply indicated “off work this week return 6/5/06.”  The employee’s manager refused to excuse the absence because, according to Dillard’s policy, the doctor’s note did not state the nature of the condition being treated.  The employee refused to supply any additional information and was terminated for absenteeism. 

After filing a charge of discrimination with the EEOC, the Commission sued Dillard’s on behalf of the employee and “other similarly situated individuals” (class action).  The EEOC claimed the policy violated the ADA’s prohibition of inquiries into disability-related issues.  The court agreed with the EEOC finding that the policy invited intrusive questions about employees’ medical conditions that would reveal information about actual or perceived disabilities.  While Dillard’s claimed that the information was necessary to verify legitimate medical absences, the court disagreed indicating that it did not need to know the nature of the medical condition to accomplish this goal.

Why This Is Important For You
If you have a current policy that requires employees to provide a doctor’s note specifying the nature of the health-related problem, change the policy to require only a doctor’s note that provides the dates that the employee was absent from work due to the health-related reason.  Also, when the employee returns, managers should avoid asking the employee questions about the nature of the health-related reason for absence—even if they are entirely innocent and done so out of care for the employee.

If you have any questions related to issue, please contact us.

APR 13 Energy Back and Forth: Either Way We Win

Energy Back and Forth: Either Way We Win
by Gregory N. Jones
April 13, 2012

 In 2003, mostly in response to publicity related to global warming, the world was abuzz with expectations for new nuclear power plants given that nuclear power plants release no greenhouse gases. The Massachusetts Institute of Technology issued a study entitled The Future of Nuclear Power: an Interdisciplinary Study which influenced emerging rapidly-growing economies, such as China, India, Korea and Russia, to build new nuclear power plants. Highly developed economies, such as France, which currently has 75% of its electricity generated from nuclear generators, and the U.S., which has 104 existing nuclear plants, announced plans to add dozens of new nuclear power plants in order to significantly reduce carbon dioxide and other greenhouse gases. But something happened along the way.

In March 2011, a tsunami hit Fukushima, Japan utterly destroying one of Japan’s nuclear power plants and causing rising angst about the release of radioactive material as a result of the slams by the 45+foot tsunami. Combined with the tsunami was another storm, figuratively speaking; namely, the fracking of oil and gas shale. This new drilling technology has produced huge volumes of natural gas in the U.S. which has resulted in the lowest price per million BTU’s in decades -- below $2.00, which means that the production of a kilowatt-hour of electricity is less than 2 cents. The U.S. is even liquefying natural gas and exporting it because of storage incapacity. Natural gas reduces greenhouse gases about 40% when used in the production of electricity, particularly when compared to coal-fired plants. As a result of the new low prices of natural gas combined with the Fukushima scare, natural gas is the new rage being touted for the clean production of energy, from electrical power plants to fuel for trucks, buses and other larger vehicles. The combination of a real storm and a drill/production storm has cooled the passion for the development of new nuclear power plants.

But nuclear power development has not stopped. The Nuclear Regulatory Commission recently issued approval for the construction of two pairs of reactors in Georgia and South Carolina, which will use new, advanced technology developed by Westinghouse, an energy company 81% owned by the Toshiba Group.

Also interesting, private enterprise entities are focused on nuclear power. Alternate Energy Holdings, Inc., the nation’s only independent nuclear power plant developer and a current client of BoyarMiller, recently announced the completion of initial site improvements and its agreement with ENERCON, a U.S. industry leader utilizing the 10CFR Part 52 Combined Operating License Application Process, to license and build the Idaho Energy Complex, a nuclear plant in Payette County, Idaho.

Global warming or not, clean energy is here to stay.

APR 11 Energy Developments in the Arctic Highlight Norway's Importance to Houston and World

Energy Developments in the Arctic Highlight Norway's Importance to Houston and World
by Edgar Saldivar
April 11, 2012

On April 6, 2012, Stratfor reported on the increasing Arctic militarization by Norway, as evidenced by its recent announcement that it would establish an “Arctic Batallion” in response to similar military moves by Russia in the region a year earlier.  According to Stratfor, the Arctic has become more relevant to geopolitics over the past decade.  This is reinforced by a recent report in the Atlantic Sentinel that the Arctic is in the process of assuming newfound importance in the global economy as a result of climate change.  The Atlantic Sentinel report explains that melting ice in the High North could shorten global supply chains and free up vast oil and gas reserves to exploration.  Although the probability of increased exploration has prompted a flood of activity by both Norway and Russia to ostensibly protect their territorial claims, it has also stimulated vast interest in the Arctic from Houston to as far away as Beijing.

The developments in the Arctic are of special significance to Houston, where Norwegian Foreign Minister Jonas Gahr Store recently revealed Norway’s visions and strategies for the “High North” in a speech at the Petroleum Club in Downtown.  Mr. Store emphasized that while the energy industry has previously focused on developments to the east (e.g., China) or those to the south (e.g., Brazil), the future will focus on the developments to the north, specifically, the Arctic.  The Atlantic Sentinel report states that the Arctic is estimated to contain 13 percent of the world’s undiscovered oil and as much as 30 percent of the world’s undiscovered natural gas, comprising a combined 22 percent of all untapped but recoverable hydrocarbons.  In light of these figures, what goes on in Norway is of particular importance to Houston, which the Norwegian Foreign Ministry acknowledges is still the energy capital of the world.  It is no wonder why, according to Foreign Minister Store, Houston now serves as the American base for a multitude of Norwegian companies and is home to more Norwegians than any other U.S. city.  With the growing influence of Norway in the global energy markets, Houston will continue to play a key role in the Arctic for years to come.

Though far removed from the Arctic, the Atlantic Sentinel notes that China has a definite interest in asserting a presence there.  Relations between China and Norway soured in 2010 when the Nobel Peace Prize committee honored a Chinese dissident.  But that has not stopped the Chinese government from building six new heavy ice breaker ships to prepare for routes that promise to open up in the Arctic.  To put in perspective how far ahead China is thinking, Norwegian Foreign Minister Store noted that the U.S. currently only has one heavy polar ice breaker ship – and it is not operational.  Clearly, China is seeking inroads to the untapped energy resources in the Arctic, which reinforces the complex geopolitics of the Arctic region.  This complexity is underscored by an agreement between Norway and Russia this past March to improve military cooperation in the Arctic, not to mention that their respective state energy companies, Statoil and Gazprom, continue to jointly develop offshore energy projects.  Perhaps in the long run the recently expanded militarization by Norway and Russia has more to do with protecting their interests from outside influence than from each other.

APR 10 Good News for Business: Supreme Court Appears Willing to Address Health Care Reform Law Now

Good News for Business: Supreme Court Appears Willing to Address Health Care Reform Law Now
by Ryan Bardo
April 10, 2012

The U.S. Supreme Court recently heard three days of oral argument on several challenges to the Patient Protection and Affordable Care Act of 2010. These challenges involved the so called “individual mandate” in the law, which, with certain religious and income-level exceptions, requires all Americans to acquire health insurance coverage by 2014 or be subject to a penalty of $95 or 1% of the individual’s income, whichever is greater (the penalty increases to $695 or 2.5% of income by 2016). Although it is estimated that only 7% of the population would potentially be subject to the penalty, the mandate is a political hot-button issue and the ideological centerpiece of the Act.

The first day of argument centered on the issue of whether the individual mandate penalty is a tax. Under the Anti-Injunction Act of 1867, a tax cannot be challenged until it has been applied and paid. If the individual mandate penalty is determined to be a tax, the Supreme Court could not address its constitutionality until the mandate goes into effect in 2014 and a penalty is assessed and paid by an individual. Such a challenge would likely not happen, or be heard, until 2015 at the earliest. The questions and arguments on Monday indicated that the Court is more likely to determine that the penalty is not a tax and, therefore, can be addressed today.

On the second day, the argument focused on the constitutionality of the individual mandate. Generally, the government’s argument is based on the premise that all individuals consume health care, so Congress can regulate that consumption of health care under the Constitution’s interstate commerce clause. Opponents argue that the Constitution does not allow Congress to force people to engage in commercial activity, such as buying health insurance. Scholars and pundits tend to agree that Justice Kennedy will be the deciding vote in the Court’s decision on this issue. Kennedy’s statements on Day 2 indicated that he favored declaring the individual mandate unconstitutional.

Argument on the third day covered the effect of declaring the mandate unconstitutional on the rest of the Act. If the Court decides that it can sever the individual mandate from the Act, then the other provisions of the Act would remain effective. If the mandate cannot be severed, then the Court must decide if the entire Act is nullified or only parts of it. The Court appears unlikely, even unwilling, to review the 2,700 pages of the Act and select the provisions that would no longer be effective. However, the Court also appears hesitant to nullify the entire law, which includes many provisions that are unrelated to the individual mandate, some of which are already in effect and politically popular (e.g., coverage for children up to age 26, no denial of coverage for pre-existing conditions). The Court appeared to accept that the individual mandate is the “heart” of the Act but appeared divided on how its treatment of the rest of the Act would, or could, meet Congress’ intent.

What does this mean for business? The Court’s apparent willingness to address the constitutionality of the mandate and the Act now, rather than waiting for a penalty to be paid in two or three years, brings greater certainty to the health care industry, employers, and the economy. A decision is expected in June 2012 and will undoubtedly impact the focus and nature of this year’s presidential election. If the Supreme Court punts the issue into 2015, there will be less certainty, and the election will likely focus on desired changes to the Act without any guidance from the highest court in the land as to whether and how much of it is constitutional. Regardless of how the Court decides on the mandate’s constitutionality and its effect on the Act, its willingness to decide will provide a more concrete political and economic environment for the upcoming election and for employers to make rational choices with less risk due to uncertainty. That’s good for business and the economy.

APR 04 Increased Activity at Port of Houston Reflects Strengthening Economy

Increased Activity at Port of Houston Reflects Strengthening Economy
by Gus Bourgeois
April 4, 2012

The Port of Houston Authority reported a 143 percent increase in its amount of steel tonnage from February to March 2012, and an increase in total tonnage at the port of more than 26 percent during that time period.

As with many recent growth stories in the local Houston economy, the Port's successes are tied to trends in the oil & gas industry. Ricky Kunz, vice president of trade development and marketing for the port authority, stated that, "You can attribute the tonnage primarily to the shale plays that are occurring in the United States for the drilling for gas. If the construction business was doing better, we would see even better numbers. But that's still coming, and we expect that to turn around."

In addition, the port authority reported that import cargoes of consumer goods are also rising. Kunz says that's a sign consumers are growing more comfortable with the economy and more willing to spend.

These numbers bode well for Houston economy, which has reverted back to growth mode after the 2008-2010 recession, as well as the larger US economy, which is showing signs of strength recently with improving unemployment and manufacturing figures.

MAR 29 Texas Becomes 34th State to Prohibit Private Transfer Fees on Real Property

Texas Becomes 34th State to Prohibit Private Transfer Fees on Real Property
by Blake Royal
March 29, 2012

The Texas Legislature has passed legislation that prohibits new private transfer fee obligations in the future and terminates existing transfer fees that fail to comply with certain obligations.

Private transfer fees are restrictions placed on real property that require that a fee, usually an amount equal to 1% of the purchase price, be paid to the original developer of the property each time the property is sold.  For example, if a homeowner sells his or her home for $250,000, and the home is burdened with a private transfer fee obligation, the homeowner would owe the original developer of the property a fee equal to $2,500.  Although private transfer fees have not been prevalent in Texas, they have been used in several other jurisdictions and Texas becomes the 34th state to prohibit the practice.

Developers entitled to the benefit of existing private transfer fee obligations were required to file a notice of the transfer fee obligation by January 31, 2012 in the real property records of the county in which the burdened property is located.  This notice must be filed again every three years.  Failure to file the notice in a timely manner will void the obligation going forward. 

The legislation – which is codified as Subchapter G in Chapter 5 of the Texas Property Code – specifically excludes certain one-time fees, such as recording fees, and fees related to organizations such as homeowners’ associations.

MAR 27 See No Evil, Hear No Evil, See No Evil - Louis Vuitton Hits $3.6M Judgment Against Its Landlord

See No Evil, Hear No Evil, See No Evil
Louis Vuitton Hits $3.6M Judgment Against Its Landlord for Contributory Trademark Infringement
by Lee Collins
March 27, 2012

A jury sitting in the United States District Court for the Western District of Texas, in Louis Vuitton Malletier v. Eisenhauer Road Flea Market, Inc., Bruce L. Gore, and Patricia D. Walker, found a landlord liable for $3.6 million to the designer brand Louis Vuitton for allowing tenants to sell knock-offs of its Louis Vuitton products. 

Previously, no Federal Court sitting in Texas had extended the doctrine of contributory trademark infringement to the landlord/tenant relationship.  The United States Supreme Court, in Inwood labs., Inc. v. Ives Lab., Inc., 456 U.S. 844, 854 (1982), defined contributory infringement when “a manufacturer or distributor intentionally induces another to infringe on a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement.”  Id.  In instructing the jury on the standard for contributory trademark infringement, Federal District Judge Harry Lee Hudspeth extended the doctrine to a landlord/tenant relationship for first time in Texas.

Over and above extending liability where it had not previously been extended, this case is a blow to landlords because the landlord in Louis Vuitton, Eisenhauer Road Flea Market, had no control over what products were delivered to the leased premises, what products the tenant stocked in inventory, and what products the tenant actual sold; save and except the power to evict the tenant.  While the landlord has filed various post-trial motions to set aside the jury verdict, a prudent landlord should vigilantly monitor their tenants activities and respond quickly if and when infringing activity is discovered.

MAR 26 Federal Court Endorses Use of Predictive Coding Software in E-Discovery

Federal Court Endorses Use of Predictive Coding Software in E-Discovery
by Chris Hanslik
March 26, 2012

A New York Magistrate Judge recently endorsed the use of predictive coding technology as an appropriate method to satisfy a producing party’s review obligations in appropriate cases.  In Da Silva Moore v. Publicis Groupe & MSL Group, 11 Civ. 1279 (S.D.N.Y. Feb. 24, 2012), Magistrate Judge Peck issued the first judicial opinion formally recognizing the use of computer-assisted review over a large volume of documents.  Specifically, Judge Peck wrote:  “What the Bar should take away from this Opinion is that computer-assisted review is an available tool and should be seriously considered for use in large-data-volume cases where it may save the producing party (or both parties) significant amounts of legal fees in document review.”

Computer-Assisted Review refers to tools that use sophisticated algorithms to enable a computer to determine relevance of a document based on interaction with a human reviewer.  The process involves a senior attorney, with extensive knowledge of the case, reviewing and coding a “seed set” of documents from the collected data.  The individual document review “trains” the computer to recognize other relevant documents so that it can “predict” the reviewer’s coding of the entire dataset. This process enables the computer to identify properties of those documents that it then uses to code other documents.  As the reviewer continues to review and code additional sample documents, the computer refines its predictions of the reviewer’s coding.  When the system’s predictions and the reviewer’s coding become sufficiently consistent, the system has “learned” enough to accurately make predictions from the remaining documents.

The plaintiffs in Da Silva Moore brought a class action discrimination case under Title VII and the Family Medical Leave Act.  In response to the plaintiffs’ initial document requests, the defendant asserted that it had approximately three million documents that it needed to review.  As a result, the defendant requested that it be allowed to use a computer-assisted review technology.

 It is important to note that both parties in Da Silva Moore agreed to use some form of predictive coding, but they disagreed on the details.  Judge Peck commented on how essential transparency was when using predictive coding and praised the defendants for being open about its methods and coding.  Specifically, the defendants agreed to turn over all non-privileged documents in the “seed set” and each of the “judgment based sample” sets providing both relevant and irrelevant documents.  The defendants also incorporated any coding changes proposed by the plaintiffs based on their review of these documents.  As a guide for other litigants, the court annexed the parties stipulated protocol for utilizing the predictive coding to its opinion.

The court also addressed the argument of using computer-assisted review versus other known alternatives noting that:

computer-assisted review works better than most of the alternatives, if not all the [present] alternatives.  So the idea is not to make this perfect, it’s not going to be perfect.  The idea is to make it significantly better than the alternatives without nearly as much cost.

The court referenced studies showing that manual review is not only expensive and slow, but also not necessarily as accurate as computer-assisted review.  The court also noted that the Federal Rules do not require a party to certify that its production is complete or perfect, rather courts apply the Rule 26(b)(2)(C) proportionality doctrine.

Ultimately, Judge Peck found that the use of predictive coding software was appropriate in Da Silva Moore having considered the following five factors:

  1. The parties’ agreement;
  2. The vast amount of electronically stored information to be reviewed;
  3. The superiority of the computer-assisted review over the available alternatives (such as linear manual review or keyword searches);
  4. The need for cost effectiveness and proportionality under Rule 26(b)(2)(C); and
  5. The transparent process proposed by the defendant.

 In today’s ever-increasing world of electronic information, companies are creating and storing large volumes of electronic data every day.  If, and when, those companies become involved in a lawsuit it is more likely today that a significant portion of the relevant data will be electronically stored.  The Da Silva Moore opinion will now serve as a focal point to encourage parties and courts to allow computer-assisted review to help reduce the costs associated with manually reviewing such large amounts of data.  There are, however, higher vendor costs associated with loading and processing the documents so that a computer-assisted program can be used, but in situations like the Da Silva Moore case, those costs should be much lower than the fees associated with a manual review.  It should also be noted that a computer-assisted technology can always be used for internal reviews after a large volume of data has been produced or in conducting an internal investigation.

MAR 13 EEOC Explains Position on ADA and High School Diplomas

EEOC Explains Position on ADA and High School Diplomas
by Joseph "Trey" L. Wood, III
March 13, 2012

In a prior posting, we informed you about the EEOC’s position that an employer’s requirement of a high school diploma as a job prerequisite may violate the Americans With Disabilities Act. 

“The EEOC recently posted on its website that requiring a high school diploma may violate the American’s With Disabilities Act if the requirement unfairly discriminates against individuals with learning disabilities.  It is the EEOC’s position that such a requirement may be unlawful if it not “job related and consistent with business necessity.”

The EEOC has now indicated “[t]here has been significant commentary and conjecture about the meaning and scope of the letter.”  Accordingly, the EEOC has posted a number of questions and answers to its website to help explain its position.  Of critical importance is its explanation that the ADA “only protects someone whose disability makes it impossible for him or her to get a diploma. It would not protect someone who simply decided not to get a high school diploma.”  Employers would be allowed to require applicants to prove that their alleged disability prevented them from meeting the diploma requirement.  Finally, the EEOC reiterated that employers are always allowed to hire the most qualified person for the job and does not have to give preferential treatment to an individual with a disability over someone who is more qualified.

MAR 09 Texas Legislature Now Requires Award of Attorney Fees and Costs to Prevailing Lien Holders

Texas Legislature Now Requires Award of Attorney Fees and Costs to Prevailing Lien Holders
by Jeremy Sanders
March 9, 2012

While historically there have been specific remedies available to parties who have perfected their lien rights on property, it can be time consuming and expensive for parties to pursue those remedies and further their rights under the law.  New legislation in Texas could make these remedies more rewarding to the prevailing party.

The Texas Legislature recently passed a bill that awards attorney fees and costs in any proceeding (1) to foreclose a lien, (2) to enforce a claim against a construction-related bond, or (3) to declare that any lien or claim is invalid or unenforceable under the law governing mechanic’s, contractor’s or materialman’s liens.  However, with respect to a lien or claim arising out of a residential construction contract, the court is not required to order the property owner to pay costs and attorney fees.  The law became effective September 1, 2011 for any actions commenced on or after that date.

Texas Senate Bill 539 amends the 53.156 of the Texas Property Code to require, rather than authorize, a court to award costs and reasonable attorney's fees as are equitable and just.  Prior to September 2011, a judge had discretion regarding the award of costs and reasonable attorney's fees to the prevailing party in a successful suit in this context.  Recent court cases also held that a mechanic's or materialman's lien holder who forecloses on a lien or bond is not entitled to court costs or reasonable attorney fees.

This new law could lead to more construction-related lawsuits for parties willing to pursue their lien rights and interests under the law.    

MAR 08 Department of Transportation Issues Guidance on Texting by Commercial Drivers

Department of Transportation Issues Guidance on Texting by Commercial Drivers
by Gus Bourgeois
March 8, 2012

U.S Transportation Secretary Ray LaHood announced federal guidance to expressly prohibit texting by drivers of commercial vehicles last month.  The prohibition became effective immediately. Truck drivers who text while driving commercial vehicles may be subject to civil or criminal penalties of up to $2,750.

Given the pervasive nature of texting as a means of communication, and the distinctions made in the rules regarding what is and what isn’t considered texting, motor carriers should take steps to ensure that their drivers are aware of the rules and confirm such awareness in writing. 

Here are the relevant portions of new rules for commercial motor drivers to consider:

Prohibitions against Texting

  • No commercial driver shall engage in texting while driving.
  • No motor carrier shall allow or require its drivers to engage in texting while driving.
  • Texting while driving is permissible by drivers of commercial motor vehicles when necessary to communicate with law enforcement officials or other emergency services.



  • Includes: Operating a commercial motor vehicle, with the motor running, including while temporarily stationary because of traffic, a traffic control device, or other momentary delays.
  • Does Not Include: Operating a commercial motor vehicle with or without the motor running when the driver moved the vehicle to the side of, or off, a highway, and halted in a location where the vehicle can safely remain stationary.


  • Includes: Manually entering alphanumeric text into, or reading text from, an electronic device. This action includes, but is not limited to, short message service, e-mailing, instant messaging, a command or request to access a World Wide Web page, or engaging in any other form of electronic text retrieval or electronic text entry for present or future communication.
  • Does Not Include: Reading, selecting, or entering a telephone number, an extension number, or voicemail retrieval codes and commands into an electronic device for the purpose of initiating or receiving a phone call or using voice commands to initiate or receive a telephone call; inputting, selecting or reading information on a global positioning system or navigation system; or using a device capable of performing multiple functions (e.g., fleet management systems, dispatching devices, smart phones, citizens band radios, music players, etc.) for a purpose that is not otherwise prohibited in “Prohibitions Against Texting” above.

 Electronic Devices (includes, but is not limited to):

  • Cellular telephone
  • Personal digital assistant
  • Pager
  • Computer
  • Any other device used to input, write, send, receive or read text.
FEB 28 What to Do When the 'ICE' Man Cometh: Guidelines for Employers Facing Immigration Audits

What to Do When the "ICE" Man Cometh: Guidelines for Employers Facing Immigration Audits
by Joseph "Trey" L. Wood, III
February 28, 2012

An audit into a company’s immigration compliance by Immigration and Customs Enforcement (ICE) can certainly send chills down any employer’s back.  Frequently, during or shortly after an audit, employers will take punitive measures against certain employees who have been singled out as a result of the audit.  These measures can, and do lead to valid discrimination claims against employers who mistakenly believe that they were simply complying with immigration laws.  However, the Department of Labor (DOL) recently issued some “do's” and “con'ts” when dealing with employees to help employers avoid unnecessary discrimination claims.  Here is what the DOL has to say:


  • Develop a transparent process for interacting with employees during the audit, including communicating with employees that the employer is subject to an ICE audit.
  • Provide all workers with a reasonable amount of time to correct discrepancies in their records identified by ICE. Treat all workers in the same manner during the audit, without regard to national origin or citizenship status. This means that all workers with like discrepancies who are asked to present additional documents are provided with the same time frames and the same choice of Form I‐9 documents to present.
  • If your workers are represented by a union, inform the union of the ICE audit and determine whether a collective bargaining agreement triggers any obligations.
  • Inform employees from whom you seek specific information that you are seeking this information in response to an ICE audit.
  • Communicate in writing with employees from whom you seek information, and describe the specific basis for the discrepancy and/or what information you need from them. Follow the instructions on the ICE notice and the instructions for the Form I‐9 when seeking to correct Form I‐9 defects, including the Lists of Acceptable Documents and the anti‐discrimination notice.


  • Selectively verify the employment eligibility of certain employees based on their national origin or citizenship status based on the receipt of an ICE Notice of Inspection.
  • Terminate or suspend employees without providing them with notice and a reasonable opportunity to present valid Form I‐9 documents.
  • Require employees to provide additional evidence of employment eligibility or more documents than ICE is requiring you to obtain.
  • Limit the range of documents that employees are allowed to present for purposes of the Form I‐9.
  • Treat employees differently at any point during the audit because they look or sound foreign, or based on assumptions about whether they are authorized to work in the U.S.

For any questions pertaining to any of these recommendations, do not hesitate BoyarMiller.

FEB 27 Pipeline Safety Bill Signed into Law

Pipeline Safety Bill Signed into Law
by Jeremy Sanders
February 27, 2012

On January 3, 2012, President Obama signed into law a pipeline safety bill that gained momentum after a string of high-profile incidents in 2010.  A September 2010 explosion in northern California killed eight people, injured dozens and destroyed 38 homes. Other pipeline malfunctions have occurred in Michigan, Montana, and Pennsylvania. U.S. Rep. Fred Upton, R-Mich., chairman of the House energy and commerce committee, said pipeline accidents during the last few years provided regulators with valuable lessons for the new law. 

The new law, referred to as the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, contains the following:

  • Doubles the maximum fine for pipeline safety violations to $2 million and extends federal safety oversight of gas, oil and other liquid pipelines through 2015.
  • Authorizes the Pipeline and Hazardous Materials Safety Administration to hire 10 more safety inspectors.
  • Commissions studies to determine if more needs to be done to secure transmission pipelines throughout the system and in more populated areas as well.
  • Contains a strong incentive for states to remove current one call exemptions, requiring all entities that excavate around pipelines to call a hotline before they dig to learn about what might be below – a provision that is sure to help reduce the number of accidents due to digging,
  • Newly constructed pipelines will be required to include automatic shutoff valves that isolate a section of pipe in event of a rupture, preventing further gas or liquid from escaping.
  • Pipeline operators must confirm, through records or testing, the maximum safe-operating pressure of older, previously untested pipelines in populated areas. 

It does not include a National Transportation Safety Board recommendation to require such shut-off valves on existing pipelines in heavily populated areas.  The call for automatic shut-off values on existing pipelines has faced industry opposition because of cost.

 “This is landmark legislation that provides the regulatory certainty necessary for the pipeline industry to make critical investments and create American jobs,” Rep. Bill Shuster (R-Pa.), who chairs a House subcommittee that oversees pipelines, said in a statement.

"Safety is always of the highest priority and this law strengthens current law, fills gaps in existing law where necessary, and focuses on directly responding to recent pipeline incidents with balanced and reasonable policies..."

This new law provides a strong framework to prevent future accidents and the enactment of this federal law could begin a trend of broader safety laws throughout the states.  California has already passed legislation requiring such shut-off valves on all pipelines in densely populated and seismically active areas.

FEB 24 DOL Proposes New FMLA Rules

DOL Proposes New FMLA Rules
by Joseph "Trey" L. Wood, III
February 24, 2012

The U.S. Department of Labor (DOL) has announced that it is proposing new regulations implementing the changes to the Family Medical Leave Act (FMLA) made by the 2010 National Defense Authorization Act ( Military Leave Amendments) and the 2009 Airline Flight Crew Technical Corrections Act (Flight Crew Amendments).

Military Leave Amendments
The National Defense Authorization Act amended the FMLA to provide leave for qualifying exigencies and military caregiver leave.  According to the Department of Labor website, the major provisions of the proposed rules include the following:

  • the extension of military caregiver leave to eligible family members of recent veterans with a serious injury or illness incurred in the line of duty;
  • a flexible, three-part definition for serious injury or illness of a veteran;
  • the extension of military caregiver leave to cover serious injuries or illnesses for both current service members and veterans that result from the aggravation during military service of a preexisting condition;
  • the extension of qualifying exigency leave to eligible employees with covered family members serving in the Regular Armed Forces; and
  • inclusion of a foreign deployment requirement for qualifying exigency leave for the deployment of all service members (National Guard, Reserves, Regular Armed Forces).

Flight Crew Amendments
Because of the way duty hours are calculated for airline crews, it is difficult for many of them to qualify for the FMLA’s 1,250 work hours requirement.  The new proposed rules address this in the following manner:

  • the addition of a special hours of service eligibility requirement for airline flight crew employees; and
  • the addition of specific provisions for calculating the amount of FMLA leave used by airline flight crew employees.
The proposed rules have not yet been published in the Federal Register.  Comments to the proposed rules will be due sixty days from the date they are published.  We will continue to monitor this situation and will provide you with updates as they become available.
FEB 22 What Every Business Owner Should Know About E-Discovery

What Every Business Owner Should Know About E-Discovery
by Chris Hanslik
February 22, 2012

In today’s technology era, where computers, servers, email, smart phones, text messages, external storage devices and social media are operational mainstays, written and printed communications are going the way of the horse-drawn carriage.  Add “green” initiatives and paper-reduction policies – sparked by operational efficiencies (cheaper, faster and better for the environment) – and it’s clear to see that electronic mediums are here to stay.  For the business owner, it’s important to understand that, just like physical files and hard copies, if you find yourself involved in a lawsuit, electronic information (both saved and deleted) can be subject to discovery.

This new form of discovery is known as “E-Discovery” and encompasses much more than printing out emails, pdfs or Word documents.  E-Discovery may also include forensic searches on servers, hard drives, smart phones, external storage devices and individual work-stations.  Emails and other electronically stored information are generally subject to discovery.  In fact, discoverable electronic information even includes documents that have been “deleted,” but still exist on storage devices in unallocated space.

Once a company has been notified that documents in its possession are relevant to pending litigation, destruction of documents must cease.  Failing to prevent the destruction of documents could result in court imposed sanctions, even where the documents are destroyed according to a routine document retention policy.  If a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a “litigation hold” to ensure preservation of relevant documents – including electronic information.

Preserving, locating, searching and reviewing what could potentially be discoverable information can be a very expensive process.  It is important for companies to have a good understanding of how and where electronic information is stored.  When companies are faced with this situation counsel should be engaged on the front-end to work directly with the IT department to avoid potential pitfalls down the road.

FEB 21 What Hath My Email Wrought?

What Hath My Email Wrought?
by Tim Heinrich
February 2, 2012

On May 24, 1844, Samuel Morse transmitted, in the first telegraph message ever, from Washington, DC to Baltimore: “What hath God wrought.”  His assistant, Alfred Vail, sent the same message back to him.  Flash forward 150 years.  Hundreds of millions of people are using the Internet daily to transmit email, photos, music files, and all other sorts of information on a truly global basis.

One common question attorneys hear today is, “Is my email sufficient to make a binding agreement?”  By now, the fairly settled rule is, “Yes, if it appears you intended to enter into a binding agreement.”

More than 10 years ago, the Texas legislature adopted the Electronic Transactions Act (ETA) to govern electronic contracts, such as online purchases and signatures on card readers at retail shops.  However, given the scope and breadth of the ETA, it also applies to seemingly casual e-mail exchanges between parties.

Prior to the ETA, many states prohibited the use of electronic records and transactions, recognizing and enforcing only written agreements in many circumstances.  However, in June 2000, the federal government adopted the Electronic Signatures in Global and National Commerce Act, which set forth certain standards for implementing electronic commerce.  However, this act also provided that if a state adopted the Uniform Electronic Transactions Act, promulgated by the National Conference of Commissions on Uniform State Laws, the state law would override the federal act.  Since that time, almost all states, including Texas, have adopted the Uniform Electronics Transactions Act.

The ETA covers any and all “transactions.”  It broadly defines a transaction as, “an action or set of actions” occurring “between two or more persons” relating to the conduct of “business, commercial, or governmental affairs”.  Although the word “consumer” is not referenced in the ETA itself, one of the comments to the ETA provides that it is essential that the term “commerce and business” be broadly construed to include commercial and business transactions involving individuals who might qualify as consumers under other applicable law.

The lynchpin of the ETA is a section stipulating that a signature may not be denied legal effect or enforceability solely because it is in electronic form; and that a contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.  The ETA further provides that if a law requires a record to be in writing, an electronic record satisfies the law; and that if a law requires a signature, an electronic signature satisfies the law.

Although the ETA does not require that parties use electronic records or signatures, it does apply to transactions where parties have agreed to use electronic means.  Whether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties’ conduct.  The ETA also allows a party the right to refuse electronic transactions even if the person has conducted transactions electronically in the past. The effectiveness of a party's refusal to conduct a transaction electronically will be determined under other applicable law in light of all surrounding circumstances. Such circumstances must include an assessment of the transaction involved.

The comments to the ETA state that in order to facilitate electronic transactions, the circumstances cannot be limited to a full-fledged contract to use electronics.   For example, if a party gives out his business card with his business e-mail address it may be reasonable, under the circumstances, for a recipient of the card to infer that such party has agreed to communicate electronically for business purposes.  However, in the absence of additional facts, it would not necessarily be reasonable to infer such party’s agreement to communicate electronically for purposes outside the scope of the business indicated by use of the business card.

Given the broad scope of the ETA, a party must be vigilant in order to avoid unintentionally entering into any agreement through email, voice mail or any other electronic means of communications when engaging in business or commerce.  Specifically, a party should clearly state that it is not intending to enter into any agreement.  If a document is only a draft, it should be clearly identified as such, either through watermarks or a statement to such effect in the email.   Often a party may attempt to use email footers disclaiming any intention to enter into a binding agreement.  However, this is not a fool-proof system.  If a party’s email message is inconsistent with such a disclaimer (e.g. “I agree to purchase 10 items at the price of $100 each”), then the party runs the risk of having entered into a binding agreement in spite of any disclaimer to the contrary.

FEB 06 NLRB Weighs In On Social Media - Again

NLRB Weighs In On Social Media — Again
by Joseph "Trey" L. Wood, III
February 6, 2012

As reported in previous posts, the National Labor Relations Board (NLRB) has taken employers to task for terminating employees for engaging in “protected activity” on various social media outlets.  Recently, the NLRB’s Acting General Counsel released a second report describing social media cases reviewed by his office. 

The Operations Management Memo covered 14 cases.  Several of the cases reviewed involved issues surrounding the validity of an employer’s social media policy and the remaining cases involved the termination of employees following comments that they posted on Facebook.

The two main points to take away from the report are the following:

  1. Social networking policies that prohibit employees from “making disparaging comments about the employer” are, in the eyes of the NLRB, overly broad because they could interfere with the employees’ rights to discuss terms and conditions of employment.  Specifically, the NLRB feels that the use of the word “disparaging” is too broad because it could “chill” employees from engaging in protected activity such as making comments that the employer is “not treating employees fairly or paying them sufficiently.”
  2. An employee’s comments on social networking sites are not generally protected if they are “mere gripes not made in relation to group activity among employees.”  Accordingly, if an employee makes comments about its employer on Facebook and other employees who are “friends” of the employee do not comment on the post, the employee’s posts are often not protected.

What You Should Do
It would be prudent to review your social media policy and if it prohibits employees from making “disparaging comments” about the company, it should be revised to exclude the use of terms that could be viewed as overly broad.  For example, one policy that the NLRB found to be permissible prohibited “the use of social media to post or display comments about co-workers or supervisors or the Employer that are vulgar, obscene, threatening, intimidating, harassing, or a violation of the Employer’s workplace policies against discrimination, harassment, or hostility on account of age, race, religion, sex, ethnicity, nationality, disability, or other protected class, status, or characteristic.”  Another policy that withstood scrutiny provided that the employer could request employees to confine their social networking to matters unrelated to the company if necessary to ensure compliance with securities regulations and other laws.  It also prohibits employees from using or disclosing confidential and/or proprietary information.  In the end, making your social media policy as specific as possible will help ensure its enforceability.

FEB 02 The United Nations Convention on Contracts for the International Sale of Goods - PART 3

The United Nations Convention on Contracts for the International Sale of Goods - PART 3
What does it mean and how does it affect Texas businesses?
by Gus Bourgeois
February 2, 2012

The United Nations Convention on Contracts for the International Sale of Goods (CISG) is an international treaty providing a uniform international sale law for buyers and sellers of goods with places of business in different Contracting States.  As we've seen in part 2 of the series, the application of the CISG to a transaction can lead to legal effects that are unintended by the Texas-based party, and at the very least can cause unwanted ambiguity. The good news is that parties to a transaction that is governed by the CISG can exclude its application and select a different set of laws to apply. However, that's not as easy to accomplish as it would seem.

It would seem logical, for example, that in a contract for the sale of goods between two parties, one located in Texas (which is, of course, part of the United States, which in turn is a Contracting State), the other party located in another Contracting State, a provision stating that the contract was "governed by the laws of the State of Texas" should be sufficient to exclude application of the CISG. However, it is generally well-settled in the United States that mere reference to the laws of a US state as being the governing law of such a contract will be insufficient to exclude application of the CISG. This is because under the US Constitution, the CISG, as an international treaty ratified by the United States, preempts state law - so in reality, reference to "the laws of the state of Texas" in such a contract, with nothing more said to exclude the CISG, actually reaffirms the applicability of the CISG.

So what is required to exclude the applicability of the CISG to such a contract? The best practice is to both specifically exclude the CISG, and to designate the laws which will apply in its stead.  The following language provides a good example:

"This Agreement, and all disputes arising hereunder, shall be governed by and interpreted in accordance with the laws of the state of Texas, USA, without reference to its conflicts of laws principles. However, the United Nations Convention on Contracts for the International

Sale of Goods ("CISG") shall not govern or apply to this Agreement, and the parties hereby exclude application of the CISG."

Finally, it should be noted that there may be instances where exclusion of the CISG is disadvantageous to the parties. Each situation should be judged on its own merits. The best course of action is to consult with an attorney experienced in international transactions to assist in determining the best way to proceed in light of the circumstances.

JAN 23 The United Nations Convention on Contracts for the International Sale of Goods - PART 2

The United Nations Convention on Contracts for the International Sale of Goods - PART 2
What does it mean and how does it affect Texas businesses?
by Gus Bourgeois
January 23, 2012

The United Nations Convention on Contracts for the International Sale of Goods (CISG) is an international treaty providing a uniform international sale law for buyers and sellers of goods with places of business in different Contracting States.  The practical effect of the CISG is that, for example, if you are a business located in Texas and engaged in buying goods from, or selling goods to, a party located in another country that has ratified the CISG (a "Contracting State"), the terms of that transaction are likely governed by the CISG, even if the contract states that the laws of another jurisdiction (such as Texas) apply — unless the contract specifically says that the CISG does not apply. So what are some of the implications of having the CISG apply?

First, consider the statute of frauds, which (as codified by Texas' version of the Uniform Commercial Code) holds that a contract for the sale of goods with a price over $500 is generally not enforceable unless in writing and signed by the party against whom enforcement is sought. This long-standing bias against the enforceability of oral contracts is reversed under the CISG, which instead holds that a contract for the sale of goods under the CISG need not be in writing. Significantly, under the CISG, contracts for the sale of goods generally may also be amended orally, even if the original contract was in writing, unless the original contract expressly requires written amendment.

Second, consider the "battle of the forms", for example, when a buyer of goods issues to seller a purchase order with buyer-friendly terms and conditions, and seller issues an acknowledgment of the commercial terms of the order (price, quantity, etc.) backed with a separate set of different (seller-friendly) terms and conditions.  In the absence of any other communication or conditions, seller's acknowledgement would generally be deemed to be acceptance of buyer's offer under the Texas UCC, and a binding and enforceable contract would be created. To the extent that seller's terms and conditions materially differed from buyer's, the different provisions would be considered to be proposals amending buyer's initial terms and conditions. Under the CISG, however, seller's response would be considered to be a rejection of buyer's initial offer, and a separate counteroffer.  At this stage, either party could "walk away" from the proposed transaction, without obligation.  In the absence of any further communication, if the parties thereafter "perform", the CISG would generally hold that the performance was pursuant to seller's terms and conditions, which buyer would have accepted by performance. Thus, in such a scenario, the CISG favors the "last form", while the Texas UCC favors the "next-to-last" form.

Third, while the CISG provides for many of the same types of damages in the event of breach as does the Texas UCC, the CISG provides an additional "self-help" remedy to buyers of goods. If the goods purchased do not conform to the contract, then the buyer may unilaterally reduce the purchase price in proportion to the non-conformity, even if the full purchase price has already been paid, unless the buyer can cure the non-conformity without unreasonable delay or inconvenience. There is no equivalent to this remedy under the Texas UCC, and obviously the exercise of such a remedy could be quite a surprise for an unsuspecting Texas seller.

While the differences between the CISG and the Texas UCC noted above are illustrative only, they support the idea that a Texas buyer or seller of goods may be better served by disclaiming the application of the CISG entirely. We'll discuss how and when to do so in part 3 of the article.

JAN 23 Ineligible Employees May Be Protected By FMLA

Ineligible Employees May Be Protected By FMLA
by Joseph "Trey" L. Wood, III
January 23, 2012

Employers subject to the Family Medical Leave Act (FMLA) know that for an employee to be eligible for FMLA leave, he or she must have: 1) worked for the company for at least 12 months; and, 2) have worked at least 1250 hours during the previous 12 months.  However, would the FMLA protect a relatively new employee who is not yet eligible for FMLA leave if the employee gives notice of an intent to take FMLA leave after the employee would be eligible?  Recently, the Eleventh Circuit Court of Appeals found that such an employee would be protected by the Act. 1

What Happened
Kathryn Pereda started work with Brookdale Senior Living Community on October 5, 2008.  In June 2009, Pererda let her employer know that she was pregnant and would be requesting FMLA following the birth of her child in November 2009.  In September 2009, only 11 months after her hire, she was fired.

Pereda sued her employer alleging that her termination was interference with her rights under the FMLA and/or retaliation.  The trial court threw the case out finding that because Pereda had only worked for the company for 11 months that she was not eligible for protection under the FMLA. 

The Appeal
On Pereda’s interference claim, the Eleventh Circuit found that “because the FMLA requires notice in advance of future leave, employees are protected from interference prior to the occurrence of a triggering event, such as the birth of a child.”  The court indicated that it was not expanding the FMLA to cover a new class of employees but, rather a way of protecting employees from employers who attempt to “avoid having to accommodate that employee with rightful FMLA leave rights once that employee becomes eligible.”

On Pereda’s retaliation claim, the court found that since it had already determined that the FMLA protects pre-eligible requests from employees for post-eligible leave, that the FMLA also protects employees from retaliation for making such requests.

Now the case heads back to the trial court to determine whether the employer’s reason for terminating the employee was valid, or whether that reason was a pretext for violating the employee’s protected status under the FMLA.

What this Means for You
Employers subject to the FMLA know that they must be careful in making decisions affecting the employment status of employees who are eligible for FMLA leave and have made a request for such leave.  This case means that employers will also need to be careful with those same decisions even if the employee is not yet eligible for leave, but has indicated that it will be taking FMLA once the employee is eligible.

1Pereda v. Brookdale Senior Living Communities, Inc.

JAN 19 Class Action Waivers No Longer Valid In Arbitration Agreements?

Class Action Waivers No Longer Valid In Arbitration Agreements?
by Joseph "Trey" L. Wood, III
January 19, 2012

Earlier this month the National Labor Relations Board (NLRB) found that mandatory arbitration agreements which require employees to waive the right to bring class or collective actions are in violation of the National Labor Relations Act (NLRA).1 This ruling means that any arbitration agreements which contain class action waivers and are required to be signed by employees as a condition of continued employment are no longer valid.

This is in direct contrast to what most employers felt following last April's ruling by the U.S. Supreme Court which validated the use of class action waivers in consumer arbitration agreements.2  Following that ruling it was believed that companies could require employees to sign arbitration agreements in which the employees waived the right to bring class action actions against their employers.  In fact, following that ruling this author opined the following:

  • Employers who use arbitration agreements with their employees may now wish to insert into their arbitration agreements language that prohibits employees from joining any class action against the company. For employers who do not use arbitration agreements but are fearful of the potential for class action matters, now may be the time to implement such agreements.

However, the NLRB held "an individual who files a class or collective action regarding wages, hours, or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by [the NLRA]."  The Board continued, "When, as here, employers require employees to execute a waiver as a condition of employment, there is an implicit threat that if they refuse to do so, they will be fired or not hired."

The NLRB attempted to distinguish its decision from that of the Supreme Court by finding that class action arbitration in the employment context "is far less cumbersome and more akin to an individual arbitration proceeding."  This plainly ignores the fact that many employment-related class actions involve thousands of employees.  However, the Board emphasized that its holding was limited to only "employees" as defined by the NLRA.  Accordingly, employees who act as supervisors or managers would not be affected.  Finally, this decision involved the use of an arbitration agreement that was mandatory.  If the agreement had permitted employees to sign or not sign the agreement without any fear of retaliation, the result may have been different. 

What this Means for You
Certainly, if your company has arbitration agreements containing class action waivers that employees are required to sign as a condition of continued employment, this ruling jeopardizes the validity of the agreement.  However, this case is not likely over and will, presumably, be appealed.  What happens at the next level is anyone's guess.  One alternative to class action waivers in the arbitration agreement may be to carve class action matters out of arbitration agreements, but require that the employee agree that any class actions be tried only before a judge, waiving a jury.  At the end of the day, it will be important for all employers to weigh the potential risk of removing such waivers from agreements versus maintaining such clauses in the company's arbitration agreements.

1 D.R. Horton, Inc.

2 AT&T Mobility LLC v. Concepcion.


JAN 18 The United Nations Convention on Contracts for the International Sale of Goods – PART 1

The United Nations Convention on Contracts for the International Sale of Goods - PART 1
What does it mean and how does it affect Texas businesses?
by Gus Bourgeois
January 18, 2012

The United Nations Convention on Contracts for the International Sale of Goods (CISG) is an international treaty providing a uniform international sale law for buyers and sellers of goods with places of business in different Contracting States.  The CISG will also apply if only one party to the transaction is located in a Contracting State, if the terms of the contract, or operation of applicable "conflicts of laws" provisions, specifies that the Contracting State's laws will govern the transaction. The CISG was initially adopted by 11 countries in 1988, including the United States.  It has been subsequently ratified by more than 60 additional countries, excluding, notably, the United Kingdom and India.  Countries that have ratified the CISG are referred to as "Contracting States".

The purpose of the CISG is to provide a uniform regime for contracts for the international sale of goods, thereby introducing certainty and confidence in commercial exchanges.  The idea is that such certainty would increase the volume of international trade, for the benefit of all Contracting States.  In furtherance of that goal, the drafters of the CISG provided that the terms of the CISG are deemed to supersede the laws of the Contracting States with respect to sales transactions covered by the CISG, unless the application of the CISG is expressly excluded.

In other words, if you are a located in Texas, for example, and engaged in buying goods from, or selling goods to, a party located in another Contracting State, the terms of that transaction are likely governed by the CISG, even if the contract states that the laws of another jurisdiction (such as Texas) apply — unless the contract governing the transaction specifically says that the CISG does not apply.  In my experience, many Texas businesses engaged in international sales transactions, if not most, have never heard of the CISG and do not realize that these transactions are governed by the CISG — until a problem arises.

What are the implications of the CISG for a Texas-based business involved in international sales transactions? When is it appropriate to specify that the CISG does not apply to a particular transaction — and how is that accomplished? We'll explore those answers to those questions in part 2 of the article.

JAN 16 New Construction Anti-Indemnity Laws Now in Effect

New Construction Anti-Indemnity Laws Now in Effect
by Jeremy Sanders
January 16, 2012

The Texas legislature recently passed new anti-indemnity and anti-additional insured legislation that will bring significant changes to the construction industry. On June 17, 2011, Texas Governor Rick Perry signed House Bill 2093, which makes certain indemnity provisions in construction contracts void and unenforceable if they require a person to indemnify, defend, or hold harmless another party for a claim caused by that party's own negligence or fault.  The bill also prohibits construction contract provisions requiring the purchase of additional insured coverage if the scope of such coverage would be prohibited when contained in an indemnification agreement.   This legislation, which creates what will become the new "Chapter 151" of the Texas Insurance Code, governs construction contracts and consolidated insurance programs established on or after January 1, 2012. 

In practical terms, the new construction laws mean that owners and general contractors can no longer require subcontractors to (1) indemnify them for the owner or general contractor's own negligence or (2) purchase insurance coverage for the owner or general contractor's own negligence.  However, there are certain key exceptions.  Among them, parties may continue to provide indemnification against claims for "the bodily injury or death of an employee of the indemnitor, its agent, or its subcontractor of any tier." HB 2093 also specifically excepts contracts for residential and public works projects.  

Indemnification has been a topic of concern for subcontractors for several years. Upstream parties, such as owners and general contractors, have frequently required indemnification from downstream parties on a project, such as the mechanical contractors.  For an indemnification agreement to be legally enforceable under Texas law, it needed to satisfy the "express negligence doctrine." The express negligence doctrine provides that parties seeking to indemnify the indemnitee from the consequences of its own negligence must express that intent in specific terms (and be specifically stated within the four corners of the contract).  If a general contractor required a sub to indemnify it, the sub would have to indemnify the general contractor not just for the sub's negligence, but also for the general contractor's own negligence.

The reality of this shift in responsibility and risk of exposed liability has not always proved favorable for the downstream contractors.  Nevertheless, certain contractors would often execute the construction contracts and take the risk of indemnity later in the project.  This is where the legislature stepped in and changes were made.  Under the new anti-indemnity laws, a general contractor can no longer require a sub-contractor to indemnify the general contractor for their own negligence.  Even if a contract provision includes this indemnity language, the provision is unenforceable and the parties are prohibited from waiving this anti-indemnity provision. 

With these new changes, owners and contractors should evaluate and revise their construction contracts and insurance programs to address any issues impacted by this legislation.

JAN 16 Supremes Back Church's Employment Decision

Supremes Back Church's Employment Decision
by Joseph "Trey" L. Wood, III
January 16, 2012

On January 11, 2012, the United States Supreme Court ruled that a church that makes employment-related decisions with respect to its "ministers" is free from any employment discrimination suits brought by the affected employee.  In a rare unanimous decision, the Court held that the ministerial exception acts as an absolute bar to such suits.(1)

Hosanna-Tabor Evangelical Lutheran Church and School is a member congregation of the Lutheran Church-Missouri Synod. The Synod classifies its school teachers into two categories: "called" and "lay." "Called" teachers are regarded as having been called to their vocation by God. To be eligible to be considered "called," a teacher must complete certain academic requirements, including a course of theological study. Once called, a teacher receives the formal title "Minister of Religion, Commissioned." "Lay" teachers, by contrast, are not required to be trained by the Synod or even to be Lutheran. Although lay and called teachers at Hosanna-Tabor generally performed the same duties, lay teachers were hired only when called teachers were unavailable.

After Cheryl Perich completed the required training, Hosanna-Tabor asked her to become a called teacher. Perich accepted the call and was designated a commissioned minister. In addition to teaching secular subjects, Perich taught a religion class, led her students in daily prayer and devotional exercises, and took her students to a weekly school-wide chapel service. Perich led the chapel service herself about twice a year.

Perich developed narcolepsy and began the 2004-2005 school year on disability leave. In January 2005, she notified the school principal that she would be able to report to work in February. The principal responded that the school had already contracted with a lay teacher to fill Perich's position for the remainder of the school year. The principal also expressed concern that Perich was not yet ready to return to the classroom. The congregation subsequently offered to pay a portion of Perich's health insurance premiums in exchange for her resignation as a called teacher. Perich refused to resign. In February, Perich presented herself at the school and refused to leave until she received written documentation that she had reported to work. The principal later called Perich and told her that she would likely be fired. Perich responded that she had spoken with an attorney and intended to assert her legal rights. In a subsequent letter, the chairman of the school board advised Perich that the congregation would consider whether to rescind her call at its next meeting. As grounds for termination, the letter cited Perich's "insubordination and disruptive behavior," as well as the damage she had done to her "working relationship" with the school by "threatening to take legal action." The congregation voted to rescind Perich's call, and Hosanna-Tabor sent her a letter of termination.

Perich filed a charge with the Equal Employment Opportunity Commission, claiming that her employment had been terminated in violation of the Americans with Disabilities Act. The EEOC brought suit against Hosanna-Tabor, alleging that Perich had been fired in retaliation for threatening to file an ADA lawsuit. Invoking what is known as the "ministerial exception," Hosanna-Tabor argued that the suit was barred by the First Amendment because the claims concerned the employment relationship between a religious institution and one of its ministers. The District Court agreed and granted summary judgment in Hosanna-Tabor's favor. The Sixth Circuit reversed the trial court's decision and recognized the existence of a ministerial exception rooted in the First Amendment, but concluded that Perich did not qualify as a "minister" under the exception.

Supreme Court's Decision and Significance to Religious Employers
Court's around the country widely accept the ministerial exception as a bar to employment discrimination suits by ministers.  However, not all courts agree on who qualifies as a minister.  The Supreme Court found that Perich was a minister, although not in the conventional sense of the word.  However, the Court did not establish a bright-line test for who qualifies as a minister and, instead, indicated that a case-by-case approach must be used which looks at the totality of circumstances surrounding the individual's employment.  While it is clear from this case that the ministerial exception applies to ministers, it does not apply to suits by other lay employees.  Accordingly, religious employers must carefully analyze whether an employee qualifies as a minister before thinking that the ministerial exception will provide it with an absolute defense to any discrimination claims.


(1) Hosanna-Tabor Evangelical Lutheran Church and School v. Equal Employment Opportunity Commission.

JAN 13 Texas Railroad Commission Passes Fracking Disclosure Rules

Texas Railroad Commission Passes Fracking Disclosure Rules
by Jeremy Sanders
January 13, 2012

The Texas Railroad Commission approved "landmark" fracking disclosure rules in December 2011 that rank as some of the most comprehensive in the nation.

Fracking, or hydraulic fracturing, is a process in which drillers blast a mixture of water, sand and chemicals deep underground to break up rock and retrieve oil or gas.  The process has been widely utilized in the various shale plays around the country.  However, the chemical content involved in the process — largely unknown for individual wells — has stirred environmental concerns.

The new Texas rules require disclosure of chemicals for all wells permitted on or after February 1, 2012. The rules also explain how landowners can challenge "trade secrets" claims, a provision that has troubled environmentalists because it allows industry to withhold information on certain chemicals for competitive reasons.

Drillers must reveal the names of all chemicals they use during fracking on a national website,, also known as the FracFocus Chemical Registry.  However, under House Bill 3328 passed by the Texas Legislature in the spring of 2011, oil and gas operators are required to reveal concentrations only for chemicals deemed hazardous to human health. That means about half of the chemicals disclosed by Texas companies will not publicly include concentrations.

"With this new rule, Texans will know more about what is going in the ground for energy production than about the ingredients that go into their sodas," Elizabeth Ames Jones, the Commission's chair, added in a statement.

JAN 10 Foreclosures by Property Owner Associations Now Subject to Judicial Approval

Foreclosures by Property Owner Associations Now Subject to Judicial Approval
by Tim Heinrich
January 10, 2012

The 2011 Texas Legislature enacted several statutes related to the operation and administration of property owner associations in Texas. One significant legislative change is the requirement that, beginning as of Jan. 1, 2012, a property owner association may not foreclose on an assessment lien unless the association first obtains a court order authorizing the foreclosure.

A property owner association generally makes assessments on property in a subdivision so that it is able to pay for and maintain the common amenities in the subdivision. Assessment liens are often imposed on the real property at the time of its initial development in order to secure payment of these assessments. Homeowners purchase their property subject to these assessment liens.

Prior to this recent change in the law, when a property owner failed to pay his assessment, an association could foreclose its lien by non-judicial foreclosure. This foreclosure could occur without the requirement for court approval, in the same manner as a mortgage or deed of trust. The Texas Legislature imposed the requirement of judicial foreclosure for assessment liens in order to protect homeowners from perceived injustices occurring under the non-judicial foreclosure system.

As required by the statute, the Texas Supreme Court has adopted special rules for courts to expedite handling of foreclosure proceedings brought by property owner associations. However, it will now be more time consuming and costly for an association to enforce its rights to collect assessments.

JAN 09 Commercial Motor Vehicle Drivers Banned from Cell Phone Use

Commercial Motor Vehicle Drivers Banned from Cell Phone Use
by Joseph "Trey" L. Wood, III
January 9, 2012

The Federal Motor Carrier Safety Administration's final rule prohibiting Commercial Motor Vehicle (CMV) drivers from using hand-held cell phones while operating their vehicles went into effect on January 3, 2012.

Through the Pipeline and Hazardous Materials Safety Administration (PHSA), drivers hauling hazardous materials within a state are also included in the ban. Drivers who violate the rule will face civil penalties of up to $2,750 for each offense. The rule also provides that the employers are liable for violations by their employees with civil penalties reaching up to $11,000 for each violation. Since the Federal Motor Carrier Safety Administration will hold employers responsible for violations by their drivers, it is recommended that employers immediately implement a policy prohibiting such conduct by drivers in order to try and reduce, if not avoid these penalties.

The new rule restricts a CMV driver from holding a mobile telephone to conduct a voice communication, dialing a mobile telephone by pressing more than a single button, or reaching for a mobile phone in an unacceptable and unsafe manner (e.g. reaching for any mobile telephone on the passenger seat, under the driver's seat, or into the sleeper berth). Thus, a driver of a CMV who desires to use a mobile phone while driving will need to use a compliant mobile telephone (such as hands-free) located in close proximity to the driver that can be operated in compliance with this rule. Thus, the ease of "reach" or accessibility of the phone is relevant only when a driver chooses to have access to a mobile telephone while driving. Essentially, the CMV driver must be ready to conduct a voice communication on a compliant mobile telephone, before driving the vehicle. The only exception to the rule allows CMV drivers to use their hand-held mobile telephones if necessary to communicate with law enforcement officials or other emergency services.

JAN 05 Oil & Gas Company v. Royalty Owner: Texas Supreme Court Rules in Favor of Due Diligence

Oil & Gas Company v. Royalty Owner: Texas Supreme Court Rules in Favor of Due Diligence
by Jeremy Sanders
January 5, 2012

The Texas Supreme Court has ruled that mineral rights owners often bear the burden to make sure oil and gas operators don't underpay them — whether it's a mistake or outright fraud.  On December 16, 2011, the high court issued an opinion reversing lower court findings that Shell Oil Co. must reimburse $72,532.09 to a Texas royalty owner named Ralph Ross.  

In Shell Oil Co. v. Ross, No. 01-08-00713-CV (Tex. App.-Houston [1st Dist.] February 25, 2010, no pet. h.), Ross, a mineral interest owner, brought a breach of contract, unjust enrichment, and fraud action against natural gas lessee, Shell.  Ross alleged that Shell failed to pay royalties in accordance with the lease agreement and that it fraudulently deprived him of royalties by making payments "based on an arbitrary amount even below the internal transfer price."  He further alleged that Shell sent him royalty statements containing false representations that the royalties were based on actual sales prices. 

A Houston area jury had found that Shell fraudulently reported lower prices for its natural gas to Ross and then underpaid him, violating the terms of their lease contract.  A lower appellate court had upheld the finding for Ross.  However, the Supreme Court found that Ross had an obligation to investigate further and conduct research of public records that could have alerted him to the underpayments by Shell. The high court did not seem moved by the fraud arguments and any bearing those findings may have had on a final decision on royalty payments.

"We hold that the fraudulent concealment doctrine does not apply to extend (the statute of) limitations as a matter of law when the royalty underpayments could have been discovered from readily accessible and publicly available information before the limitations period expired," wrote Justice Debra Lehrmann for the court.  The court added: "[I]n this case, the Rosses could have timely discovered the underpayments through the exercise of due diligence."

This decision could trigger a number of lawsuits so that royalty owners can ensure through legal discovery that they are given accurate information from oil and gas operators.  In addition, the Texas Supreme Court solidified the four-year limit within which a lawsuit for underpaid or non-paid royalties must be filed in Texas.

JAN 04 Lifting of Sanctions in Libya May Give a Boost to the Energy Industry

Lifting of Sanctions in Libya May Give a Boost to the Energy Industry
by Edgar Saldivar
January 4, 2012

On December 16, 2011, the White House announced the U.S. has rolled back most of its sanctions on the Government of Libya. Specifically, the U.S. unfroze all government and Central Bank of Libya funds within U.S. jurisdiction, with limited exceptions - namely, assets pertaining to the Qadhafi family and former Qadhafi regime members. In coordination with the U.S., the United Nations Security Council also lifted sanctions on the Central Bank and the Libyan Foreign Bank on the same day. Additionally, UK Foreign Secretary William Hague stated that Britain is currently working to release about $10.2 billion in frozen Libyan assets.

The move by the U.S. freed up more than $30 billion in assets held frozen since February 25, 2011, when President Obama signed Executive Order 13566 in response to the violence that arose in Libya under the government of Colonel Muammar Qadhafi. The Department of the Treasury's Office of Foreign Assets Control subsequently issued a set of regulations to implement the Executive Order (76 Fed. Reg. 38562, July 1, 2011). The United Nations lifted sanctions imposed by U.N. Security Council resolutions 1970 and 1973 in an effort to halt the violence in Libya. Mr. Hague noted that the move "means that Libya's government will now have full access to the significant funds needed to help rebuild the country." The release of frozen Libyan assets also promises to facilitate the resumption of oil exploration and production in Libya. This means greater prospects for foreign investment in Libya, which sits on Africa's largest oil reserves, and greater opportunity for the energy industry.

The lifting of sanctions could not have been more timely for Libya and energy companies. According to a recent Bloomberg report, the transitional government in Libya seeks to raise output beyond pre-revolution levels by attracting international oil companies to Libya. The report mentioned that at the recent World Petroleum Congress held in Doha, Qatar, Europe's biggest oil companies, BP and Shell stated they aim to resume exploration in Libya, while French oil company, Total SA, seeks to develop new production in Libya after restoring output at fields that were shut down. Other companies that were already producing in Libya are now boosting their production levels, such as Houston-based ConocoPhillips, Spain's Repsol YPF SA, and Italy's Eni SpA. According to executives from BP, Shell, and ExxonMobil, international oil companies need access to new crude and natural gas deposits to meet the growing global demand. With the release of sanctions, Libya now has access to its funds to help in its negotiations with foreign companies as it seeks to rebuild its economy. Energy and oilfield service companies from Houston to Europe are likely to benefit from the resulting increased economic activity in the African nation.

Specifically, having fewer restrictions on dealings with Libya will likely create more opportunities for Houston's energy industry as local companies engage in further business transactions, form international partnerships, and enter into contracts to provide much needed services overseas.

JAN 03 New Year, New Resolutions

New Year, New Resolutions
by Joseph "Trey" L. Wood, III
January 3, 2012

It is once again that time of the year when we begin to look forward to a new year and new beginnings: Out with the old, in with the new. Something that is not so new is the federal government's increased scrutiny of the way employers treat their employees. From harassment and discrimination to wages and immigration, various government agencies have stepped up their enforcement efforts to prosecute non-compliant employers. That is an excellent reason why employers should resolve to provide EEO training for managers and supervisors in the new year.

In the voluminous pages of federal statutes and regulations dealing with the employer/employee relationship, you will not find anything that actually requires management training. However, some states, most notably California, do require training for managers and supervisors for illegal workplace harassment. Despite this absence of any federal regulatory law, there are many cases that have found that an employer's failure to provide such training was tantamount to a violation of the law itself. So, the assertion that EEO training for managers and supervisors is mandatory is not too far off-base.

The training itself should be provided to anyone with any supervisory authority over your company's employees. When supervisors and managers make decisions pertaining to employees, the law views those decisions as decisions of the company itself-not just the supervisor. Accordingly, supervisors and managers must be armed with an understanding, or at least an awareness of particular laws so that that the decisions they make in dealing with employees will be less likely to lead to potential liability for the company. The training should cover the basics such as:

  • What employees are protected under the law
  • How the law protects those individuals
  • Illegal harassment
  • Retaliation
  • Dealing with injured and disabled employees
  • Proper documentation and discipline

Certainly we cannot expect supervisors and managers to be experts on the law. However, with proper training we can expect those with supervisory authority to at least be able to spot tricky issues and ask for help in making decisions. That step alone makes the training process invaluable and will lead to a much happier, and prosperous, new year.

DEC 29 “Disclaimer of Reliance” Provisions

"Disclaimer of Reliance" Provisions
by Chris Hanslik
December 29, 2011

In recent years there has been an increase in acquisitions of privately held companies. While privately held companies do not always have audited financial records, they are typically valued based on financial performance. Buyers of these companies often request and review financial projections too. But can a buyer justifiably rely on the financial information provided during due diligence? Not if the purchase agreement contains a "disclaimer of reliance" provision.

Contract provisions disclaiming reliance on a party's representation may be enforced in limited circumstances to effectively bar claims of fraudulent inducement. In order to recover on a theory of fraudulent inducement, a plaintiff must prove that he or she justifiably relied on the opposing party's misrepresentations. Parties use waiver of reliance provisions to protect themselves from liability arising from allegations of false statements or representations made during the course of negotiations. A disclaimer of reliance will (1) disclaim all extra contractual representations; and (2) provide that the contracting parties are not relying on any representations made during the course of negotiating the contract. Provisions that clearly and unequivocally waive reliance can negate the reliance element necessary for a successful fraudulent inducement claim.

The Texas Supreme Court has enforced "disclaimer of reliance" provisions on several occasions. In doing so, the court has identified certain elements that it believes are most relevant to evaluating the enforceability of these clauses. They are:

  1. The terms of the contract were negotiated, rather than boiler plate, and during negotiations the parties specifically discussed the issue which has become the topic of the subsequent dispute;
  2. The complaining party was represented by counsel;
  3. The parties dealt with each other in an arm's length transaction;
  4. The parties were knowledgeable in business matters; and
  5. The release language was clear.

When these factors are present a "disclaimer of reliance" provision may be enforced to preclude a claim for fraudulent inducement against the seller.

DEC 27 NLRB Again Postpones Effective Date of Posting Requirement

NLRB Again Postpones Effective Date of Posting Requirements
by Joseph "Trey" L. Wood, III
December 27, 2011

As a follow up to our previous posts, the NLRB has recently agreed to postpone the effective date of its employee rights notice posting rule at the request of a federal court in Washington, DC which is hearing a challenge to the rule. The Board has pushed back the effective date of the rule from January 31, 2012 to April 30, 2012. Hopefully prior to that date the court will provide some guidance on whether the rule will stick or not.

As you may recall, this rule requires most employers to post an 11- by-17-inch notice advising employees of the right to act together to improve wages and working conditions, to form, join and assist a union, to bargain collectively with their employer, and to refrain from any of these activities. It provides examples of unlawful employer and union conduct and instructs employees how to contact the NLRB with questions or complaints. The challenge to the rule filed in Washington, DC is one of several filed by business groups across the country.

DEC 22 NLRB Finalizes Rule for Quicker Elections

NLRB Finalizes Rule for Quicker Elections
by Joseph "Trey" L. Wood, III
December 22, 2011

In our June 25 posting titled "NLRB Again Flex's Its Muscle," we made you aware of the NLRB's proposed changes to its rules governing union elections. The proposed rules would restrict an employer's ability to successfully stage its own campaign in opposition to a union's organizing efforts. As expected, on December 21 the NLRB published its final rule just prior to the Board's losing one of its most controversial, pro-union members, Craig Becker. While the final rule is not as punitive for employers as rules proposed in June, some key highlights to the rule include the following:

  • Employers will no longer be entitled to a hearing to determine who votes. This does away with the parties' right to a pre-election hearing to determine the voting unit. Under the new rule, challenges to voters would (most of the time) be challenged at the polls and then litigated afterward. This could potentially discourage voter turnout, particularly among those who tend to side with the company;
  • Eliminates the recommendation that regional directors should not schedule elections until at least 25 days after their decision to allow for sufficient time for review by the NLRB; and
  • Limits the bases upon which the NLRB will consider a request for special permission to appeal extraordinary circumstances when the issue of the appeal would otherwise evade review.

Given these changes, union elections will now take place within 21-25 days of the filing of a petition, rather than 42 days under the old rules. As a result of these changes, employers will need to be more proactive in educating their employees about the consequences of union representation, and educate supervisors to be more attentive to the signs which may point to union organizing activity. While certain trade organizations have sued the NLRB over the propriety by which the rules were enacted, the new rules are currently set to become effective on April 20, 2012.

DEC 20 Officers Can Be Personally Liable for Non-Payments to Sub-Contractors or Suppliers under Texas Trust Fund Statute

Officers Can Be Personally Liable for Non-Payments to Sub-Contractors or Suppliers under Texas Trust Fund Statute
by Jeremy Sanders
December 20, 2011

The Texas Trust Fund Statute (Texas Property Code Section 162) is a powerful tool available to a contractor or subcontractor (independent from a lien) that enforces payment for providing labor or materials on a construction project. The remedy under the Statute is particularly important for a claimant who has failed to perfect a mechanic's lien or bond claim. The benefits of the Statute may be claimed regardless of whether or not a lien has been perfected.

In summary, an owner, contractor or subcontractor violates the Statute when it intentionally, knowingly, or with the intent to defraud, retains, uses, disburses, or diverts trust funds without first fully paying all obligations incurred or owed for labor or materials furnished to the project. For example, when a contractor or subcontractor is paid, but then fails to pay its lower-tier subs or suppliers, the non-paying contractor or subcontractor is in violation of the Trust Fund Statute.

The statutory and case law hold officers of companies that misapply such trust funds personally liable and Texas law imposes both civil and criminal liability on any individual officer who violates it.

In the civil context, the officers, directors and agents of an owner, contractor, or subcontractor who are deemed to be trustees under the Statute, are personally liable for misapplication of trust funds. In other words, they can be individually sued in civil court and criminally prosecuted by the state. It does not matter that the individuals were working within a corporation or partnership at the time such funds were misapplied.

In regard to criminal liability, a trustee who intentionally or knowing misapplies trust funds amounting to $500 or more, commits a Class A misdemeanor. A trustee who misapplies trust funds amounting to $500 or more with "intent to defraud" commits a felony of the third degree.

The Trust Fund Statute offers protection for certain subcontractors or suppliers that qualify. However, it is advisable to read Texas Property Code Section 162 in its entirety to become familiar with the specific definitions and defenses available under the Statute. Although the Statute provides protection, each subcontractor or supplier should always perfect a lien on the property and not rely solely on the protection of the Statute. 

DEC 18 2012 Limits on Transportation Benefits Issued by IRS

2012 Limits on Transportation Benefits Issued by IRS
by Joseph "Trey" L. Wood, III
December 18, 2011

The Internal Revenue Service (IRS) has issued a new set of limits that are designed to assist employees with their daily commutes.

The monthly limit on the amount of parking benefits that can be excluded from employees' income for tax purposes will go up to $240, up from $230 in 2011.

Commuter Vehicles and Transit Passes
In 2011, the monthly benefit for those commuting in a highway vehicle/purchasing transit passes was $230. However, beginning in 2012, the amount drops to only $125 per month.

DEC 16 25 More Charges Filed In 2011 than 2010

25 More Charges Filed in 2011 than 2010
by Joseph "Trey" L. Wood, III
December 16, 2011

The Equal Employment Opportunity Commission (EEOC) reported that there were a total of 25 more charges of discrimination filed in the fiscal year 2011 (October 1, 2010 through September 30, 2011) than in 2010. While that doesn't sound like much, the total number of charges filed amounted to another record year: 99,947 charges. The EEOC also indicated in its Performance and Accountability Report that it reduced its backlog of cases by 10 percent and collected over $346 million dollars on behalf of alleged victims of workplace discrimination. That is the highest level of monetary relief ever obtained by the EEOC through its administrative process.

The EEOC's report also revealed that at the end of FY 2011, it was working on 580 systemic (class action) cases. During the year, the EEOC field offices completed work on 235 systemic investigations. Also a trend of concern for employers is the EEOC's focus on building enforcement partnerships with other federal agencies including the Department of Justice and the Department of Labor's Office of Federal Contract Compliance Programs (OFCCP).

Why You Should Be Concerned
It is evident that the EEOC is beefing up its arsenal against employers in an effort to increase the number of charges of discrimination that it handles. That means that complaints of discrimination that may have been looked at by the EEOC with a critical eye in the past, may now be more carefully evaluated. Accordingly, it is important for employers to understand that the EEOC is not a neutral governmental fact finder but, rather, an advocate for employees. If your company should receive a charge of discrimination, it is vitally important to treat the charge with a great deal of care and diligence in order to protect your rights.

DEC 13 SCOTUS UPDATE: Are States Barred from Enforcing Federal Immigration Law?

SCOTUS UPDATE: Are States Barred from Enforcing Federal Immigration Law?
by Jennifer Hebert
December 13, 2011

Arizona v. United States
(Oral Argument Expected in April/May 2012)

As expected, the Supreme Court has accepted for review Arizona v. United States, a potentially landmark case asking the Supreme Court to determine how far a state can go to enforce federal immigration laws. Supporters on both sides of this case have made national headlines arguing their opinions as to the constitutionality and the necessity of Arizona's Support Our Law Enforcement and Safe Neighborhoods Act (SB 1070).  Supporters argue that the federal government's failure to sufficiently enforce immigration laws forces border-states to bear an unreasonable and unbearable financial burden thereby necessitating state-level action to enforce federal laws.  Opponents argue that immigration is exclusively a federal issue and that states should not interfere.  The Supreme Court will now have its opportunity to opine on the issue (minus Justice Elena Kagan who will not participate in the case due to her work on the case while United States Solicitor General).

Basic Facts:  SB 1070 was enacted by the Arizona legislature in April 2010.  Among its most controversial provisions are those requiring police officers to check a person's immigration status while enforcing other laws (i.e. traffic stops, etc.) and making it a crime for an immigrant to intentionally fail to obtain and carry legal immigrant papers with him while in Arizona.

Previous Litigation:  In July of 2010, United States District Court Judge Susan Bolton enjoined four provisions of the law on the eve of their effective date finding that the provisions were preempted by federal law.  The provisions blocked by Judge Bolton:

  1. Require local police officers to check a person's immigration status while enforcing other laws;
  2. Make it a crime for an immigrant to intentionally fail to obtain and carry legal immigrant papers with him while in Arizona;
  3. Make it a misdemeanor for an undocumented immigrant to apply for a job, publicly solicit a job, or work in Arizona; and
  4. Allow police to arrest without a warrant any person the officer has "probable cause to believe" has committed a crime, anywhere, that would make the person subject to deportation.

Judge Bolton did not block certain other provisions of the law including provisions banning sanctuary cities and making it illegal to hire day laborers if doing so impedes traffic.  Judge Bolton's order also allowed parts of the law mandating sanctions for employers who hire illegal immigrants.

A divided panel of the Ninth Court of Appeals upheld the District Court ruling in April, and similar laws are currently being challenged in Georgia, Alabama, Utah, and South Carolina.

Question for the Court: To what extent are states preempted by federal law from enacting measures relating to immigration?  Do Arizona's laws go further than necessary to cooperate with federal government in enforcing immigration laws and instead create a separate immigration policy?

DEC 13 SCOTUS UPDATE: Supreme Court Agrees to Hear Appeal of Texas Redistricting Case

SCOTUS UPDATE: Supreme Court Agrees to Hear Appeal of Texas Redistricting Case
by Jennifer Hebert
December 13, 2011

Perry v. Perez, et al
Perry v. Davis, et al

Perry v. Perez, et al

The United States Supreme Court has agreed to hear Texas officials' appeal of a controversial new redistricting plan.  On Friday, the Court issued an order blocking use of the redistricting maps recently created by a federal judicial panel and setting oral argument for January 9, 2012.  The Order issued by the Court on Friday effectively prevents Texas candidates from filing for office until a resolution is reached because of the uncertainty of which district the candidates may ultimately reside in and likely will result in a delay in primaries which are currently scheduled for March. Due to the time-sensitive nature of the issues raised, Texas Attorney General Greg Abbot asked the Supreme Court to intervene on an expedited basis last week. 

The dispute over redistricting in Texas is especially contentious this year given the four new Texas congressional seats at issue.  In fact, the map currently at issue isn't the first map to be challenged in the state this year.  Democrats previously challenged the original map which was drawn by the Republican-led Texas legislature resulting in a federal judicial panel re-drawing the maps.  Abbot now argues in the appeal that the new map is "fatally flawed" and should never be used in Texas elections. 

While every state is required to redraw their district maps every ten years after the Census, Texas is one of only a handful of states required to have its district maps approved by the United States Justice Department under the Voting Rights Act of 1965.

NOV 30 Frequently Misunderstood Issues Regarding Lease Assignments

Frequently Misunderstood Issues Regarding Lease Assignments
by Brad Scarborough
November 30, 2011

Two of the frequently misunderstood lease issues that I receive calls about are whether the landlord's consent is required to assign a lease and whether an assigning tenant is released from liability under a lease after it assigns the lease. A tenant's failure to understand these can have a devastating effect on a tenant that needs to assign its lease, or that assigns its lease to an assignee without giving paying careful attention to its continued liability under the lease.

Landlord's Consent Is Required for Lease Assignment
Generally speaking, a contract involving real property may be assigned absent a provision to the contrary in the contract. However, § 91.005 of the Texas Property Code provides that a tenant may not rent its leasehold estate during the term of a lease without the prior consent of Landlord. Texas courts have held that such statute applies to a lease assignment as well as a sublease of the premises, and this limitation on the transfer of a tenant's leasehold estate is for the landlord's sole benefit. Accordingly, the landlord of a tenant that assigns its leasehold estate without the landlord's consent has the option to either declare the assignment invalid bring an action against the tenant or waive the statutory provision enforce the obligations against both the assignee and the original tenant/assignor. The statutory prohibition against assigning a lease without the landlord's consent may be avoided only by a clear expression of the parties' intent that landlord's consent is not required. Because a landlord does not have a duty to consent to a proposed assignment of the lease, a lease should include an express provision that the landlord may not unreasonably withhold its consent to a sublease or assignment. Absent such a provision, a tenant may find itself unable to either assign its lease or sublet its premises.

No Release of Liability for Tenant after an Assignment
Even when the landlord consents to an assignment of the lease, the original tenant is not released from the obligations of the lease unless the landlord expressly releases the original tenant from such obligations. In an assignment situation, the assignee, as well as the original tenant, is liable for the obligations of the tenant under the Lease. Therefore, careful consideration should go into the selection of an assignee or subtenant and the assignment should contain an indemnity from the assignee to protect the original tenant from the liability. However, that indemnity obligation may not be worth the paper it is written on if the assignee does not have the financial ability to satisfy that obligation.

NOV 29 USERRA Expanded to Include Harassment Claims

USERRA Expanded to Include Harassment Claims
by Joseph "Trey" L. Wood, III
November 29, 2011

A new law signed by President Obama on November 21 will make it easier for individuals to sue employers for harassment on the basis of their military status. While the thrust of the Veterans Opportunity to Work to Hire Heroes Act is to reduce unemployment rates for veterans of the Iraq and Afghanistan conflicts, it also amends the Uniformed Services Employment and Reemployment Rights Act (USERRA) to specifically recognize claims of harassment (hostile work environment) on account of an individual's military status.

Prior to the passage of this legislation, courts were mixed on whether claims of harassment under USERRA were viable. However, by amending USERRA to include harassment claims, the Act has established the same standard for harassment claims for military status as those for sex, race, religion and other protected categories under most employment discrimination laws.

What you should do?
The passage of this law, coupled with the Supreme Court's ruling in Staub v. Proctor Hospital presents two significant protections afforded to those protected by USERRA. (You may recall in Staub that the Supreme Court recognized the Cat's Paw theory of liability to hold a company liable for discrimination even though the ultimate decision-maker harbored no discriminatory animus against the service member who was terminated.) Accordingly, it would be wise to invest in updating the training of your supervisors and revising any relevant policies to include the protection of those with military and veteran status.

NOV 17 Residency Visas May Spark More Investment from Within and Abroad the US

Residency Visas May Spark More Investment from Within and Abroad the US (en Español below)
by Edgar Saldivar
November 17, 2011

On October 20, 2011, a bipartisan group of U.S. Congressmen introduced the Visa Improvements to Stimulate International Tourism to the United States of America Act (VISIT-USA Act, S.1746) designed to bolster the current housing market by luring foreign investors to buy homes with the promise of a residential visa.  Earlier this year, another group of bipartisan lawmakers introduced the Startup Visa Act of 2011 (S.565) intended to create jobs by helping foreign entrepreneurs secure immigrant visas if they raise certain levels of capital for startup ventures from qualified American investors.  By reforming the U.S. immigration system, these proposed laws aim to facilitate greater investment both from within the U.S. and from abroad in the hope of providing a much needed boost to the U.S. economy.

The VISIT-USA Act would provide a three-year residential visa for foreign nationals who invest at least $500,000 in residential real estate in the U.S.  Under the bill, visa applicants must spend at least $250,000 on a primary residence where they will reside for at least 180 days out of the year while paying taxes. Though not a path to citizenship, the bill would effectively offer extended tourist visas for foreign investors seeking to take advantage of the excess supply of residential properties in the U.S. real estate market.

The Startup Visa Act of 2011 (S.565), on the other hand, would amend immigration law to give foreign entrepreneurs a two-year conditional permanent resident visa (conditional green card) which would convert to a permanent residency (green card) if applicants meet certain conditions.  According to its official press release on March 14, 2011, the Startup Visa Act is intended to "drive job creation and increase America's global competitiveness by helping immigrant entrepreneurs secure visas to the United States."  The Act arose from the absence of a visa category specifically designed for foreign entrepreneurs who want to start a company in the U.S. and currently face limited or no visa options. 

While many foreign entrepreneurs wait for the potential passage of the Startup Visa Act, some entrepreneurs may already qualify for an EB-5 immigrant visa to get their businesses under way.  Created in 1990, the EB-5 immigrant investor visa is designed for foreign investors who invest a specified amount of capital in the U.S. and who will create full-time employment for at least 10 employees.  To qualify for an EB-5 visa, an investor must invest either $500,000 or $1,000,000 depending on where the business enterprise is located. 

The EB-5 immigrant investor process has been a growing source of foreign capital in the last two years, with the bulk of visa applications coming from Chinese investors who seek to do business in the U.S. and set a path to citizenship for their families.  Additionally, with the ongoing instability in Mexico, growing numbers of wealthy Mexican business owners have been coming to the U.S. seeking to set up shop with the help of the EB-5 visa process in places like Houston, The Woodlands, and the Texas Rio Grande Valley.  A recent article in rgVision Magazine notes that scores of Mexican families are currently ready to invest more than $83 million in Rio Grande Valley businesses through the EB-5 immigrant investor program.  Many more are likely waiting to do the same in other parts of the state.

With the incentives of a robust Texas economy and potential residency visas, the flow of foreign investors or entrepreneurs seeking to do business in Texas will likely keep growing.  This means that new immigrant-owned businesses will need guidance in the legal nuances of setting up and growing a business in Texas to get off on the right foot in their new market.  Beyond the hurdles of immigration and tax laws, foreign investors and entrepreneurs will need legal advice on transactional matters such as business acquisitions and dispositions, choice of entity and corporate formation, real estate acquisitions, capital and strategic plan development, and private equity and venture capital funding.  Prospective business owners should also seek counsel in the event of potential litigation and discrimination or wage claims, as well as the need for employment counseling, policy creation, and employment-related agreements.  Having the necessary legal tools in place to allow immigrant business owners to do what they do best may be enough to spur some growth in our economy.


Visas de Residencia Pueden Provocar Más Inversión en los Estados Unidos Desde Dentro y en el Extranjero

El 20 de octubre de 2011, un grupo bipartidista de congresistas estadounidenses introdujo el proyecto de ley denomindado Visa Improvements to Stimulate International Tourism to the United States of America Act (VISIT-USA Act, S.1746) diseñado para reforzar el actual mercado de la vivienda por atraer inversionistas extranjeros a comprar casas con la promesa de una visa residencial. Este año, otro grupo de legisladores bipartidista introdujo el proyecto de ley denominado Startup Visa Act of 2011 (S.565) destinado a crear puestos de trabajo por ayudar a empresarios extranjeros obtener visas de inmigrante si recaudan ciertos niveles de capital para empresas de inicio por medio de inversores estadounidenses calificados.  Reformando el sistema de inmigración de Estados Unidos, estas leyes propuestas pretenden facilitar una mayor inversión tanto desde dentro de los Estados Unidos y del extranjero con la esperanza de proporcionar un impulso muy necesario a la economía de Estados Unidos.

La ley VISIT-USA Act proporcionaría una visa residencial de tres años para los extranjeros que invierten por lo menos $500,000 dólares en inmuebles residenciales en los Estados Unidos. En virtud de la ley, los solicitantes de visa deben gastar al menos $250,000 dólares en una residencia principal donde residen al menos 180 días al año mientras paguen impuestos. Aunque no es un camino a la ciudadanía, el proyecto de ley ofrecería efectivamente visas turísticas extendidas para los inversores extranjeros que buscan aprovechar del exceso suministro de viviendas en el mercado de bienes raíces de Estados Unidos.

La ley Startup Visa, por otro lado, modificaría la ley de inmigración para dar a los empresarios extranjeros una visa de residente permanente condicional de dos años (tarjeta verde condicional) que podría convertir a una residencia permanente (tarjeta verde) si los solicitantes cumplen determinadas condiciones.  De acuerdo con su comunicado de prensa oficial el 14 de marzo de 2011, la ley Startup Visa pretende "impulsar la creación de empleo y aumentar la competitividad global de los Estados Unidos por ayudar a empresarios inmigrantes obtener visas a los Estados Unidos."  La ley surgió de la ausencia de una categoría de visa diseñada específicamente para los empresarios extranjeros que quieran iniciar una empresa en Estados Unidos y actualmente se ecuentran con opciones limitadas o sin opciones.

Mientras muchos empresarios extranjeros esperan para la posible aprobación de la ley Startup Visa, algunos empresarios ya pueden calificar para una visa de inmigrante de EB-5 para poner en marcha sus negocios.  Creado en 1990, la visa de inversionista inmigrante EB-5 está diseñada para los inversionistas extranjeros que invierten una cantidad especificada de capital en los Estados Unidos y que crearán empleo de tiempo-completo para por lo menos 10 empleados. Para calificar para una visa EB-5, el inversor debe invertir $500,000 o $1,000,000 de dólares dependiendo de donde se encuentra la empresa.

El proceso de inversionista inmigrante EB-5 ha sido una fuente creciente de capital extranjero en los últimos dos años, con la mayor parte de las solicitudes de visa procedentes de inversores chinos que buscan hacer negocios en los Estados Unidos y establecer una ruta de acceso a la ciudadanía para sus familias.  Además, con la continua inestabilidad en México, un número creciente de ricos empresarios mexicanos ha estado viniendo a los Estados Unidos tratando de iniciar negocios con la ayuda del proceso de visa EB-5 en lugares como Houston, The Woodlands, y el Valle de Texas.  Un artículo reciente en la revista rgVision señala que decenas de familias mexicanas están actualmente dispuestas a invertir más de 83 millones de dólares en empresas del Valle de Texas a través del programa de inversionista inmigrante EB-5.  Muchos más probablemente esperan hacer lo mismo en otras partes del estado.

Con los incentivos de una robusta economía de Texas y posibles visas de residencia, es probable que el flujo de inversionistas o empresarios extranjeros que buscan hacer negocios en Texas siga creciendo.  Esto significa que nuevas empresas propiedad de inmigrantes necesitarán orientación en los matices legales de la creación y crecimiento de un negocio en Texas para bajar con el pie derecho en su nuevo mercado.  Más allá de los obstáculos de las leyes de inmigración e impuestos, los empresarios e inversionistas extranjeros necesitarán asesoramiento jurídico sobre cuestiones transaccionales tales como adquisiciones y disposiciones de negocios, elección de entidad y formación corporativa, adquisiciones de bienes inmuebles, desarrollo del plan estratégico y de capital, y financiamento  de capital privado y capital de empresa.  Los empresarios futuros también deben buscar el consejo de abogados en caso de posible litigio y de reclamaciones sobre la discriminación o el salario, así como la necesidad de la consejería de empleo, creación de políticas, y acuerdos relacionados con el empleo.  Contar con las herramientas legales necesarias para permitir a los empresarios inmigrantes a hacer lo que mejor saben hacer puede ser suficiente para estimular el crecimiento de nuestra economía.

NOV 16 Say "Cheese" — You’re fired!

Say "Cheese" — You're Fired!
by Joseph "Trey" L. Wood, III
November 16, 2011

In another example of why it is important for employers to consistently enforce company policy, the Fourth Circuit Court of Appeals recently enforced a decision by the National Labor Relations Board finding that an employer violated the National Labor Relations Act (NLRA) when it allegedly fired an employee for photographing other employees at work.  The Court agreed with the Board that the employee was terminated for engaging in concerted protected activity.

In NLRB v. White Oak Manor, the employer had a policy that prohibited employees from wearing hats and taking photographs inside a long-term care facility.  The employee, Nichole Wright-Gore, was embarrassed about a bad haircut and started to wear a hat to work, without comment from her supervisor.  After a week, other supervisors told her to remove the hat.  When she refused she was sent home.  The next day, White Oak employees dressed up and wore costumes for Halloween.  Wright-Gore had a costume that included a hat, but her supervisor made her remove it.  The employee complained to her employer that the company was enforcing the policy unequally.  Upon hearing the employee's complaint, her supervisor gave her a written warning for insubordination.

During the ensuing weeks, the employee photographed several employees – both with and without their permission – wearing hats and violating other White Oak dress code policies.  She also shared the photographs with employees and discussed with them the unequal treatment of White Oak in an effort to gain their support.  White Oak fired Wright-Gore for violating the company's policy prohibiting taking pictures in the facility.  The employee then filed an unfair labor practice charge alleging that the employer interfered with her right to engage in concerted protected activity.

First, it is important to remember that the NLRA affects all employers-not just those with union representation.  As you may recall from previous posts, Section 7 of the NLRA protects employees' "concerted, protected activity".  Essentially, employees are allowed to communicate with co-workers about the terms and conditions of employment.  An employer's attempt to hinder or interfere with those rights is a violation of the NLRA which could lead to an unfair labor practice charge being filed on the employees' behalf by the Board.  In this case, Wright-Gore's complaints were protected concerted activity because she was attempting to have her employer enforce its dress code fairly.  While White Oak Manor argued that her activity lost protection because she took pictures of employees without permission, there was evidence that other employees took pictures of each other without permission and displayed those photographs in the facility.

What does this mean to you?
This is another shining example of the National Labor Relations Board becoming more active in enforcing the NLRA against non-union employers the wake of declining union membership.  This particular case should serve as a reminder of the importance of consistently and uniformly enforcing your company's policies.

NOV 14 How Final is Arbitration? In Texas, You Decide.

How Final is Arbitration?  In Texas, You Decide.
by Chris Hanslik
November 14, 2011

The arbitration process was designed to provide an efficient and economical forum for dispute resolution.  One of the important features of arbitration is a very limited right of appeal.  The Texas Supreme Court, however, has now taken the position that the Texas General Arbitration Act (TGAA) does not limit judicial review of an arbitration award to the grounds specified in the TGAA.  In Nafta Traders, Inc. v. Quinn, the Texas Supreme Court also went one step further and stated that the Federal Arbitration Act (FAA) does not preempt expanded judicial review of an arbitration award under the TGAA.

At issue in Nafta Traders was an arbitration clause contained in an employee handbook which stated that "the arbitrator does not have authority (i) to render a decision which contains a reversible error of state or federal law, or (ii) to apply a cause of action or remedy not expressly provided for under existing state or federal law."  After an award in favor of Quinn was issued, Nafta Traders appealed claiming that the parties' agreement placed limits on the arbitrator's authority which expanded the scope of review beyond the provisions in the FAA and TGAA.

While Nafta Traders was pending in the appeals process, the United States Supreme Court issued a ruling in Hall Street Assocs., L.L.C. v. Mattel, Inc. that the grounds specified in the FAA for vacating or modifying an arbitration award are exclusive and can not be expanded by agreement.  Breaking ranks with the U.S. Supreme Court, the Texas Supreme Court distinguished the situation in Nafta Traders from Hall Street Associates by finding that the parties in Nafta Traders had not expanded the standard for review, but rather denied the arbitrator certain powers.  The court then noted that because one of the statutory grounds for vacating an arbitration award under the TGAA is that it exceeds the arbitrator's powers, the award under the arbitration provision could therefore be reviewed for errors of law and to confirm that any relief granted was based on a cause of action or remedy authorized under existing federal or state law.  The court also held that the TGAA is not preempted by the FAA.

The result of the holding in Nafta Traders is that the TGAA does not limit judicial review of an arbitration award to the grounds specifically set forth in the TGAA.  Accordingly, parties whose agreement to arbitrate is subject to the TGAA may preserve their right to a traditional appeal by restricting the arbitrator's powers to those typically possessed by a trial court judge or by expressly stating that the arbitration award will be subject to traditional judicial standards of appellate review.  Another important aspect to note is that under Nafta Traders the parties must make a verbatim record of the arbitration proceeding.

With this broad power in the hands of contracting parties arbitration under the TGAA may not be so binding after all.

NOV 14 SCOTUS UPDATE: Can the Government Require Health Insurance for All Americans?

SCOTUS UPDATE: Can the Government Require Health Insurance for All Americans?
by Jennifer Hebert
November 14, 2011

Dept. of Health and Human Services v. Florid et al
Florida et al v. Dept. of Health and Human Services
Nat'l Federation of Independent Business v. Sebelius
(Oral Argument Expected February/March 2012)

Whether you agree or disagree with the mandates set forth in the sweeping Patient Protection and Affordable Care Act, these cases are likely to garner more attention than any other case before the Supreme Court this term.  While the White House fully supports the Act and believes the Supreme Court will uphold the law, 28 states have publicly challenged the constitutionality of the Act.  Among the cases accepted by the Supreme Court is the largest judicial challenge to the Act and involves a joint filing by 26 states including Florida, Alabama, Alaska, Arizona, Colorado, Georgia, Idaho, Indiana, Iowa, Kansas, Louisiana, Maine, Michigan, Mississippi, Nebraska, Nevada, North Dakota, Ohio, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Washington, Wisconsin and Wyoming. Oklahoma and Virginia have also challenged the law in separate legal proceedings.

Basic Facts:  In March of 2010, President Obama signed into law the Patient Protection and Affordable Care Act.  The Act includes multiple mandates including a requirement that almost all Americans purchase personal health insurance by 2014.  The Act also requires states to fund Medicaid at a greatly increased level or risk losing all federal Medicaid funds and mandates certain levels of health insurance for state employees.  Among other things, the Act also changes certain aspects of the private health insurance industry and public health insurance programs, mandates increases in insurance coverage for pre-existing conditions, makes Medicaid available to more Americans, subsidizes health insurance costs for low income Americans, reduces or eliminates co-pays for certain preventative healthcare needs, and requires Americans who receive health care benefits over a certain dollar value to pay taxes on such benefits.

Previous Litigation:  In the last year, at least six different federal courts have addressed the constitutionality of the act.  Only three of these cases have been accepted for review by the Supreme Court at this time.

Questions for the Court:  This case requires the Justices to address three specific issues including the key question of whether the federal government can require all Americans to have health insurance or face penalties for failing to do so.  The Justices must also decide whether the federal government can force states to increase their share of Medicaid costs or risk losing all Medicaid funding if they refuse to do so. If the Justices find that such mandates are unconstitutional, they then have to decide whether the entire law must be stricken or only those sections of the law they find to be unconstitutional. Other issues raised in other litigation relating to the Act will not be heard in this case.

NOV 07 Dodd-Frank Act Imposes Filing Obligations on Exempt Reporting Advisers

Dodd-Frank Act Imposes Filing Obligations on Exempt Reporting Advisers
by Philip A. Dunlap
November 7, 2011

The Dodd-Frank Act provides for private fund advisers certain exemptions from registration with the Securities and Exchange Commission (SEC).  The most relied upon exemptions are for private fund advisers that (i) advise solely venture capital funds or (ii) advise solely private funds having less than $150 million aggregate assets under management. 

However, the SEC has issued a rule that requires these "exempt reporting advisers" to file a limited Form ADV by March 30, 2012, including all associated filing fees.  The form can be found at

Exempt reporting advisers must also file sections of Schedules A, B, C and D of the Form ADV.

Additionally, the SEC will require exempt reporting advisers to file amendments to its Form ADV at least annually, within 90 days of the end of the adviser's fiscal year and more frequently if required by the instructions to the Form ADV (such as updating identification information, form of organization and any disciplinary information).

As a result of these new requirements, it is recommended that exempt private fund advisers begin to operate as if they were subject to the SEC reporting requirements.  They should conduct their business with the understanding that all of the information required to be included in their Form ADV will become public knowledge upon filing the Form ADV.

If you have questions about the Form ADV and the information necessary to disclose, please contact us.

NOV 04 Congress Again Mulls Employee/Contractor Classification

Congress Again Mulls Employee/Contractor Classification
by Joseph "Trey" L. Wood, III
November 4, 2011

Introduced into Congress yet again is the new and improved Employee Misclassification Prevention Act.  The bill is intended to punish employers who misclassify employees as independent contractors.  The proposed legislation would impose the following requirements on employers:

  • Require every employer, within six months of enactment, to provide written notices to every worker who performs labor or services for it informing them whether they have been classified as an employee or "non-employee" (independent contractor) - and why they have been classified as such
  • Mandate that employers direct all workers to a Department of Labor (DOL) website, which would inform employees of their rights and encourage them to contact the DOL if they suspect they've been misclassified
  • Require employers to keep records of the hours, work and wages of employees and "non-employees" for the purpose of backing up workers' classifications
  • Impose penalties upon employers of $1,100 per worker for first-time violations and $5,000 per worker for repeat or "willful" violations
  • Make it illegal for employers to discriminate or retaliate against workers who exercise their rights under the bill
  • Allow the DOL and Internal Revenue Service (IRS) to share information on cases where employers misclassify workers
  • Amend the Social Security Act to create penalties for misclassifying employees - or paying unreported wages to employees - for unemployment compensation purposes
  • Direct the DOL to perform audits on employers in industries that frequently misclassify workers
  • Direct state unemployment agencies to conduct audits to identify employers who are misclassifying employees

While two previous versions of this bill failed to gain any traction, given the recent sensitivity of this subject, it will be interesting to see whether this go-around will have a different outcome.  We will continue to monitor this and will let you know how the bill fares.

OCT 31 Antiquated Computer Employee Exemption May Get An Update

Antiquated Computer Employee Exemption May Get An Update
by Joseph "Trey" L. Wood, III
October 31, 2011

When it comes to technology, what was invented last week is seemingly an antique today. The same can be said for the Fair Labor Standards Act's test for employees who are exempt under the Computer Employee Exemption. Section 13(a)(17) of the FLSA has set out that for an employee to be exempt under that test, and not be entitled to overtime, the employee's primary duty must consist of:

  • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
  • The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
  • The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
  • A combination of the aforementioned duties, the performance of which requires the same level of skills.

In an effort to update this test to reflect real world computer and information technology occupations, Senators Kay Hagan (D-NC), Johnny Isakson (R-GA), Mike Enzi (R-WY), and Michael Bennet (D-CO) introduced the Computer Professionals Update Act. This bill would apply the exemption to those who are "working in a computer or information technology occupation (including, but not limited to, work related to computers, information systems, components, networks, software, hardware, databases, security, internet, intranet, or websites) as an analyst, programmer, engineer, designer, developer, administrator, or other similarly skilled worker, whose primary duty is:

(A) the application of systems, network or database analysis techniques and procedures, including consulting with users, to determine or modify hardware, software, network, database, or system functional specifications;

(B) the design, development, documentation, analysis, creation, testing, securing, configuration, integration, debugging, modification of computer or information technology, or enabling continuity of systems and applications;

(C) directing the work of individuals performing duties described in subparagraph (A) or (B), including training such individuals or leading teams performing such duties; or

(D) a combination of duties described in subparagraphs (A), (B), and (C), the performance of which requires the same level of skill;

who is compensated at an hourly rate of not less than $27.63 an hour or who is paid on a salary basis at a salary level as set forth by the Department of Labor in part 541 of title 29, Code of Federal Regulations. An employee described in this paragraph shall be considered an employee in a professional capacity.

Wow, bipartisan legislation that actually makes sense! This bill has been referred to the Senate Committee on Health, Education, Labor and Pensions. We will continue to monitor this and keep you updated on its progress.

OCT 28 Excuses, Excuses, Excuses…

Excuses, Excuses, Excuses...
by Joseph "Trey" L. Wood, III
October 28, 2011

A nationwide study conducted by Harris Interactive from August 16 to September 8, 2011, and reported in Career Builder, reported some pretty zany excuses for why employees miss work. The study included more than 2,600 employers and 4,300 workers.

Here are some of the unique reasons employees called out sick:

  • Employee's 12-year-old daughter stole his car and he had no other way to work. Employee didn't want to report it to the police
  • Employee said bats got in her hair
  • Employee said a refrigerator fell on him
  • Employee was in line at a coffee shop when truck carrying flour backed up and dumped the flour into her convertible
  • Employee said a deer bit him during hunting season
  • Employee ate too much at a party
  • Employee fell out of bed and broke his nose
  • Employee got a cold from a puppy
  • Employee's child stuck a mint up his nose and had to go to the ER to remove it
  • Employee hurt his back chasing a beaver
  • Employee got his toe caught in a vent cover
  • Employee had a headache after going to too many garage sales
  • Employee's brother-in-law was kidnapped by a drug cartel while in Mexico
  • Employee drank anti-freeze by mistake and had to go to the hospital
  • Employee was at a bowling alley and a bucket filled with water crashed through the ceiling and hit her on the head

What would you do if one of your employees called in with an excuse as questionable as these. Certainly, it appears that most of these excuses could be verifiable, but what if they were not? In the same study, 15% of employers said that they have fired employees for calling in sick without a legitimate excuse. Also, 28% of the employers indicated that they have checked up on an employee who called in with a questionable absence. Of those employers, 69% required the employee to provide a doctor's note, 52% called the employee at home, 19% had another employee call the employee, and 16% drove by the employee's home.

At the end of the day, it is probably a good idea to have a consistently enforced policy that requires employees to provide some type of documentation to verify the reasons for their absences. If they fail to do so, look to your company's disciplinary policy on how they should be handled at that point.

OCT 27 Giving Employees a Lift: Must Employers Accommodate an Employee Who Commutes?

Giving Employees a Lift: Must Employers Accommodate an Employee Who Commutes?
by Joseph "Trey" L. Wood, III
October 27, 2011

Employers are typically aware of the fact that they must reasonably accommodate employees with disabilities while at work, but does that mean that they have an obligation to help employees get to work? That issue has been coming up a lot recently and the courts that have examined the issue have given differing opinions on the subject.

Recently, the Second Circuit Court of Appeals (which covers New York, Connecticut and Vermont) found that employers may have such an obligation. In the case that they considered, the employee, who had a hearing impairment and also suffered from cancer, worked for the New York Department of Health and Mental Hygiene at their office in Queens. The Department reassigned her to work at its Manhattan office for nine months. The employee requested that her employer assist her with her commute to Manhattan during this time. While the district court found that commuting "falls outside the scope" of the employee's job and the employer's obligation to accommodate, the Second Circuit reversed finding that "there is nothing inherently unreasonable . . . in requiring an employer to furnish an otherwise qualified disabled employee with assistance related to her ability to get to work."

The case has been sent back to the district court with instructions to analyze whether it would have been reasonable for the employer to provide assistance with the employee's ability to get to work. The Second Circuit also listed the following as examples of what the employer should have considered as possible accommodations:

  • Transferring the employee back to Queens or another closer location;
  • Allowing the employee to work from home; or
  • Providing the employee with a car or parking permit.

The Court also listed the following as a non-exclusive list of factors for evaluating the reasonableness of possible accommodations including:

  • The number of employees employed by the employer;
  • The number and location of its offices;
  • Whether other available positions existed which the employee showed she was qualified to perform;
  • Whether the plaintiff could have been shifted to a more convenient office without unduly burdening the employer; and
  • Whether it would be reasonable for the plaintiff to work without on-site supervision.

While other Circuit Courts of Appeals have found that the duty to accommodate does not extend beyond the workplace, and consequently no duty to assist employees with their commute, this issue is bound to come up again and again as they struggle to interpret the requirements of the Americans With Disabilities Act Amendment Act.

Accordingly, if your company is facing a request by a disabled employee with a request to assist with his/her commute, the prudent course of action is to carefully weigh all factors and include competent counsel on the decision-making process.

OCT 26 Contractors: Remember Your Rights under the Texas Constitution

Contractors: Remember Your Rights Under the Texas Constitution
by Jeremy Sanders
October 26, 2011

In Texas, a qualified contractor is protected from non-payment of labor and materials on construction projects under the Texas Constitution. Article XVI, Section 37 of the Texas Constitution grants contractors of every class a lien on the buildings and articles made or repaired by them for the value of their labor or material furnished. In essence, a qualified contractor has an automatic lien if he is not paid on a project. However, a contractor MUST QUALIFY for this protection in accordance with the guidelines stated below and there are certain principles that should be understood before pursuing a constitutional lien.

  • The contractor must have a direct contractual relationship with the owner. Contractors/ subcontractors not in privity of contract with the owner do not qualify for this type of lien. Subcontractors or suppliers not contracting directly with the owner must perfect a statutory lien or bond claim to protect their interests.
  • If the contractor qualifies, constitutional liens are automatic and self-executing, meaning they do not require the contractor to serve any particular notice and the filing of a lien affidavit is not required. However, in order to avoid claims by third-party purchasers (see below), it is nevertheless advisable to file a lien affidavit claiming a constitutional lien in the real property records of the county where the property is located.
  • Constitutional liens will not be enforced against a third-party purchaser who has neither actual nor constructive notice of the lien. This is in contrast to statutory liens filed pursuant to the Property Code. When a mechanic's lien is filed of record according to the statutes, it will be enforced against a subsequent purchaser without notice.
  • Constitutional liens are binding on an article or building that has been made or repaired by the qualified contractor. Landscaping and other similar work do not qualify under the definition of "buildings and articles" as stated in the Constitution. For that type of work, the contractor is required to perfect a statutory lien or bond claim to protect his interests.
  • Constitutional liens are not available for public works buildings or projects.
  • Constitutional liens do not specifically provide for the recovery of attorneys' fees. However, the Texas Civil Practice and Remedies Code provides for the recovery of attorneys' fees if the claim is for rendered services, performed labor or furnished material.

This said, a contractor should be aware of all applicable lien deadlines as outlined in the Property Code. When available, contractors should always perfect a statutory lien or bond claim to secure their rights and not rely solely on the protection of a constitutional lien as an automatic remedy. And, while it is beneficial for a contractor to understand all of his remedies including the constitutional lien, contractors should consult the Property Code, Constitution and a practitioner in construction law to fully understand all applicable requirements for perfecting their lien rights.

OCT 25 Hiring 101: Tips to Avoid Legal Landmines

Hiring 101: Tips to Avoid Legal Landmines
by Joseph "Trey" L. Wood, III
October 25, 2011

Choosing, hiring and retaining good employees is always of the utmost importance. Often, supervisors and managers have only one opportunity to evaluate and determine if a candidate is the right person for a particular job-the employment interview. Thus, managers and supervisors must have sufficient interviewing skills to obtain the information necessary to make a thoughtful and accurate evaluation of a candidate.

Learning basic interviewing techniques and ideas helps managers and supervisors gain the skills necessary to put the right people on the job and avoid various legal pitfalls involved with interviewing.

Recruiting Candidates
Federal and State law prohibit discrimination in hiring the same as they do during the employment relationship. Sometimes an employer's recruitment efforts have the unintended effect of illegal discrimination. For example, it is not uncommon for an employer to obtain job applicants through word-of-mouth, nepotism or unsolicited walk-in applications.

It is important to remember that even potential applicants who did not formally apply may be able to state a claim under Title VII if the recruiting methods used never brought the opening to their attention, or the employer's application methods "chilled" certain groups from applying.

Word-of-Mouth: While word-of-mouth recruiting is not illegal per se, there is an inference that when notifying people of job opportunities, employees will typically notify people of the same race and gender as the employees. To establish discrimination, however, it must be shown that the practice is part of a pattern of intentional discrimination.

Nepotism: Like word-of-mouth, nepotism is illegal only if it can be shown that its practice has an adverse impact against a protected classification of applicants.

Walk-in Applications: As long as there is no disparity between the employer's applicant pool and the relevant labor market, this recruiting method is generally lawful.

Help-wanted Advertisements: It is unlawful to indicate in job advertisements a preference for race, color, religion, sex, national origin, or age, unless one of these factors is a bona fide occupational qualification.

Legal Aspects of Interviewing
Now more than ever, a simple employment interview can be a potential minefield for supervisors and managers. Interview questions, in and of themselves, can form the basis of a lawsuit, no matter how innocent they seem. The law is constantly changing and anyone participating in an interview of a new employee must be certain to avoid questions which could be considered discriminatory. It is impossible to list every question which can be asked, but as a rule of thumb, if the question does not directly relate to whether or not the individual can do the job, DON'T ASK IT!!!

Avoiding the Grasp of the EEOC
Recently, the EEOC adopted the recommendations of an internal task force which recognized a "deficiency" in its investigation and litigation of "systematic" cases of discrimination: CLASS ACTIONS. The EEOC has publicly announced a new direction in its pursuit of discrimination claims, shifting its focus from individual charges to claims involving a "pattern or practice, policy and/or class cases where the alleged discrimination has a broad impact on an industry, profession, company, or geographic location."

Some of the recommendations made by the task force include:

  • Creation of incentives to encourage EEOC employees to identify, investigate, and litigate "systematic" cases;
  • Expanded investigations of individual charges which may lead to the discovery of "systematic" discrimination;
  • Shifting of resources from individual and small class cases to larger cases of alleged "systematic" discrimination; and
  • Creation of outreach programs to community organizations, workers, the plaintiff's bar, and state and local agencies to identify potential areas of "systematic" discrimination.

Last year, the EEOC reported that 99,922 claims alleging employment discrimination were filed against private sector employers. While the number of claims filed with the EEOC will likely not wane, there has already been a change in the way they are approached. These changes will have a substantial effect on hiring practices in the United States. As the EEOC intensifies its pursuit of "systematic" cases of discrimination, investigations are likely to intensify, and the plaintiff's bar is expected to respond accordingly. To avoid the possibility of facing a class action lawsuit challenging your company's hiring practices, the following tips should be considered:

  • Track your applicant flow data: This will help reduce our liability in potential hiring claims. If Insurance Agencies can show who applied for the job, we can better defend against lawsuits. Insurance Agencies should gather demographic data by attaching the Voluntary Applicant Data Request (VADR) form. This form is both EEOC and OFCCP compliant. A copy of this form may be found at You should keep applicant flow data for a minimum of four years.
  • Do not use rigid cut off scores for employment tests: unless they have been properly validated by an expert in job selection procedures. Current tests should be used as one of many tools to make a decision on a given selection criteria. Avoid using the same or similar tests for both hiring and promotion decisions. 
  • Job posting should state only the criteria that will be used in the selection process: Try and explain the process for job selection in the job posting. Limit the criteria on a posting to no more than 8 criteria. Try to list objective criteria in the job posting. 
  • Interviews should assess defined criteria. There should be a defined set of questions for each interview. The questions should seek to determine whether the job applicant meets the defined criteria set for the job. The criteria should also have some type of rating system (i.e., if one criterion is more important than the rest, this should be documented). Notes should be taken on the job interview and kept for four years (preferably in job folder for each filled job). These notes should reflect how this person measures up to the specific criteria listed in the job posting. Remember, your notes can always be subject to review if a lawsuit is filed. Finally, always maintain annual training for all personnel involved in selection decisions.

Reasonable Accommodation in the Hiring Process
The Americans with Disabilities Act (ADA) prohibits employers from discriminating against qualified persons with disabilities who are able to perform the essential functions of the job, with or without reasonable accommodation, provided the accommodation does not place an undue burden on the employer. Depending on the pre-offer and post-offer stages of the interview and hiring process, the ADA limits an employer's ability to make disability-related inquiries or to require medical examinations. If an employee requests a reasonable accommodation during the interview process, employers are required to provide such accommodation unless it would cause an undue hardship. Some examples of what the EEOC considers to be reasonable accommodation in the interview process include:

  • Providing written materials in accessible formats, such as large print, Braille, or audiotape;
  • Providing readers or sign language interpreters;
  • Ensuring that recruitment, interviews, tests, and other components of the application process are held in accessible locations;
  • Providing or modifying equipment or devices; and
  • Adjusting or modifying application policies and procedures.

During the hiring process, and prior to making an offer, an employer may not ask an applicant whether he or she needs a reasonable accommodation. When the employer knows that the applicant has a disability, either because it is obvious or is voluntarily disclosed, the employer may ask whether the applicant will need an accommodation. The employer may also ask for a demonstration as to how the disabled individual could perform the essential functions of the job, such as lifting certain weight.

Post-Offer Inquiries and Considerations
Once a job offer has been extended, the employer has much greater latitude. Employers may condition the start of employment on the successful completion of a medical examination, including a psychiatric examination if:

  • The examination or inquiry is required of all employees entering the same job category regardless of disability;
  • Information on medical conditions and history is maintained in a separate, confidential file; and
  • The results of the examination are used only in accordance with the ADA.

An employer who withdraws an offer of employment because the medical examination reveals that the applicant cannot perform the essential functions of the job, even with a reasonable accommodation must demonstrate either that (a) the criteria does not screen out or tend to screen out individuals with disabilities or (b) the criteria are job-related and consistent with business necessity and there is no reasonable accommodation that would enable the individual to perform the essential functions of the job without undue hardship on the employer.

Drug Testing
The ADA specifically states that, for purposes of the ADA, tests to determine the current use of illegal controlled substances are not considered medical examinations. Therefore, pre-employment drug tests are permissible for private employers.

What About Alcohol Testing? In an odd twist of logic, it is determined that tests to determine whether and/or how much alcohol an individual has consumed are medical and are, therefore, illegal during the pre-employment stage.

It is hard enough in today's economic climate to find qualified applicants for your company's needs. The last thing you need is to be tripped up by failing to identify and comply with the myriad of laws that govern the hiring process. However, with proper planning and training, even these hurdles can be rather easily overcome.

OCT 23 How "Alternate Employer Endorsement" Can Help If You Hire Temporary Workers

How "Alternate Employer Endorsement" Can Help If You Hire Temporary Workers
by Edgar Saldivar
October 23, 2011

Businesses often depend on staffing companies or "temp agencies" to supply their workers.  The contract between the staffing company and the client business typically has a provision for workers' compensation insurance coverage.  Depending on the nature of the services provided by the staffing company, the client business may or may not qualify by statute for workers' compensation insurance coverage through the policy held by the staffing company.  Nevertheless, recent case law suggests that a little-known endorsement in workers' compensation insurance policies known as the "alternate employer endorsement" may allow businesses who hire temporary workers to have coverage under the staffing company's workers' compensation insurance policy.

The Staff Leasing Services Act (Texas Labor Code § 91.001, et seq.) provides for licensing and regulation of staff leasing services companies that assign workers to client companies on assignments "of a long term or continuing nature, rather than temporary or season in nature."  For workers' compensation insurance purposes, the Act makes the client company a co-employer who, thus, can benefit from the licensed staffing company's workers' compensation insurance coverage when a leased employee is injured.  But what if the staffing company supplying your workers is not properly licensed?  In Houston, only 25 staffing companies are currently licensed by the Texas Department of Licensing and Regulation.  What if you go through a temporary staffing agency to supply temporary workers?  The Staff Leasing Services Act specifically does not apply to companies that provide temporary help.  These situations beg the following question: can you still benefit from the staffing agency's workers' compensation insurance coverage?  The alternate employer endorsement may provide a solution.

The U.S. Court of Appeals for the Fifth Circuit recently held in Cal-Dive Intern., Inc. v. Seabright Insurance Company that "when endorsements such as the Alternate Employer Endorsement add additional insureds to the policy, these additional insureds enjoy the same benefits and are subject to the same restrictions as a named insured absent policy language to the contrary."  This is consistent with a prior holding of the Fourteenth Court of Appeals of Texas in Brown v. Aztec Rig Equipment, Inc., in which the court held that a client listed as additional insured in an alternate employer endorsement had workers' compensation coverage through the temporary employment agency and was an "employer" within the meaning of the Workers' Compensation Act.  Beyond the courts' holdings, the Texas Department of Insurance recognizes that alternate employer endorsements provide workers' compensation insurance coverage "as though the alternate employer is insured" (Texas Workers' Compensation and Employers' Liability Manual). 

What does this mean for businesses that hire temporary workers?  In addition to maintaining your own workers' compensation policy, you can better manage your risk for liability from injuries to temporary workers by ensuring that the staffing company you deal with has a workers' compensation insurance policy with an alternate employer endorsement listing your company as an additional insured.

OCT 21 Texas Legislature Expands Scope of Liability for LLCs

Texas Legislature Expands Scope of Liability for LLCs
by Chris Hanslik
October 21, 2011

During the 2011 Texas Legislative Session several amendments to the Texas Business Organizations Code (TBOC) were passed. One of the more significant changes relates to the personal liability of members and managers of limited liability companies.

Section 101.114 of the TBOC provides that a member or manager is not liable for the debts, obligations or liabilities of a limited liability company, except as and to the extent the company agreement or regulations specifically provide otherwise. As stated, this language prohibits a court from holding the members or managers liable for the debts, obligations and liabilities of the limited liability company. Courts in Texas, however, have applied corporate veil piercing principles – alter ego, sham corporation, perpetrating an actual fraud – to limited liability companies, creating a conflict between the limited liability company statutes and common law. Applying the corporate veil piercing standards to limited liability companies these courts followed the provisions in Article 2.21 of the Texas Business Corporations Act which is now found in the TBOC in Sections 21.223 - 21.226.

In an effort to harmonize the TBOC with the state and federal courts that have addressed this issue, the Texas Legislature adopted the same standards used in the corporate statutory provisions. This amendment can be found in Section 101.002 of the TBOC which provides that Sections 21.223, 21.224, 21.225 and 21.226 apply to a limited liability company and its members, owners, assignees and subscribers, subject to the limitations contained in Section 101.114.

The result is that member and managers of Texas LLCs can no longer hide behind what was once thought of as an impenetrable liability shield.

OCT 20 SCOTUS UPDATE: Are FCC Regulations on Indecency Unconstitutionally Vague?

SCOTUS UPDATE: Are FCC Regulations on Indecency Unconstitutionally Vague?
by Jennifer Hebert
October 20, 2011

In the next few months, the United States Supreme Court will hear oral arguments in several noteworthy cases which could have profound impacts on various issues from broadcast decency regulations to affirmative action. Many believe health care reform and state immigration regulation may also be added to this term, but no cases have yet been added to the Court's docket and likely will not until at least December. Continue to watch our blog as we post additional summaries of and updates on these potentially landmark cases. 

Federal Communications Commission v. Fox Television Stations
(Oral Argument Date Yet to Be Decided)

It's unusual for a year to go by without some controversy over indecency on television from the infamous wardrobe malfunction during the 2004 Super Bowl (which itself it still playing out on appeal in the Third Court of Appeals) to Melissa Leo's inadvertent flub at the 2011 Oscars. This year the Supreme Court will take on these types of situations by analyzing the constitutionality of FCC regulations on indecency on television.

Basic Facts
This case stems from three unrelated FCC violations one involving brief nudity in an NYPD Blue episode on ABC in 2003 and the other two involving the use of a single expletive during two live Fox award shows in 2002 and 2003. In both cases, the FCC issued fines and Fox and ABC appealed.

Previous Litigation
In an earlier case involving the same Fox award shows, the Supreme Court ruled that the FCC had authority to change its profanity policy from issuing fines for repeated uses of profanity in a single television event to issuing fines for even a single use in a television program. That case, however, failed to address whether the FCC's rules were unconstitutionally vague (as is now presented) and such question was sent back to the Second Circuit for decision.

When sent back, the Second Circuit Court of appeals invalidated the FCC decision finding that two broadcasts including expletives on live award shows were indecent pursuant to regulatory and statutory rules. The Court's decision was based on a finding that the rules under which the fines were issued were unconstitutionally vague (the "Award Show Case").

In a separate proceeding, the Second Circuit applied its ruling from the Award Show Case to again overrule a fine issued by the FCC against ABC for brief nudity in an NYPD Blue episode. The two cases have been consolidated by acting Solicitor General Neal K. Katyal for joint consideration by the Supreme Court on the basis that considering the two cases together will allow the Court to consider application of FCC policy to both live and scripted television.

Question for the Court
Whether FCC regulations on decency are so vague that they are unconstitutional or sufficiently clear to be enforced?

OCT 19 The Pitfalls of Stock Options for Start-Up Companies

The Pitfalls of Stock Options for Start-Up Companies
by Gus Bourgeois
October 19, 2011

It is very common for start-up companies to issue stock options to certain key employees, but there are significant risks in doing so to both the option recipient and the company under Internal Revenue Code (IRC) Section 409A if the options have an exercise price less than the fair market value of the common stock as of the option grant date. Internal Revenue Service (IRS) regulations require that fair market value be determined using "reasonable application of a reasonable valuation method," and provide a presumption that a company's fair market value determination will be considered reasonable if it takes into account the relevant valuation factors described in the regulations, and:

(a) if the valuation is determined by an independent appraisal no more than 12 months before the transaction date; OR

(b) if the valuation is of "illiquid stock of a start-up corporation" and is made reasonably, in good faith, evidenced by a written report, performed by a person with significant knowledge and experience or training in performing such valuations

But the costs of obtaining an independent appraisal may be high for start-up companies, and the company may not have ready access to a person who has "significant knowledge and experience or training in performing such valuations."

If a start-up company is considering issuing stock options, it is important to understand the requirements of IRC 409A as early as possible in the process, and to plan for the costs of obtaining the required valuation. In such cases, a start-up company may find that it will be better served by issuing restricted stock or some other equity vehicle which falls outside the purview of IRC 409A, instead of stock options.

OCT 19 The Three C’s of Discipline and Termination

The Three C's of Discipline and Termination
by Joseph "Trey" L. Wood, III
October 19, 2011

I always preach that when employers are considering disciplining or terminating an employee, they best way to stay out of trouble is to should follow the three C's: Consistency, Communication and Common Sense.

Employers must remain consistent in the way they enforce company policies and rules of conduct. Remaining consistent in making decisions promotes credibility while inconsistency suggests bias (discrimination) against individual employees. Consistency is not only important for supervisors within a particular department, but also company-wide.

Before disciplining an employee, ask yourself if the rule/expectation that the employee violated was actually communicated to the employee. After all, it's rather unfair to discipline an employee for breaking a rule if he/she didn't know the rule was in place. Certainly, this is not true for all instances of misconduct, but it is important for most. (Also, if an employer is going to try and dispute an unemployment claim, it is going to have to prove to the Workforce Commission that the employee knew about the rule before it was violated.)

Common Sense
Before disciplining or terminating an employee, the employer should step away from itself and view the entirety of the situation as objectively as possible. Does the punishment about to be imposed "fit the crime?" Certainly, factors such as seniority and culpability should factor into the decision making process.

I remind everyone of the three C's because of a recent case that came out of California. In the case, the ex-employee sued her employer, Nielsen Media Research, for age discrimination.1 Christine Earl was hired in 1994 at the age of 47 and her employment progressed as follows:

  • August 2005: Verbal warning for leaving gifts at unoccupied households.
  • January 2006: Repeat violation.
  • February 2006: Placed in "Developmental Improvement Plan" after violating policy requiring the recruiter to keep a company map while recruiting targeted households. 
  • September 2006: Performance review overall good, with need to follow policies.
  • September 2006: Ms. Earl diagnosed with "peripheral neuropathy" It is a nerve damage condition that worsens with age. 
  • October 2006: Ms. Earl mistakenly wrote a household's address, failed to verify it, causing installers to go to the wrong address.
  • January 2007: Nielsen terminated Ms. Earl for violations of company policy listed above. She was age 59.

After the employee was fired, Nielsen hired five new employees with the same job title as the employee fired, all of whom were much younger. While the trial court originally dismissed the lawsuit, the California Court of Appeals is sending the case to a jury to decide because it found that a reasonable juror could find that the employer's reason for termination was false because the employee was able to show that the employer applied discipline in an inconsistent manner. In one example, a much younger employee received only discipline for the same type of conduct that Ms. Earl was allegedly fired for. The Court also found that Nielsen deviated from its own policy by terminating her when the policy indicated that she should have been placed on a performance improvement plan.

In the end, this is another fine example of an employer who did not follow the three C's and may, ultimately, have to pay for its mistake.

1 Earl v. Nielsen Media Research, Inc.

OCT 07 The End of the "Public Profile" - When Your Facebook Status Jeopardizes your Case

The End of the "Public Profile" — When Your Facebook Status Jeopardizes Your Case
by Craig Dillard
October 7, 2011

In the rapidly growing world of Social Media chances are you either have a Facebook, LinkedIn or Twitter account — or someone you work with does. Social Media Websites are rapidly becoming a popular informational gathering tool used for everything from college applications to job interviews to litigation.

In a recent trial case, a lawsuit was filed alleging manufacturing defects and violations of the Texas Deceptive Trade Practices Act regarding a newly purchased recreational vehicle. During the case, a photo was discovered on the Plaintiffs' MySpace account capturing the Plaintiff's entire family posing in front of the recreational vehicle more than 300 miles from the Plaintiffs' home. The photo was taken and posted eight months after the claim was filed alleging the vehicle unusable. The photo was one of the most critical pieces of evidence in the case. The jury took less than 15 minutes to find against the Plaintiff.

During a recent deposition in a case dealing with the alleged taking of trade secret information from a large oil and gas company, a key witness presented himself as a person of "honor, integrity and fairness" in dealing with people and business situations. A quotation taken from the witness's Facebook page stating "if you ain't cheating, you ain't trying" was presented potentially discrediting the demeanor of the witness.

These examples support the need to closely monitor Social Media; especially true for companies or individuals that have the potential to face litigation. One of the first steps is to ensure Social Media profile pages are set to the highest degree of privacy possible limiting access to your information to only individuals you "approve". This can be accomplished by following a few quick steps depending on your particular Social Media Website. A simple Google search like "How to make my Facebook profile private" will walk you through the process. If you didn't know your profile could be set to private, or you haven't yet taken these steps, your information is wide open to the public.

In addition to monitoring the information on your social media page, you should also periodically conduct a Google/Yahoo/Bing search to see what a random search of your name will turn up on the Internet. You may find there are one or more Websites out there you didn't even know about which contain your personal information.

With Social Media, information often thought to be private can be alarmingly available for public consumption or discovery. Take action now to ensure your privacy by limiting access to your profile to those you trust and continually monitoring your Web presence to avoid unfortunate surprises where you find your private life on full display. 

OCT 06 NLRB Postpones Posting Requirement

NLRB Postpones Posting Requirements
by Joseph "Trey" L. Wood, III
October 6, 2011

As an update to our posts on August 26 and September 26, the National Labor Relations Board (NLRB) has announced that it has postponed the implementation date of its new posting requirement to January 31, 2012.  As you may recall, on August 25 the NLRB issued a final rule that requires all employers subject to the National Labor Relations Act to notify employees of their rights under the National Labor Relations Act (NLRA).

A statement on the NLRB's website on October 5, 2011 announces the postponed implementation of the posting requirement indicating that there is a need "to allow for enhanced education and outreach to employers, particularly those who operate small and medium sized businesses." The statement goes on to state that the Board decided to postpone the rule's implementation date due to questions from businesses and trade organizations regarding which businesses fall under the Board's jurisdiction and to ensure "broad voluntary compliance." 

What the Board failed to mention on its website are the numerous lawsuits filed by business groups challenging the validity of the rule.  (But I'm sure those lawsuits had nothing to do with this decision.)  We will continue to monitor the situation to let you know the latest on this topic when it happens.

SEP 30 Covered by EPLI? Better Think Again

Covered by EPLI? Better Think Again
by Joseph "Trey" L. Wood, III
September 30, 2011

Many employers purchase an insurance product known as Employers Practices Liability Insurance (EPLI) for coverage in the event they are sued for different types of employment claims such as harassment, discrimination and retaliation.  One such employer, Cracker Barrel, had an EPLI policy with Cincinnati Insurance Company.  Cracker Barrel was sued by the EEOC for sexual and racial harassment, racial discrimination, retaliation and discharge.  Ultimately, the suit was settled for $2,000,000 plus $700,000 in attorneys' fees.  There was no question but that the allegations made in the suit were of the type covered under the policy.  Then why did the insurance company deny the claim?

Cincinnati Insurance Company stated that it properly denied coverage because the lawsuit did not fall under the definition of a "covered claim."  The policy in question defined such a claim as:

"a civil, administrative, or arbitration proceeding commenced by the service of a complaint or charge, which is brought by any past, present or prospective employees."

Since the lawsuit against Cracker Barrel was brought by the EEOC and not employees, the company wasn't covered.  In the end, a federal district court in Tennessee agreed.  Cracker Barrel Old Country Store, Inc. v. Cincinnati Insurance Co., 3:07-cv-00303 (M.D. TN 8/11/11) 

While it is likely that this will be appealed to the 6th Circuit Court of Appeals, the prudent employer with EPLI insurance should check the language of its policy and contact its insurance agent/ broker to make sure that it is covered for any charges or lawsuits brought by the government on behalf of employees.

SEP 26 Employee Rights Poster Now Available

Employee Rights Poster Now Available
by Joseph "Trey" L. Wood, III
September 26, 2011

As an update to our posting of August 26, the Employee Rights poster that is required of virtually all employers effective November 14, is now available on the NLRB's website at

The 11-by-17-inch notice should be posted in a conspicuous place, where other notifications of workplace rights and employer rules and policies are posted.

AUG 30 EEOC Scrutinizes Criminal Background Checks

EEOC Scrutinizes Criminal Background Checks
by Chris Hanslik & Joseph "Trey" L. Wood, III
August 30, 2011

In the past few years, the Equal Employment Opportunity Commission (EEOC) has renewed its focus on the hiring process, including Title VII protections for ex-convicts. For years, the EEOC's guidelines have disapproved of an employer's absolute ban on hiring anyone with a criminal conviction. Rather, they direct that if an employer's conviction-based screening policy causes a disparate impact against a protected class of individuals, the employer must show that it considered: (1) the "nature and gravity" of the applicant's offense; (2) the "time that has passed since the conviction and/or completion of sentence;" and (3) the "nature of the job held or sought."

EEOC guidelines do not have the force of the law. In fact, one federal court of appeals found that the EEOC guideline pertaining to criminal conviction bans "are not entitled to great deference."1 The court went on to complain that the guideline does not explain how employers are supposed to consider the nature and gravity of the offense in crafting any bright-line policy on criminal convictions, nor do they address whether an employer can decide that certain offenses are serious enough to warrant a lifetime ban on not being hired.

In response to this criticism, the EEOC held a meeting in Washington D.C. on July 26 focusing on how the use of background checks, and in particular criminal background checks, adversely affect minorities. During the meeting the EEOC hinted that they plan to revise their 20-year-old background check guidelines. Given the fact that the EEOC has also held fairly recent meetings on the use of credit checks in the hiring process, to examine the treatment of unemployed job seekers, and regarding disparate treatment in 21st century hiring decisions, it is likely that revisions to these guidelines will be forthcoming.

What this Means for Employers
Given this recent flurry of EEOC activity, employers who conduct criminal background checks should continue to monitor further developments, not only on the federal level, but the state level as well. Many states have passed "ban the box" laws, which refers to removing check boxes on employment applications that ask if the applicant has ever been arrested or convicted of a crime.2 In addition, employers who have concerns about their hiring practices may want to consider conducting a privileged review of their screening methods to help identify any areas of potential concern. Finally, and most importantly, consider whether the information that you are obtaining during the hiring process is job-related. In the end, if the information that you are asking for is not directly related to the job in question, it may be best not to ask for that information.


1El v. South Eastern Pennsylvania Transportation Authority, 479 F.3d 232 (3rd Cir. 2007).
2California, Connecticut, Hawaii, Massachusetts, Minnesota, and New Mexico all have versions of "ban the box" laws.
AUG 29 Employers May Have to Add to the List of Those Protected from Discrimination: The Unemployed

Employers May Have to Add to the List of Those Protected from Discrimination: The Unemployed
by Joseph "Trey" L. Wood, III
August 29, 2011

Most employers are aware that they may not discriminate against job applicants on the basis of their race, sex, national origin, religion, disability, veteran status, etc, etc. Adding to that already long list, a recent bill introduced into the U.S. House of Representatives and Senate would make it illegal for an employer to: (1) refuse to consider for employment or refuse to offer employment to an individual because of the individual's status as unemployed; (2) publish in print, on the Internet, or in any other medium, an advertisement or announcement for any job that includes any provision stating or indicating that an individual's status as unemployed disqualifies the individual for a job ("must be currently employed"); and (3) direct or request that an employment agency take an individual's status as unemployed into account in screening or referring applicants for employment.

The Fair Employment Opportunity Act was introduced as a result, in part, of the EEOC's public meetings to examine the practice by employers of considering only employed candidates for job openings and excluding the unemployed from consideration. Should the Act be signed in to law by President Obama, employers found to have violated the Act would be liable to the affected individual for any wages, salary, benefits, or other compensation denied or lost to the individual; or, in a case in which wages, salary, benefits, or other compensation have not been denied or lost to the individual, any actual monetary losses sustained as a direct result of the violation, or a civil penalty of $1,000 per violation per day, whichever is greater. In addition, there are provisions in the proposed Act for liquidated damages, interest, and attorney fees.

There is an exception contained within the Act. An employer may discriminate against the unemployed "where a requirement related to employment status is a bona fide occupational qualification reasonably necessary to successful performance in the job, and to eliminate the burdens imposed on commerce by excluding such individuals from employment." In other words, if the employer can show that an applicant's employment in a similar job, at the time of application, is necessary to successful performance for the job applied for, there is no violation. Stay tuned as we continue to monitor this Bill's progress.

AUG 28 Parental Bereavement Act May Amend FMLA

Parental Bereavement Act May Amend FMLA
by Joseph "Trey" L. Wood, III
August 28, 2011

Kelly Farley faced one of the most tragic events any parent could face — the death of his daughter. In order to cope with the grief stemming from such a loss, he applied for Family Medical Leave Act (FMLA) leave only to find that such an event is not covered by the Act. Instead, he requested FMLA leave to care for his grieving wife, who was suffering from depression in the aftermath of the family's loss. Farley later went on to help found The Grieving Dads Project, a grass roots initiative that helps fathers deal with the loss of their children.

Out of the Project also grew the Farley-Kluger Amendment to the FMLA. Introduced on July 13, 2011 by Senator Jon Tester of Montana, the bill would allow a parent 12 workweeks of unpaid leave during any 12-month period due to the death of a child. The other provisions of the FMLA would remain unchanged. As of now, the bill has no co-sponsors and has been referred to the Committee on Health, Education, Labor and Pensions for review and consideration.

AUG 26 All Employers Now Required to Post Notice of Employees’ Unionization Rights

All Employers Now Required to Post Notice of Employees' Unionization Rights
by Joseph "Trey" L. Wood, III
August 26, 2011

On August 25, the National Labor Relations Board (NLRB) issued a final rule that requires all employers subject to the National Labor Relations Act to notify employees of their rights under the National Labor Relations Act (NLRA) by November 14, 2011.1  The notice will be required to be posted where other workplace notices are typically posted. Also, employers who customarily post notices to employees regarding personnel rules or policies on an internet or intranet site will be required to post the Board's notice on those sites.

The notice states that employees have the right to act together to improve wages and working conditions, to form, join and assist a union, to bargain collectively with their employer, and to refrain from any of these activities. It provides examples of unlawful employer and union conduct and instructs employees how to contact the NLRB with questions or complaints. The 11-by-17 inch notice is available for downloading from the NLRB's website. Translated versions will also be available and must be posted at workplaces where at least 20% of the employees are not proficient in English.

1 The NLRA applies to all employers with the exception of government or union employers, companies that primarily have a municipal function and religious schools.
AUG 22 You're Fired! Insubordination Still Legitimate Reason for Terminations

You're Fired! Insubordination Still Reason for Terminations
by Joseph "Trey" L. Wood, III
August 22, 2011

You hire a new employee with great hopes of a long lasting and productive relationship. However, after a very short while, co-workers begin to complain about your new hire and her attitude towards the staff. When you attempt to counsel the employee over the complained of conduct, she raises her voice, accuses you and others within the office of being unfair and refuses to accept any responsibility for her own actions. If there was ever conduct that met the definition of insubordination, this is surely it. But what to do? Should the employee be fired or given another chance?

Typically, employees are given a little latitude when it comes to resolving interpersonal conflicts with other staff members. Certainly a counseling session is called for, but when the counseling meeting gets off-track, it may mean that the employee has to go. However, employers are typically reluctant to pull the trigger under such circumstances for fear of a lawsuit. However, at least one court recently sided with an employer's decision to terminate an employee under a similar set of facts. In the case, the family-owned commercial trucking company hired a dispatcher who at the time of hire was 51 years old. Co-workers began complaining about the employee within the first couple of months of her employment. The company moved the employee to a newly created job with the same pay and hours, but with a more flexible schedule. In her new position, the employee worked in close proximity with a younger female employee who, according to the employee, overused the phone for personal calls. A meeting was called with the employee and the younger employee to try and fix the problem. By all accounts, the meeting did not go well. Upset by the older employee's antics, and concluding that she was insubordinate, the employer decided to terminate her employment. When the employer informed her of the decision, the employee threw a fit with much name calling. Later that evening the employee called asking for severance. The employer declined. The employee sued claiming that she was the victim of age and gender discrimination.

In such a lawsuit, the employee is always required to show as part of her case that she is meeting the expectations of her employer. In this case, the court found that the employee's insubordination undermined her claims of discrimination in two ways:

  • Insubordination precluded her from proving that she "met her employer's legitimate job expectations"
  • Insubordination is a non-discriminatory reason for termination, which means that the employee was unable to show that her employer's actions were simply an excuse, or pretext, for discrimination

Although the employee claimed that she was treated differently than similarly situated male/younger employees, she was unable to show that anyone else had been similarly insubordinate and treated more favorably.

The problem with relying on insubordination as a reason for termination is because it is a very nebulous term. Typically, employers should only use insubordination as a reason for termination if the conduct clearly meets the definition of the word. Again, to avoid claims of discrimination, it is important for employers to remain consistent in enforcing a policy against insubordination, doling out similar discipline for similar conduct. The conduct in question should be documented contemporaneously and objectively. This will go a long way in defending any potential claims that may later arise. 

AUG 15 Religious Discrimination Claims Rise

Religious Discrimination Claims Rise
by Joseph "Trey" L. Wood, III
August 15, 2011

Several months after the 9/11 attacks, Alamo Car Rental fired one of its customer service representatives, a Muslim woman who refused to remove her head scarf during Islam's holy month of Ramadan. The U.S. Equal Employment Opportunity Commission (EEOC) in Phoenix filed a lawsuit claiming that Alamo committed backlash discrimination based on religion. Last year, a jury awarded more than $287,000 to the woman.

In this case, the judge decided that Alamo's religious discrimination against the woman was so clear cut that those allegations did not even go to the jury; the jury's only role was to decide how much money the ex-employee was entitled to. "For nearly six years, Alamo has continued to deny that it violated the law when it refused to accommodate Ms. Nur's religious beliefs and fired her," said Mary Jo O'Neill, regional attorney for the EEOC Phoenix District Office in a statement following the jury's ruling. "Title VII [of the Civil Rights Act of 1964] protects people of all religious beliefs, and no one should ever have to sacrifice her religious beliefs in order to keep a job."

Religious discrimination cases such as Nur's have been on the rise since 9/11. The number of cases that the EEOC, the federal agency responsible for enforcing the laws that prohibit employment discrimination, has received based on religious discrimination has increased from 1,939 in 2000 to 3,790 in 2010.

Of course, not all religious discrimination cases involve Muslims or what the EEOC calls other "vulnerable groups" post-9/11. The increased focus on religion has led to claims by members of other denominations as well. For example, in October 2007, a jury ordered AT&T Inc. to pay $756,000 in a religious discrimination lawsuit the EEOC brought on behalf of two male customer service technicians who were suspended and fired for attending a Jehovah's Witnesses Convention. And according to the Los Angeles Times, in July the Los Angeles Police Department was sued for religious discrimination after it disciplined an off-duty police sergeant who called homosexual acts "sinful" and an "abomination."

A Proactive Approach
In order to stave off potential religious discrimination claims by employees of all faiths, employers need to understand their duties under Title VII, and they need to communicate those duties and expectations to their employees.

  • Understand "Reasonable Accommodations"
    Title VII requires that employers make reasonable accommodations for their employees' religious beliefs, but only if it doesn't cause undue hardship. It can be very complicated for organizations to determine what is reasonable, and what represents an undue hardship.
  • Educate Employees about their Responsibilities
    While employers must try to resolve conflicts between religious needs and work-related duties, employees must do the same. They should offer as much notice as possible when they need to take time off for holy days, and they should work their vacation schedules or personal days around these times. Upon hiring or during job training, employers should communicate their expectations to employees; an annual refresher course for all employees, including managers, can help head off conflicts.
  • Consider Religious Clothing When Developing Dress Codes
    Many religions require a particular type of dress or symbols, from tattoos for Coptic Christians to yarmulkes for devout Jewish men to hijabs, or head scarves, for devout Muslim women. Employers must factor these types of religious garb into their formal dress codes and informal expectations for what employees can wear.

    One of the few relatively clear rules about religious symbols or clothing representing an undue hardship involves safety issues. If a particular type of religious garb could represent a safety risk for that particular employee's job, the employer generally has the right to dictate what the employee can or cannot wear.
  • Laws Apply to Applicants, Too
    It is illegal to ask job applicants about their religion or observance of religious holidays during any point of the hiring process. Asking if an applicant's religion will prevent them from working holidays and weekends is not acceptable-rather, the employee must alert the employer about needed days off once he or she is hired. However, employers can describe the hours and duties that a job entails during the interview process.
  • "Joking" Comments
    When someone in the workplace makes comments about a person's religion, or supposed religion, that can quickly cross the line into religious discrimination, even if they insist it was all in good fun. The company should clearly lay out what the boundaries are for unacceptable personal comments and enforce those as soon as they become aware of the comments or a compliant is filed.

The United States is on track to become more, and not less, religiously diverse. With the proper planning and policies, employers can create an environment where employees of all religions, as well as no religions, feel valued. This also helps the company minimize its exposure to potential religious discrimination lawsuits. 

JUL 25 Another Reason to Classify Your Employees / Independent Contractors Correctly

Another Reason to Classify Your Employees / Independent Contractors Correctly
by Joseph "Trey" L. Wood, III
July 25, 2011

The essence of any lawsuit seeking an injunction to enforce a non-competition agreement is breach of contract: The company seeking to enforce the non-compete is claiming that the violating party breached the non-compete. A defense often raised in these matters is that the company acted with "unclean hands," i.e., that the company breached the agreement too, so the non-compete should, likewise, be unenforceable. In one recent case, this very argument was used with success in terms of the independent contractor relationship.

In the case, Joseph Figueroa had an independent contractor agreement (ICA) with Precision Surgical, Inc., a medical equipment supplier. The agreement contained several restrictive covenants, including a non-compete agreement. Figueroa worked under the ICA for several years and Precision required him to, among other things, devote all of his time to selling Precision's products, report to Precision on a daily basis, attend monthly meetings, wear the company's logo, and obtain permission from the company before giving quotes to certain prospects. A dispute between them ensued and Figueroa left the company and filed suit to invalidate the non-compete. Precision filed a counterclaim to enforce the non-compete seeking an injunction to prevent Figueroa from working for a competitor.

Figueroa raised the "unclean hands" defense by claiming that Precision breached its agreement because the company had misclassified him as an independent contractor when he was really an employee. Both the trial court and the U.S. Third Circuit Court of Appeals agreed and the company's request for an injunction was denied.

What this Means for You
While the court's decision to deny the injunction was based on more than just the fact that the company misclassified the independent contractor, it is very likely that the contractor/employee would have prevailed under this theory alone. Accordingly, it is imperative that if you have Independent Contractor Agreements with restrictive covenants, such as non-competes, that the individuals working under those Agreements are properly classified as independent contractors and are not, in fact, employees.

JUL 22 Securities Class Action Litigation Update

Securities Class Action Litigation Update
by Edgar Saldivar
July 22, 2011

On July 13, 2011, the Wall Street Journal's Law Blog referenced a report about the increased number of class action lawsuits seeking damages for lost share value filed by investors against companies involved in mergers and acquisitions. A recent U.S. Supreme Court decision, Erica P. John Fund, Inc. v. Halliburton Co., provides insight into where the courts stand on securities class action litigation.

In Halliburton, decided on June 6, 2011, the Supreme Court overturned a Fifth Circuit ruling that vacated class certification for a securities fraud class action. The proposed class alleged that Halliburton issued false statements about its prospects in order to manipulate the market price of its stock. The Fifth Circuit held that the investors failed to prove "loss causation" which, according to a prior Fifth Circuit case, Oscar Private Equity Invs. v. Allegiance Telecom, Inc., is required to entitle the plaintiffs to a "fraud on the market" presumption to establish each investor's reliance on the alleged misrepresentations. That presumption is a product of the Supreme Court's 1988 ruling in Basic, Inc. v. Levinson, which permitted a presumption of reliance when the security is traded on an efficient market. Without the presumption, the plaintiffs would have to establish reliance on an individual basis and, thus, would likely fail to meet the requirement for Rule 23(b)(3) class actions that common issues "predominate" over issues affecting each class member. But the Fifth Circuit's requirement of proof of "loss causation" to establish the "fraud on the market" presumption would effectively require the investors to prove the merits of their whole case before being allowed to proceed as a class. In Halliburton, the Supreme Court concluded that securities fraud plaintiffs need not prove loss causation in order to be entitled to the presumption of "fraud on the market" required for class certification.

On the law blog PrawfsBlawg, University of Miami Professor of Law Sergio J. Campos notes that the Fifth Circuit's (reversed) position in Halliburton and the Supreme Court's more recent decision in Wal-Mart Stores, Inc. v. Dukes evidence a strong impulse by courts to require a merits determination before class certification. However, in the context of securities class action litigation, the U.S. Supreme Court has effectively removed that hurdle from the certification process.

JUL 18 Social Media Harassment?

Social Media Harassment?
by Joseph "Trey" L. Wood, III
July 18, 2011

The explosion of social media is no longer a headline grabbing phenomenon. In addition to Facebook, MySpace, Twitter and a plethora of other social websites, individuals have taken to creating and maintaining their own personal blogs. While most employers recognize that they have a duty to maintain a workplace atmosphere free of illegal harassment, what about the situation where one of your company's employees, on his own time and away from the workplace, starts to make fun of another employee's physical deformity on his personal blog? Does the company have an obligation to do something about it?

Recently, an Orange County California jury answered this question by awarding a Juvenile Corrections Officer over $1.6 million dollars on his claim that he was harassed at work due to his severely deformed right hand. In an unofficial blog about the juvenile detention center, comments were posted by an employee referring to Espinoza as "the claw" "rat claw" and "one handed commander." Espinoza alleged that the comments and harassment spilled over into the workplace. After Espinoza complained, he was transferred to an assignment he did not want, and sued. Defendant County of Orange alleged there were no suspects to investigate, and that there was no evidence that any coworkers harassed Espinoza in the workplace. The jury, on the other hand, disagreed and found in Espinoza's favor against the County. Espinoza v. County of Orange, et. al., (Orange County Superior Court Case No. 30-2008-00110643-CU-Wt-CJC).

This case certainly does not mean that employees should be banned from social media. However, it is important for the employer to recognize that it should take into account employees' use of social media when training supervisors and creating company policies. As an example, a Company's No Harassment policy should include state that pejorative comments about employees made in social media are not allowed and should be reported the same as any other harassing comments. Also, supervisors should be reminded that they should be very careful about what they post online so that any potentially discriminatory animus is not reflected or revealed. Then, train everyone about what is suitable and not suitable for posting online and what they should do if happens. Finally, if an employee complains about another employee's harassment through social media, take steps to immediately investigate and fix the problem. Only by taking these steps can you potentially fend off claims of online harassment.

JUL 05 Non-Compete Agreements in Texas More Enforceable than Ever

Non-Compete Agreements in Texas More Enforceable than Ever
by Joseph "Trey" L. Wood, III
July 5, 2011

On June 24, the Texas Supreme Court made it easier for employers to enforce non-compete agreements with employees by holding that stock options can serve as consideration sufficient to support the agreement.  Before this ruling it was generally accepted that only an employer's providing confidential information or "trade secrets" could suffice as consideration for a non-compete. 

Retreating from years of previous case law, the Supreme Court stated, "Consideration for a non-compete that is reasonably related to an interest worthy of protection, such as trade secrets, confidential information or goodwill, satisfies the [statute.]"  With this ruling, it does not seem too far-fetched to conclude that cash might even serve as valid consideration.  We will have to wait and see how lower courts interpret this ruling.

A PDF copy of the Court's opinion is available at:

JUN 25 NLRB Again Flex’s Its Muscle

NLRB Again Flex's Its Muscle
by Joseph "Trey" L. Wood, III
June 25, 2011

While the passage of the Employee Free Choice Act is seemingly dead, the National Labor Relations Board (NLRB) is still seeking to implement parts of the Act through administrative fiat. On June 21, the NLRB proposed changes to its existing rules governing union elections. If implemented, the new rules would significantly restrict an employer's ability to successfully stage its own campaign in opposition to a union's organizing efforts. Specifically, the new proposed rules include the following requirements:

  • Potentially cutting down the time that a representation election is held from 56 days to only about 26 days. Typically, the more time employees have to study the issues, the less likely they are to vote for a union.
  • Employers must provide the NLRB and unions more information about voters. The proposed rule would require employers to provide information on its employees' phone numbers, email addresses, job classifications, work location and shift. The current rules only provide that employers must give out home addresses. Under the proposed rules, unions will have much easier access to employees.
  • Employers will no longer be entitled to a hearing to determine who votes. Under current rules, the parties have a right to a pre-election hearing to determine the voting unit. The NLRB's proposal, challenges to voters would (most of the time) be challenged at the polls and then litigated afterward. This could potentially discourage voter turnout, particularly among those who tend to side with the company.

There is a 60-day comment period for these proposed changes, followed by agency review and consideration, before the rules are finalized and implemented. If passed, the rules are subject to court review. All of these potential changes mean that it is more important than ever for non-union employers to remain vigilant in their efforts to promote preventive labor relations in advance of union organizing efforts.

JUN 24 Dukes Not So Hazardous After All

Dukes Not So Hazardous After All
by Joseph "Trey" L. Wood, III
June 24, 2011

As an update to our blog posting on April 6, the United States Supreme Court has ruled that a district court improperly certified a nationwide class of female employees of Wal-Mart who were claiming sex discrimination in the company's pay and promotion practices. In Dukes v. Wal-Mart, the Court unanimously ruled that the lower courts improperly certified the lawsuit under Rule 23(b), which relates only to class action claims for injunctive or declaratory relief, but was split along ideological lines (5-4) regarding the issue of whether the matter was improperly certified as a class action under Rule 23(a), which sets forth the four threshold class action requirements for certifying a class action of numerosity, commonality, typicality and adequacy of representation.

Writing for the majority, Justice Antonin Scalia explained that of Rule 23(a)'s four threshold requirements, the "crux" of the Dukes case turned on commonality — namely, whether there were "questions of law or fact common to the class." In addressing this question, the Supreme Court adopted wholesale the approach that it previously had taken in General Telephone Co. of Southwest v. Falcon, 457 U.S. 147 (1982), an approach which the Ninth Circuit, in its en banc opinion, had partially rejected as dicta. The Supreme Court's majority held that in order to certify a class, plaintiffs must "affirmatively demonstrate" and "be prepared to prove" with "significant proof" at the class certification stage that class members have "suffered the same injury," in that they have a common contention of fact or law, the determination of which "is central to the validity of each one of the [class members'] claims in one stroke."

At stake in this case was the possibility of the largest employment class action in history, with literally billions of dollars on the line. With this ruling, however, employers across the country can breathe a collective sigh of relief. While this case will certainly make it more difficult for employees to certify class actions for discrimination claims in the future, the Supreme Court's ruling does little to dissuade creative plaintiff's lawyers from trying to certify class claims based upon the disparate impact that certain company policies may have.

JUN 14 United Kingdom's Bribery Act 2010 to Become a Law

United Kingdom's Bribery Act 2010 to Become Law
by Gus Bourgeois
June 14, 2011

After years of discussion, debate and delay, the United Kingdom's Bribery Act 2010, which has been described as the toughest anti-corruption legislation in the world, will finally become law effective July 1, 2011. Although the Act covers the crime of bribery broadly, the most important provisions of the Act from the point of view of international businesses are those dealing with bribery of a foreign public official (Section 6 of the Act) and failure of a commercial organization to prevent bribery on their behalf (Section 7 of the Act).

A person who promises, offers or gives an improper financial or other advantage to a foreign public official, either directly or through a third party, can be found guilty of bribery of a foreign public official. A foreign public official is defined as "an individual holding legislative, administrative or judicial posts or anyone carrying out a public function for a foreign country or the country's public agencies or an official or agent of a public international organization". There is no requirement to show that the bribe resulted in the public official acting improperly. This Section applies to a person who (1) committed the act in the UK, or (2) acted outside of the UK if such act would have constituted a crime if committed in the UK, if the person had a "close connection" to the UK, which includes being a British citizen or resident, or a company incorporated in the UK. Unlike the U.S. Foreign Corrupt Practices Act, there is no exception for "facilitation payments" — making the Bribery Act 2010 much more comprehensive in its scope than the FCPA.

The crime of failure of commercial organizations to prevent bribery on their behalf applies not only to the organization itself, but to its employees and agents on an individual basis, and the employer can be held vicariously liable for the acts of its employees, agents and subsidiaries.  This is a strict liability offense, so there is no need to prove intent in order to reach a finding of guilt. This Section applies to any commercial organization which has business in the UK, without regard to location; therefore, according to the Archbold Review, "...a German business with retail outlets in the UK which pays a bribe in Spain could, in theory at least, face prosecution in the UK".  However, the commercial organization has a defense if it can show that it had implemented adequate procedures to prevent persons associated with it from engaging in such conduct.

These provisions may have a significant impact on the compliance efforts of international businesses which employ British citizens or residents, or which conduct business in the UK (whether directly or through subsidiaries or affiliates). It is expected that such businesses will attempt to impose their internal compliance regimes on suppliers by contract, which may lead to higher costs to the supplier and a "shaking out" of smaller suppliers who do not have the financial and compliance resources to satisfy such contractual requirements.

JUN 08 Employers Lose Fight Against Concealed Carry License Holder Employees in Texas

Employers Lose Fight Against Concealed Carry License Holder Employees in Texas
by Joseph "Trey" L. Wood, III
June 8, 2011

On June 2, the Texas Legislature passed S.B. 321, which prohibits employers from denying employees with concealed carry handgun licenses the ability to carry a firearm in a locked, privately owned automobile in a parking lot, garage or parking area that the employer provides to employees. Employers may still prohibit the possession of firearms within their offices or places of business, where the possession of a firearm is prohibited by state or federal law, or if the vehicle is owned or leased by the employer. The Bill also provides for exceptions pertaining to property subject to an oil, gas, or other mineral lease and property owned or leased by a chemical manufacturer or oil and gas refiners.

Opponents of the new legislation felt that it would increase greater workplace violence liability issues for employers. In response to this, the Bill grants immunity to employers, except in cases of "gross negligence," from civil actions for personal injury, death or property damages resulting from an occurrence involving a firearm that the employer is required to allow on the employer's property under the new law. This new Act will take effect on September 1 if it is signed by Texas Governor Rick Perry.

JUN 01 Supremes OK Arizona’s Legal Arizona Workers Act

Supreme's OK Legal Arizona Workers Act
by Joseph "Trey" L. Wood, III
June 1, 2011

The Legal Arizona Workers Act (LAWA) requires the Attorney General or County Attorney to investigate all complaints made by anyone against an employer relating to the employment of unauthorized aliens. The U.S. Immigration and Customs Enforcement (ICE) agency and local enforcement will be informed of valid complaints, and the County Attorneys may file charges against the employer. The Act also provides for a progressive penalty system that depends on whether the violating employer "knowingly" or "intentionally" employed the unauthorized alien. The Act applies to Arizona employers of all sizes. The other major provision of the Act requires all employers use the federal E-Verify system to verify the employment eligibility of all new hires beginning January 1, 2008. LAWA was challenged by business and civil rights groups alleging that the Act was preempted by federal law and would lead to discrimination by employers.

Lower courts found that LAWA was not preempted by the Immigration Reform and Control Act of 1986 (IRCA) and that, specifically, the statute was a "licensing" statute that is expressly permitted by that law. On May 26, 2011, The United States Supreme Court affirmed the decisions of the lower courts noting that "Arizona has taken the route least likely to cause tension with federal law."

This ruling will have an impact beyond the borders of Arizona. Many states struggling with illegal immigrant issues have been awaiting this ruling in order to determine whether they should implement their own laws to help curb the hiring of unauthorized workers. However, it should be noted that this ruling does not address Arizona's other controversial immigration statute, S.B. 1070, which requires law enforcement officials to attempt to determine the immigration status of any person that they believe to be an alien unlawfully present in the United States. Stay tuned for updates on that incendiary topic.

MAY 23 Upswing in Logistics Activity Bodes Well for Port of Houston

Upswing in Logistics Activity Bodes Well for Port of Houston
by Gus Bourgeois
May 23, 2011

Research firm Armstrong & Associates ( reported that most third party logistics providers (3PL) experienced improved financial performance in 2010 and into 2011. In its annual report released May 20, 2011, Armstrong & Associates noted that while both revenues and profits of 3PL's were generally higher during those time periods, the trend was strongest in the international transportation management segment.

Meanwhile, in an unrelated report, the Los Angeles Economic Development Corporation recently predicted that the volume and value of international trade in the Los Angeles Customs District (including the Long Beach Port, which has long been the dominant US port for imports from Asia) is expected to grow in 2011. But Donald Sachs, the executive director of the Industry Manufacturers Council, cautioned about whether Southern California would continue to reap the benefits of the resurgence in international trade. "I hate to rain on their parade," he said. "But until we know what effects the widening of the Panama Canal will have, we won't really have a clear picture." According to the Inland Valley Daily Bulletin, which reported the story, Sachs is concerned that allowing bigger ships to go through the canal will give a lot of the local Customs District's business to Texas ports.

The upshot of these reports? With economic trends now firmly reflecting a rebound in international trade, and with the long awaited completion of the Panama Canal expansion only three years away, the hope that the Port of Houston will reap immediate and significant benefits from the expansion — at the peak of the economic cycle — is getting closer to reality.


MAY 20 OSHA Recordkeeping Site for Employers

OSHA Recordkeeping Site for Employers
by Joseph "Trey" L. Wood, III
May 20, 2011

You may have heard, or read in my last blog entry, that the Department of Labor (DOL) has come out with an "App" to assist employees in keeping track of their time for wage and overtime matters.

Not to appear too one-sided, the DOL just came out with a website to assist employers with recordkeeping for OSHA matters.  This directly from the DOL's press release:

"The OSHA Recordkeeping Advisor helps employers and others responsible for organizational safety and health quickly determine whether an injury or illness is work-related; whether a work-related injury or illness needs to be recorded; and which provisions of the regulations apply when recording a work-related injury or illness.  To help employers in making these determinations, the OSHA Recordkeeping Advisor relies on their responses to a series of pre-set questions."

The website may be found at

That's nice, but not as cool as an app.

MAY 20 Reflections of a "Foreigner" on OTC

Reflections of a "Foreigner" on OTC
by Gary W. Miller
May 20, 2011

Assuming that 75,000 attendees can't be all wrong, it was a good year for the 2011 Offshore Technology Conference held in Houston. Much of my focus was on our visitors from the UK and especially Aberdeen, so I was a bit of a foreigner among a close knit group of locals.

Once again, the Post Oak Hilton was sold out with participants from Scotland, and in visiting with more than just a few, I would characterize the mood among the attorneys as cautiously optimistic and the attitude among the business owners as somewhat more upbeat. Bank lawyers were more cautious and hopeful, cautious about the Scottish banks' ability and willingness to lend, but hopeful that their reorganization would allow a return to normality. Merger and Acquisition attorneys were beginning to see some action, but still longed for the days just a few years ago when middle market deals were their constant companion. Lawyers and business people alike were happy to be a year down the road from the Deepwater Horizon, and optimistic that drilling should return to reasonable levels in the Gulf.

The week started on Saturday morning with the OTC kickoff breakfast sponsored by Houston Grampian Association and the British American Business Council. Bob Ruddiman, Head of Energy with McGrigors, focused on changing times as the key note speaker and was the first attorney I have heard give the address. For the visitors, there was Texas golf at its best that followed, as well as a chance to get some quality personal time with their business associates from Aberdeen. From there, it was seminars on the new UK Anti-Bribery laws presented by Aberdeen attorneys from two firms, the always rather excellent Simmons and Paull & Williamsons cocktail parties, as well as a variety of dinners, lunches and cups of coffee. Absent this year were our friends from the Schjødt firm in Norway, but we will look for them again next year.

All in all, for an American lawyer placing himself in the middle of hundreds of overseas visitors, OTC was a good time to renew old friendships and a time to be cautiously optimistic about the times to come.

APR 28 SCOTUS UPDATE: Class Action Arbitration Waivers Valid

SCOTUS UPDATE: Class ACtion Arbitration Waivers Valid
by Joseph "Trey" L. Wood, III
April 28, 2011

On In a bit of good news for employers, the United States Supreme Court on April 27, 2011 struck down a state law which prohibited arbitration agreement provisions waiving the right to participate in class action litigation. In AT&T Mobility LLC v. Concepcion, the Supreme Court considered the issue of whether parties can preclude class actions and class-arbitration by the terms of an arbitration agreement.

Facts: In 2002, Vincent and Liza Concepcion signed a two-year service contract with AT&T Mobility for wireless phone service. In exchange, they were provided two new cell phones "for free." However, AT&T charged the couple sales tax for the full value of the phones. In the contract between the parties there was a clause requiring the Concepcions to arbitrate any disputes with AT&T and prohibited them from participating in any class action against the company. The Concepcions sued AT&T claiming that the company had committed fraud by charging them sales tax on phones that were advertised as free.

Courts Rule: The California federal district court, and the Ninth Circuit Court of Appeals both found that California law invalidated the class action waiver as unconscionable. However, the Supreme Court found that the Federal Arbitration Act preempts state laws that discriminate against arbitration agreements and that the California law did just that.

What It Means: Employers who use arbitration agreements with their employees may now wish to insert into their arbitration agreements language that prohibits employees from joining any class action against the company. For employers who do not use arbitration agreements but are fearful of the potential for class action matters, now may be the time to implement such agreements.

APR 26 "No Match" Letters Return

"No Match" Letters Return
by Joseph "Trey" L. Wood, III
April 26, 2011

After a three-year hiatus, the Social Security Administration (SSA) recently announced that it will again begin sending "No Match" letters to employers.

These letters are used to advise employers that there is a discrepancy in the records of the SSA between the name of an employee and the Social Security number listed for that employee on the payroll taxes submitted by the employer. The SSA suspended sending out these letters for the past three years during litigation surrounding the Department of Homeland Security's (DHS) proposed regulation that would have provided a "safe harbor" for employers if they followed certain procedures in responding to "No Match" letters. The DHS has since withdrawn that proposed regulation.

If you receive a "No-Match" letter from the SSA, you should first check your own records to make certain that the problem does not stem from transposing a number or some other clerical error. If that is not the case, you should follow up with the employee to check to make certain that the information that he/she provided to you is correct. If the employee provided the information that is in question, you should inform the employee of the discrepancy and have the employee resolve the issue with the SSA within "a reasonable period of time." A reasonable amount of time is generally two weeks. After receiving the updated information from the employee, follow up with the SSA to verify any new information or documentation provided by the employee. If the employee fails to provide a satisfactory response, you, as the employer, arguably possess "constructive knowledge" that the employee may not be eligible to work in the United States. Accordingly, at that time the only option may be termination. 

APR 14 Yet Another Reason for Employee Handbook Audits

Yet Another Reason for Employee Handbook Audits
by Joseph "Trey" L. Wood, III
April 14, 2011

While union membership has declined steadily over the past several decades, it is clear that the current administration is an advocate for organized labor. President Obama has appointed two of the most overtly pro-union members to the National Labor Relations Board (NLRB) that we have seen in years. Craig Becker, one of Obama's early appointees who was rejected by the Senate but appointed during the 2010 Easter recess, serves as associate general counsel to the Service Employees International Union and the AFL-CIO. It is his stated opinion that employers "should be stripped of any legally cognizable interest in their employees' election of representatives." Translated — employers should not be allowed to oppose union organizing drives. While pro-union legislation has failed to garner adequate support in Congress, the NLRB has the authority to enact procedural changes that could short circuit what unions are clamoring for-greater employee rights at the expense of employers.

This fact is certainly being reflected in the NLRB's rulings. Recently, the NLRB found that the existence of three objectionable rules contained within an employee handbook were sufficient to overturn the results of a decertification election. In Jurys Boston Hotel, 356 NLRB No. 114 (2011), the employer had voluntarily recognized the union as its employees' bargaining representative. Two years later, the employees filed a petition seeking to decertify the union and the Board scheduled the requested election. The hotel had a 63 page employee handbook containing the regular rules and regulations that might be found in any typical handbook. However, after the election petition was filed, the union filed an unfair labor practice charge challenging three policies within the handbook: 1) No Solicitation Policy; 2) No Loitering Policy; and, 3) Grooming Policy banning wearing of buttons. Those policies had been in effect for two years without the union raising any complaints prior to the requested election. The employer, in response, voluntarily revised two of the policies and deleted one in its entirety. That should have fixed the problem, right? Wrong.

While the original hearing officer found that the policies were objectionable, they "did not require setting aside the election because they were promulgated before the employer recognized the union, were not enforced or cited by the employer during the critical [election] period, and were not shown to have deterred any employee from exercising Section 7 rights."

The NLRB majority overturned the hearing officer's ruling, finding that the policies in question were objectionable and that "[e]ach of these rules, in force during the critical election period, reasonably tended to interfere with employee free choice." The Board also found that the fact that the election was decided by a single vote proved that the rules could have affected the results.

This all points to the inescapable conclusion that the NLRB will do whatever it can to promote the growth of organized labor. Accordingly, employers should do whatever they can to ward off potential claims of unfair labor practices, including having their handbooks reviewed to make sure they are compliant with current labor laws.

APR 06 The Hazard of Dukes

The Hazard of Dukes
by Chris Hanslik & Joseph "Trey" L. Wood, III
April 6, 2011

On March 29 the United States Supreme Court heard oral arguments in Dukes v. Wal-Mart Stores, Inc. The class action lawsuit involves, potentially, 1.5 million female Wal-Mart employees and ex-employees claiming gender discrimination in terms of pay and promotions. The potential liability Wal-Mart faces is in the billions of dollars. However, the case is more significant for class action procedural issues than for any substantive employment-related issues.

The lawsuit has been certified as a class action under two different procedural rules. First, the suit was certified under Federal Rule of Civil Procedure 23(b), which relates only to class action claims for injunctive or declaratory relief. Wal-Mart has argued that the plaintiffs are seeking monetary damages which are clearly more important than any injunctive or declaratory relief which they are seeking. The Ninth Circuit Court of Appeals, which affirmed the class action, indicated that the plaintiffs' claims for monetary damages did not "predominate" over their request for other relief.

The Supreme Court also ordered the parties to brief and argue whether certification is consistent under Federal Rule of Civil Procedure 23(a), which sets forth the class action requirements of numerosity, commonality, typicality and adequacy of representation. It is difficult to conceive of a set of circumstances under which 1.5 million females, located in stores across the country and supervised by thousands of different managers, can meet the rule's requirement that their claims of gender bias all arose from some common plan or scheme stemming from Wal-Mart's corporate headquarters.

According to those who were present at the oral argument, the questions posed by the Justices to the attorneys for both sides seemed to be more sympathetic to Wal-Mart. Several justices sharply questioned whether such a large number of women could be discriminated against without a showing of an "unlawful" policy coming from corporate headquarters. The court is likely to issues a decision in the case prior to the end of its term in late June. We will be sure to update you as soon as the ruling is announced.

MAR 30 The Immigration Dilemma: Ways to Protect Yourself from Liability Under US Immigration Laws

The Immigration Dilemma: Ways to Protect Yourself from Liability Under US Immigration Laws
by Joseph "Trey" L. Wood, III
March 30, 2011

Under the Immigration Reform and Control Act (IRCA) employers are often placed between a rock and a hard place when confronted with an employee who may be unauthorized to work in the United States. This article will explain what employers should do in situations where they suspect their employees may not be authorized to work in this country.

In cases with suspicious circumstances or employee fraud, an employer is not liable for making further investigations of an employee's status. However, employers risk liability if they unreasonably investigate an employee's authorization status by requesting documents and verification without reason. To illustrate, the most common actions which may result in liability under IRCA are:

  • A request for specific documentation can be considered "document abuse" if the request is made for the purpose of discriminating against an individual on the basis of national origin or citizenship status
  • An employer's refusal to accept documents, during the employment eligibility verification procedure, that are acceptable verification documents under the law, and that appear on their face to be genuine
  • Re-verifying a permanent resident only because his or her green card has expired.

Despite the fact that employers may risk liability if they investigate employees without reason, employers still have a duty under IRCA to review work-authorization documents for fraud. Employers are also liable under IRCA for "knowingly" hiring unauthorized aliens, or for continuing to employ such aliens after learning that they are not authorized to work. Employer liability is not limited to those situations where it has actual knowledge that an employee does not have work authorization. "Knowledge" is defined under IRCA to include situations where the employer deliberately fails to investigate suspicious circumstances. The following are examples of constructive knowledge:

  • The employer fails to complete Form I-9 and it turns out the employee is unauthorized to work
  • The employer continues to employ the employee without re-verifying his or her employment eligibility after the expiration date for employment eligibility listed by the alien in Section 1 of the I-9 form
  • The employer has information available to it that indicates the employee is not authorized to work

A general rule of thumb is that employers should not make further inquiries regarding an employee's work authorization based on mere rumors around the workplace. However, if there is conflicting documentation or reliable information becomes available to the employer indicating immigration irregularities, further inquiries are permissible. Employers should remember that they are not expected to be detectives ferreting out all unauthorized workers from the work place. Therefore, when an employee presents documents evidencing employment eligibility from the acceptable list of documents and those documents appear genuine, employers can consider those documents as proof of the employee's eligibility to work in the United States. Absent clear evidence to the contrary, the employer should avoid inquiring further about the employment eligibility of a worker. 

MAR 29 EEOC’s ADA Amendment Act Regulations Finalized

EEOC's ADA Amendment Act Regulations Finalized
by Joseph "Trey" L. Wood, III
March 29, 2011

On Friday, March 25, 2011, the EEOC published its finalized regulations governing the Americans with Disabilities Act Amendment Act (ADAAA). The final regulations may be viewed at Briefly, the highlights of the new regulations are as follows:

"Substantially Limits": The new regulations significantly relax the definition of what impairments "substantially limit" major life activities. The Amendments Act also clearly stated that the Supreme Court's interpretation of the term "substantially limits" as meaning "severely restricts" was too high of a standard and the ADAAA intended to lower that standard. While the Act itself did not offer guidance as to where that standard should be, the proposed regulation specifically states that in order to be "substantially limiting" an impairment need not severely restrict or significantly restrict performance of a major life activity. Certainly, this is a far lower standard than that previously held by the Supreme Court and the EEOC. The proposed regulations do identify that temporary, non-chronic impairment of short duration with little or no residual effects such as a cold or common flu, a sprained joint or a broken bone that is expected to heal completely will usually not substantially limit a major life activity. These conditions could be viewed as both minor and transitory but under the language of the regulations, few other ongoing conditions will likely be excluded if they are found to limit a major life activity or bodily function. They require courts to ignore whether "mitigating measures," such as medication, ameliorate an impairment's effects. Going forward, the evaluation of a "substantial limitation" must be based on the individual's NON-MEDICATED condition. The regulations go on to state that an impairment does not have to "prevent, or significantly or severely restrict" a major life activity to be considered a disability.

Episodic Impairments: The proposed regulations also indicate that an impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active. The EEOC then goes on to list several examples such as epilepsy, cancer, depression, hypertension, asthma, bipolar disorder, and post-traumatic stress disorder.

Examples of Impairments Qualifying As Disabilities: The new regulations also list several impairments that will ordinarily qualify as disabilities. They include "deafness, blindness, intellectual disability (formerly known as mental retardation), partially or completely missing limbs, mobility impairments requiring use of a wheelchair (a mitigating measure), autism, cancer, cerebral palsy, diabetes, epilepsy, HIV/AIDS, multiple sclerosis, muscular dystrophy, major depression, bipolar disorder, post-traumatic stress disorder, obsessive-compulsive disorder, and schizophrenia." In the past, there were no "per se" disabilities.

"Major Life Activities": The EEOC's regulations incorporate the ADAAA's expanded definition of major life activities, but have also added reaching, sitting and interacting with others as major life activities. In addition, the regulations have expanded the list of major bodily functions to include hemic, lymphatic and musculoskeletal systems.

"Regarded As" Having a Disability: The proposed regulations provide several examples of transitory and minor impairments, such as a broken or sprained bone that is expected to heal normally. The regulations also provide examples of impairments that the EEOC would not consider minor and transitory, such as Hepatitis C or heart disease. The "regarded as" employee is not entitled to reasonable accommodation and must establish he or she is "qualified" to do the job.

Five Rules of Construction: The new regulations also detail five rules of construction for determining whether an impairment limits a major life activity.

1. Focus on discrimination-not disability. In ADA cases, the focus should be on whether or not discrimination occurred and not on whether the individual meets the definition of disability.

2. Rejection of Supreme Court. An individual whose impairment substantially limits a major life activity need not also demonstrate a limitation in the inability to perform "activities of central importance to daily life."

3. One impairment is enough. An impairment that substantially limits one major life activity need not limit any other major life activities or impact work to be considered substantially limiting.

4. Use your common sense. When comparing an individual's limitation to determine whether or not it is substantially limited, it should be compared to the general population and a common sense analysis without resorting to scientific or medical evidence may be followed.

5. What is transitory? The regulation clarifies that impairments that last for fewer than six months may still be substantially limiting. Therefore, it is clear that at this point in time, the EEOC is not adopting a bright line rule that conditions lasting six months are transitory in nature and therefore not covered.

The EEOC also explains that an employer may regard an individual as disabled if it takes an action based on a symptom of an impairment. The EEOC provides examples of how this applies. In one example, an employer refuses to hire someone with a facial tic who does not know the facial tic is cause by Tourette's Syndrome. The EEOC would consider the employer in this hypothetical to have regarded the individual as disabled even though it did not know the individual had Tourette's.

MAR 16 SCOTUS UPDATE: Corporations Do Not Have Personal Privacy Rights Under the FOIA

SCOTUS UPDATE: Corporations Do Not Have Personal Privacy Rights Under the FOIA
by Jennifer Hebert
March 16, 2011

On March 1, 2011, the Supreme Court issued a unanimous ruling (with Justice Kagan not participating) holding that corporations do not have personal privacy rights for purposes of Exemption 7(C) of the Freedom of Information Act (FOIA). In Federal Communications Commission v. AT&T, Inc., the court overturned the Third Circuit's previous ruling that AT&T was subject to the "personal privacy" exemption allowed by the FOIA and therefore could withhold documents otherwise subject to an FOIA request. While the Third Circuit had held that AT&T was subject to the exemption because the term "person" as defined in the FOIA included corporations, the Supreme Court disagreed.

In fact, the Supreme Court expressly refused to use the definition of "person" included in the FOIA to infer the meaning of "personal" noting that while words with the same root may have similar meanings, adjectives sometimes "acquire distinct meanings of their own." The Court also noted that "personal" is often used "to mean precisely the opposite of business-related" and dictionary definitions suggest that "‘personal' does not ordinarily relate to artificial ‘persons' such as corporations." As a result, the Court refused to find that corporations such as AT&T have personal privacy rights under the FOIA.

MAR 07 Supreme Court Ruling Bolsters Need For Thorough Investigations and Training

Supreme Court Ruling Bolsters Need For Thorough Investigations and Training
by Joseph "Trey" L. Wood, III
March 7, 2011

Last week the Supreme Court held that an employer may be liable for the discriminatory motives of a supervisor, even when the individual making the employment decision had the purest of motives.  The Court's ruling will trigger human resources departments everywhere to reconsider employment-related decisions where supervisors influence or even provide input into the ultimate decision.

The Court's decision in Staub v. Proctor Hospital involved what is known as the "cat's paw" theory in which many courts have found liability against an employer even when the ultimate decision maker is admittedly unbiased, if the affected employee's supervisor harbors discriminatory animus.  Staub actually involved a claim of discrimination under USERRA, the law protecting employees from discrimination based upon their service in the military.  In the case, the employee's immediate supervisor engaged in a course of conduct against the employee which clearly showed his anti-military feelings.  When the employee violated one of the supervisor's warnings to report to him whenever the employee had completed a task, the human resources manager terminated the employee with little investigation into the matter, relying upon a review of the employee's personnel file and recommendations from the supervisor.  The employee's involvement with the military played no role in the human resources manager's decision to terminate Staub.  However, the Supreme Court found that under such circumstances, the employer may be held liable for discrimination.

This decision serves as a sobering reminder that it is imperative that supervisory personnel be adequately trained on what laws protect employees from discrimination.  It also means that the job of human resources professionals has gotten much harder.  While the Supreme Court refused to adopt a steadfast rule immunizing employers who perform independent investigations of the conduct that led to the adverse employment action, it did provide some guidance:

"Thus, if the employer's investigation results in an adverse action for reasons unrelated to the supervisor's original biased action (by the terms of USERRA it is the employer's burden to establish that), then the employer will not be liable. But the supervisor's biased report may remain a causal factor if the independent investigation takes it into account without determining that the adverse action was, apart from the supervisor's recommendation, entirely justified."

Accordingly, human resources will now, apparently, have to question the motives of any supervisor or supervisors who are claimed to have made, caused or influenced an adverse employment-related decision to be made.

MAR 02 SCOTUS UPDATE: Court Rules in Favor of Funeral Protestors

SCOTUS UPDATE: Court Rules in Favor of Funeral Protestors
by Jennifer Hebert
March 2, 2011

On Wednesday, March 2, 2011, the United States Supreme Court issued a ruling in favor of the controversial leader of the Westboro Baptist Church (Fred Phelps) in the controversial Phelps v. Snyder litigation.

As reported on this website on February 18, 2011, the linchpin of the case involved a determination of the right to free speech versus the rights of freedom of religion and freedom to peaceably assemble, as well as implicating privacy rights for the families of fallen soldiers. In its opinion, the eight-member majority led by Chief Justice John Roberts (only Justice Samuel Alito dissented) found in favor of Phelps and overruled a jury verdict in favor of the Snyder family in the amount of $5 million. The Court, being careful to distance themselves from any implication that they approved of Phelp's actions, relied on First Amendment principles and emphasized the important of protecting free speech, even when hurtful. While noting that Phelps and his followers' actions did inflict pain on the Snyder family, the court also implied that the facts of this case affected their decision primarily because the protest took place virtually out of sight of the Snyder family and attendees of Matthew Snyder's funeral and there was no indication that the protest actually interfered with the funeral.

MAR 01 SCOTUS UPDATE: Another Controversial Arizona Immigration Law Examined

SCOTUS UPDATE: Another Controversial Arizona Immigration Law Examined
by Jennifer Hebert
March 1, 2011

In the past few months, the United States Supreme Court (SCOTUS) has heard oral arguments in several noteworthy cases which could have profound impacts on various issues from freedom of speech and freedom of religion to privacy rights of corporations and immigration reform. Continue to watch our website for additional posting summaries and updates on these potentially landmark cases.

US Chamber of Commerce v. Whiting
(Oral Argument held on December 8, 2010)

As immigration law issues continue to pervade the nightly news, the first of several immigration laws enacted by the state of Arizona over the last few years is now set for contemplation by the Supreme Court.

Basic Facts: In 2007, Arizona (along with the governor of Arizona at the time, Janet Napolitano, now U.S. Secretary of Homeland Security) enacted the Legal Arizona Workers Act, which requires employers in Arizona to verify worker's legal employment status through a federal electronic verification system (E-Verify) and imposes civil fines on businesses (including revocation of state licenses to do business) who employee illegal aliens. Despite the fact that Arizona has yet to attempt to enforce the law against any employer, the Act was not well received by business, civil rights or immigration organizations in the state who argue that the Act is preempted by federal immigration law, including the 1986 Immigration and Reform Act.

Previous Litigation: The Legal Arizona Workers Act has previously been upheld by both the Arizona District Court and the Ninth Circuit Court of Appeals partially due to lack of specific preemptive intent by the U.S. Congress. The Ninth Circuit also specifically held that regulating the employment of unauthorized aliens was within a state's police powers.

Question for the Court: Is the Legal Arizona Workers Act preempted by Federal immigration law?

MAR 01 Update: Employers’ Regulation of Employees’ Social Media Use

Update: Employers' Regulation of Employees' Social Media Use
by Joseph "Trey" L. Wood, III and Chris Hanslik
March 1, 2011

Our November 17, 2010 blog entry titled "NLRB's After Us and We're Not Even Unionized" indicated:

In a recent, somewhat frightening development, the NLRB has recently filed a complaint alleging that American Medical Response of Connecticut, Inc. (AMR) violated Section 7 of the act by terminating an employee for posting negative comments about her supervisor on her Facebook page. AMR has a social media policy that prohibits employees from disparaging the company and its supervisors in social media posts, even when posting while off-duty and using a personal computer. Apparently, the policy did not include a disclaimer that the policy would not be construed or applied in a manner that interferes with employees' rights under the NLRA. The Board's complaint is also noteworthy because of the fact that it appears to allege that merely having an anti-disparagement social networking policy violates Section 7 even if the employer does not actually apply the policy and impose discipline.

As an update to this, the NLRB and the employer, AMR have settled the matter prior to it being heard by an administrative law judge. Therefore, we will not know which direction the ALJ would have ruled.

In another recent case, the Eleventh Circuit Court of Appeals has upheld an employer's right to regulate the type of material that an employee posts on her Myspace page. In Marshall v. City of Savannah, the female firefighter employee posted some questionable photos of herself on the internet. Her employer, being informed of this by a co-worker, was able to view the photos because her status on the site was not "private," allowing anyone to see them. The employer decided to issue the employee an oral reprimand, the lowest form of punishment available, based on the photos' bringing "discredit to the City and Savannah Fire Department." During the counseling session, the employee became very abusive and hostile and was, accordingly, terminated. She sued her employer claiming sex and race discrimination. While the Court sided with the employer, it did so only because the female employee was unable to show that men were treated more favorably than she was.

While this case is less about an employer's right to regulate an employee's social media content and more about the individual's inability to prove any discrimination, it is a helpful ruling for employers. However, we can be certain that the NLRB, which will not be bound by the 11th Circuit' ruling, will continue to push the boundaries of the National Labor Relations Act, especially Section 7 of the Act which protects employees' concerted protected activities. Given the fact that the Board now enjoys a Democratic majority along with an Administration that is pro-labor, employers, both unionized and non-union, would be wise to pay careful attention to which way the wind is blowing.

FEB 22 SCOTUS UPDATE: Do Corporations Have Rights of Privacy?

SCOTUS UPDATE: Do Corporations Have Rights of Privacy?
by Jennifer Hebert
February 22, 2011

In the past few months, the United States Supreme Court (SCOTUS) has heard oral arguments in several noteworthy cases which could have profound impacts on various issues from freedom of speech and freedom of religion to privacy rights of corporations and immigration reform. Continue to watch our website for additional posting summaries and updates on these potentially landmark cases.

Federal Communications Commission v. AT&T, Inc.
(Oral Argument held on January 19, 2011)

Privacy rights of corporations have been at issue in numerous cases through the years, but this case takes a look specifically at whether a corporation has privacy rights similar to that of an individual.

Basic Facts: In 2004, AT&T voluntarily disclosed to the FCC that one of its subsidiaries had erroneously charged the Federal E-Rate program for services provided to a Connecticut school district. After the FCC opened an investigation and requested voluminous amounts of internal documentation from AT&T, the FCC and AT&T reached a settlement of the matter. The settlement, however, was not well-received by Comp-Tel, a trade association representing long-distance telephone service providers, local phone carriers, and other AT&T competitors, and Comp-Tel requested documents from the FCC under the FOIA. The FCC refused to produce sensitive cost and billing data it had received from AT&T but also refused AT&T's request to withhold the rest of the investigatory file, which AT&T claimed was subject to Exemption because it "could reasonably be expected to constitute an unwarranted invasion of personal privacy." The FCC explicitly rejected AT&T's claim of personal privacy and stated that the exemption applied only to the personal privacy rights of individuals.

Previous Litigation: After AT&T filed an unsuccessful appeal with the FCC, the Third Circuit Court of Appeal unanimously disagreed with the FCC's interpretation of the FOIA exemption at issue and held that the Administrative Procedure Act in which the FOIA is included specifically defines "person" to include a corporation.

Question for the Court: Does a certain Freedom of Information Act exemption which exempts from disclosure information compiled for law enforcement purposes when disclosure of such information could be considered an unwarranted invasion into "personal privacy" apply to corporations?

FEB 18 SCOTUS UPDATE: Does Freedom of Speech Trump the Freedom of Religion and the Right to Peaceably Assemble?

SCOTUS UPDATE: Does Freedom of Speech Trump the Freedom of Religion and the Right to Peaceably Assemble?
by Jennifer Hebert
February 18, 2011

In the past few months, the United States Supreme Court (SCOTUS) has heard oral arguments in several noteworthy cases which could have profound impacts on various issues from freedom of speech and freedom of religion to privacy rights of corporations and immigration reform. Continue to watch our website for additional posting summaries and updates on these potentially landmark cases. First up — Snyder v. Phelps.

Snyder v. Phelps
(Oral Argument held on October 6, 2010)

The facts of this case have been all over the news in various forms since 2006 when Albert Snyder's son, Marine Lance Corporal Matthew A. Snyder, was killed in action while deployed in Iraq. Little did Snyder know that his son's tragic death would lead to one of the most watched Supreme Court cases in years, implicating the United States' sacred freedoms of religion and freedom of speech.

Basic Facts: At Matthew Snyder's military funeral, well known protester Fred Phelps and his follower's from the Westboro Baptist Church (known for disrupting military funerals all over the United States with anti-homosexuality protests) picketed carrying inflammatory signs and later published a controversial poem allegedly about Matthew Snyder's upbringing on the WBC's website.

Previous Litigation: Snyder successfully filed suit against Phelps and WBC for intentional infliction of emotion distress, invasion of privacy, and conspiracy based on their actions related to Matthew Snyder's funeral and was awarded $2.9 million in compensatory damages and $8 million in punitive damages from the jury at trial. On appeal, the Fourth Circuit Court of Appeals overturned the trial court judgment citing first amendment grounds and stating that Phelp's speech was protected as a result. The Fourth Circuit Court of Appeals also ordered Snyder to pay Phelp's legal bills of more than $16,000.

Question for the Court: The Supreme Court now must determine whether the First Amendment's freedom of speech guarantee should outweigh an individual's right to freedom of religion and peaceful assembly, as well as related issues such as whether a funeral should be afforded the same level of privacy one expects to receive in his home or is a public forum and whether the parents of a fallen soldier are "public figures" such that they have lesser privacy rights.

FEB 14 Baby Steps to Business in Cuba?

Baby Steps to Business in Cuba?
by Edgar Saldivar
February 14, 2011

On January 28, 2011, new rules on travel and money transfers to Cuba took effect, which amend portions of the Cuban Assets Control Regulations, 31 CFR part 515 (the "Regulations"). The Regulations are part of a comprehensive program related to the long-running U.S. embargo imposed against Cuba in response to the 1959 Cuban Revolution.

The new rules provide for more travel to Cuba for educational, cultural, religious, and journalistic activities. The following are some of the highlights of these changes:

  • Section 515.565 of the Regulations now provides a general license authorizing academic institutions to engage in travel-related transactions for certain educational purposes, instead of the previous and more restrictive requirement of a specific license.
  • The new general license also lets U.S. students study in Cuba through any sponsoring academic institution for a longer period of time than previously allowed.
  • A new category of travel under this section authorizes travel for educational purposes through organizations that promote "people-to-people" contact, not necessarily through academic institutions. 
  • Section 515.566 also provides a general license to religious organizations to engage in travel-related transactions for religious purposes.

While the new rules on travel clearly implement policy changes designed to increase people-to-people contact and enhance the free flow of information between the two nations, some of the new rules on remittances, or cash payments, to Cuba reveal an intent to promote private enterprise in Cuba, which could lay the groundwork for further relaxing of trade restrictions. The new rules generally expand licensing of remittances to Cuba under section 515.570. Now under a general license, anyone subject to U.S. jurisdiction can make periodic payments of $500, up to four times a year, to Cuban nationals, not just family members, provided the recipient is not an official of the Government of Cuba or a prohibited member of the Cuban Communist Party, as defined by the Regulations. The new paragraph (b) explicitly allows for investments "to support the development of private businesses." Moreover, paragraph (g)(1) under the new rules states that specific licenses may be issued on a case-by-case basis for remittances to individuals or independent non-governmental entities "to support the development of private business, including small farms."

Although the new rules appear to ease the Cuba travel ban, it remains unclear what the effect on the overall trade embargo will be, specifically as it relates to U.S. business. A close reading of the new rules on remittances suggests that encouraging business in Cuba is part of the agenda. However, as with anything, things are always more complicated than they appear, and it will take greater efforts from both sides of the Florida Straits to really open up business between the two nations.

FEB 09 Set Your Business Up Right and Avoid Bitter "Business Divorce" Down the Road

Set Your Business Up Right and Avoid Bitter “Business Divorce” Down the Road
by Chris Hanslik
February 9, 2011

As an entrepreneur, you believe your new business venture will succeed.  Why wouldn't you?  You and your business partners have an idea for a product or service that the public wants and needs.  Hours of careful deliberation have gone into the business plan and personal finances are the source of your initial capital.

During a business start up, funds are often limited and it's common for founders to avoid unnecessary expenses until the business is up and running.  Don't, however, neglect the need for solid corporate formation documents when you start your business. Small- to mid-sized companies often fail to fully consider the implications of proper documentation on the affairs of the company and the potential problems that can arise down the road should animosity develop between the owners.

When owners cannot agree on the direction of the business it can lead to what some call a "Business Divorce" - which is essentially a "break up" of business partners.

Business Divorces come in all shapes and sizes and for countless reasons.  The one universal truth is, that if not handled properly, the business itself can be the victim of the fight - and fighting among owners can put a drain on the company's resources and distract from running the business. The good news is that most Business Divorces can be avoided by following these tips:

  • Execute the proper formation documents at the beginning of the venture to include: By-Laws, Shareholder Agreement, Company Agreement, Employment Agreement, etc.
  • Document each partner's expectations related to owning and operating the business in the formation documents to include job titles and descriptions as well as compensation
  • Ensure the formation documents contain an easy to follow Buy-Sell provision
  • Ensure the formation documents contain an easy to follow "dead-lock" provision so that the business is not unnecessarily interrupted because the owners cannot agree on something
  • Ensure that any owner compensation changes are done on a proportionate basis
  • Don't terminate an owner who is also an employee unless good cause exists

It's important to remember that without these safeguards, when a dispute occurs the time and money spent fighting over who is entitled to what usually destroys the very thing the parties are fighting over - the company.  With prudent planning on the front-end, a framework can be established to allow for a peaceful separation if needed.

FEB 07 Workplace Romance: Avoid Problems—Send in the Love Contract

Workplace Romance: Avoid Problems-Send in the Love Contract
by Joseph "Trey" L. Wood, III
February 7, 2011

In honor of Valentine's Day, when love is "in the air," it seems fitting to address an issue that affects employers every day:  workplace romances. 

At some point, an office or workplace romance will flourish at your place of business, if it has not already.  It seems only logical since people spend large amounts of time together at work (most employees spend at least 160 hours per month at work), that relationships may develop outside the scope of normal business duties.  The question then becomes, as an employer, how should a company handle these types of relationships?

First, as a rule of thumb, employees at the managerial and/or supervisor level should avoid office romances with subordinates.  As with any romantic relationship, the odds that it will sour are high, and additionally, your company risks serious exposure to a sexual harassment lawsuit, even if the relationship was consensual.  For instance, a subordinate employee could allege that she was afraid to lose her job if she did not participate in the relationship, regardless of whether that claim is true or not. 

The most sensible position for any employer should most certainly be that employees should not engage in non-professional, romantic relationships with co-workers.  To get this point across, many companies maintain an "anti-fraternization" policy to discourage these types of relationships.  Despite best efforts, however, these types of policies do not always work.  Although it can be helpful to have an anti-fraternization policy, it will not serve as a deterrent to individuals that are truly serious about exploring a non-work-related relationship with a co-worker.

Anti-fraternization policies may be totally disregarded by employees, and are difficult for employers to enforce.  What then is the point of including such a policy in an employee handbook?  At the very least, employers have a clear policy that has been communicated to employees which states that romantic relationships are discouraged (or forbidden entirely, depending on the policy language) and are a violation of company policy.  If this does not work, what other options do you have as an employer to prevent a workplace romance from potentially leading to a lawsuit?  The answer can be found in a newly developed idea that is becoming more common each day: the "love contract."

Employers are aware that workplace romances can, and in most instances, will cause problems.  As such, when management learns of a workplace relationship, it is a good idea to have the employees involved sign what has become commonly known as the "love contract."  This type of contract allows employees to put into writing the understanding that they are engaged in a consensual relationship.  In addition to allowing employees to confirm that their relationship is consensual, it allows them to agree in writing that they will follow all company guidelines and policies dealing with harassment and discrimination.  Further, the employees can agree that they will conduct themselves professionally at work, will not play favorites (particularly with each other at the expense of other employees), and will refrain from engaging in behavior that has no place in a work setting. 

Workplace romances will happen, at some point or another.  Incorporating anti-fraternization language into your policies, although a good idea, will not necessarily curb a relationship that does not want to be curbed.  In extremely rare instances, your employees may even do a very good job of keeping the relationship a secret from everyone else, including management, and there will be no noticeable problems caused that can be attributed to the relationship.  In a majority of cases however, the relationship will become common knowledge, and when that happens, consider sending in the "love contract" to protect yourself, especially once the love is gone.

FEB 02 The Internet and Its Impact on Litigation: What Can Attorneys and Judges Cite in the Internet Era?

The Internet and Its Impact on Litigation: What Can Attorneys and Judges Cite in the Internet Era?
by Jennifer L. Hebert
February 2, 2011

In today's world of online dictionaries and Wikipedia, online research and citation of online sources is becoming more prevalent in legal writing for both attorneys and judges. But what can and should you cite as an attorney? What should you avoid? And how do you know what's accurate and what's not? Unfortunately, there isn't a clear answer, but by following the tips below, you can make an informed decision when necessary:

  • Always check the applicable rules and professional rules of conduct for guidance. While most rules do not yet directly address these issues, they may at least provide some guidance.
  • Research your source to determine if it is reliable. If there is any question as to the reliability of the information, it most likely is best not to use that source and find an alternative source if one is available. While some online resources are generally reliable, others are not. For example, while it does occasionally contain mistakes, Wikipedia has been found to be accurate as any other encyclopedia in multiple studies. But because Wikipedia consists of user-generated content, you would be wise to double check any information received through Wikipedia with other sources when available. 
  • Know what the courts are citing and what they are avoiding. For example, Wikipedia has been cited for general propositions by multiple courts but has not been widely accepted for use. has also been cited by multiple courts, and appears to be generally cited by courts throughout the country.
  • Be careful using online citations. Web addresses change on a regular basis, and as a result, your citations may not be correct by the time someone else is trying to find the source you are citing.
  • Most importantly, ask yourself whether the information you want to cite would be useful for the court. Is it something the court should consider? In general, if the information is collateral to the real issues involved, don't cite it. On the other hand, definitions or issues for which the court can take judicial notice can generally be cited without concern if the information comes from reliable source.

Overall, use common sense and good judgment and you should reach the right decision.

JAN 26 Supreme's Give Nod to Third-Party Retaliation

Supreme's Give Not to Third Party Retaliation
by Joseph "Trey" L. Wood, III
January 26, 2011

In a rare unanimous decision, the United States Supreme Court has ruled that Title VII of the Civil Rights Act of 1964 covers retaliation claims filed by third-parties who are considered to be "aggrieved persons" because they are "within the zone of interests sought to be protected by Title VII." Thompson v. North American Stainless, LP, No. 09-291, U.S. Supreme Court (January 24, 2011).

Background: Eric Thompson and his fiancé, Miriam Regalado, were employees of North American Stainless, LP. Three weeks after Regalado filed a sex discrimination charge against the employer with the Equal Employment Opportunity Commission (EEOC), the company fired Thompson. Thompson filed suit against the company alleging his termination was to retaliate against Regalado for filing her Charge. The District Court for the Eastern District of Kentucky and the Sixth Circuit Court of Appeals both found in favor of the employer finding that Thompson was not "in the class of persons for whom Congress created a retaliation cause of action."

Supremes Reverse: The first issue that the Supreme Court had to decide was whether Thompson's firing was unlawful retaliation. They concluded it is "obvious that a reasonable worker might be dissuaded from engaging in protected activity (i.e., filing a Charge of discrimination) if she knew that her fiancé would be fired."

The second issue to be resolved was whether Thompson could sue under Title VII for third-party retaliation. The Court declared, in a decision written by Justice Antonin Scalia, that a plaintiff may sue if he/she "falls within the 'zone of interests' sought to be protected by the statutory provision whose violation forms the legal basis for his complaint." However, a person may not sue if his/her interests are "marginally related" or "inconsistent" with the purpose intended by Congress.

What this Means to You: While the meaning of the phrase "zone of interest" was not defined, it is obvious that employers will have to be careful in taking any adverse employment actions against employees who have a unique relationship with an employee who has taken protected activity, such as filing a Charge of discrimination, or complaining of illegal workplace harassment.

JAN 25 2011 Houston Office Market Real Estate Forecast

2011 Houston Office Market Real Estate Forecast
by Tim Heinrich
January 25, 2011

In a recent forecast for Houston's 2011 office real estate market, Jay Nowlin, President and Founder of Nowlin Interests, expressed "cautious optimism" during a luncheon hosted by O'Connor & Associates on Jan. 12.  The following are highlights from the forecast:

  • Although Houston experienced significant job losses in 2009, job loss and job creation in 2010 were about break-even.  Positive job creation is anticipated for 2011, especially among larger companies.  Also, there was a near-doubling in 2010 of the active rig count in the United States, as horizontal drilling activities continued to increase.  This significant increase in drilling activity should generate additional business for oil service companies, which are a significant part of the Houston economy.
  • The Class A office market will perform better in 2011 than the Class B and Class C markets.  Large corporations, which are active users of Class A space, are sitting on large reserves of cash, waiting for the opportunity to expand.  Also, a limited construction of new Class A space means there is not a great need for absorption.  As such, occupancy levels are expected to increase in the future.  However, small businesses are still struggling to meet their capital needs.  Although lenders are starting to make more loans, lending is still selective and tight.  Vacancy rates in Class B and Class C buildings are expected to continue at current levels.
  • Active investors appear to be interested principally in acquiring core assets, even though these assets generally produce lower returns.  There is a perception of certainty with these assets, which makes acquisition loans more readily available.  Value-added assets, however, are still slow to move on the market because of a disparity between the pricing by sellers and buyers.  Sellers are asking prices that they hope will recover some of their investment, while buyers are offering much lower prices because the limited availability of ready, attractive financing makes it more difficult to achieve adequate returns.  Transactions involving "distressed" assets will eventually resume as sellers, buyers and lenders begin to acknowledge that we have reached the bottom of the downturn in the commercial real estate market.

Although the Houston office is not expected to return to the robust times occurring 5 years ago, it does appear that 2011 will be stronger than 2010, at least for properties that are well positioned in the market.

JAN 21 Return to Work "Without Restriction"

Return to Work "Without Restrictions"
by Joseph "Trey" L. Wood, III
January 21, 2011

Many employers have policies that state that employees who wish to return to work following an illness or injury must be able to do so "without restriction" or for "full duty." It now appears that those types of policies are seen as red flags by the Equal Employment Opportunity Commission (EEOC) when employees are terminated for not being able to meet these requirements. Earlier this month the EEOC announced a $3.2 million settlement in a lawsuit against Jewel-Osco, alleging that the grocery chain fired disabled employees who could not return to work without restriction rather than seeking to find them reasonable accommodations.

While the company has denied any wrongdoing and has indicated that it chose to settle the case to avoid litigation costs and put the matter behind them to focus on current business initiatives, it is clear that the EEOC's suit had some merit. Part of the consent decree governing the settlement requires Jewel-Osco to engage a consultant to review and recommend changes to its current job descriptions to make sure that they accurately describe physical requirements for the job. It also requires the company to obtain recommendations from the consultant regarding possible accommodations to common work restrictions in various positions within the store.

What should you do?
For most companies, best practices include having up-to-date job descriptions in order to make decisions about accommodating an employee's medical restrictions. Accurate job descriptions can be the lynch pin to defending a disability claim as the employer is given a great deal of deference in deciding what the essential functions of a particular job are. In addition, when an employee is unable to return to full duty, it is the employer's obligation to engage in the interactive process to determine if a reasonable accommodation can be found. While employees are never required to create a job for an employee, it should be determined if the employee's condition truly limits him/her from the essential functions of the job, or just peripheral job tasks that can be easily delegated to others without any undue hardship. Finally, it is strongly recommended that employers review their return to work policies to make sure they include a disclaimer that the provisions of the Americans with Disabilities Act (ADA) will be complied with in making the determination of returning the employee to work.

JAN 05 New Year's Resolutions

New Year's Resolutions
by Joseph "Trey" L. Wood, III
January 5, 2011

New Year's Resolutions — we make them every year:  lose weight, exercise more, spend more quality time with the family, etc., etc.  But have you ever decided to resolve to create a work environment that fosters greater employee productivity and loyalty, and reduces potential employment liability?  Why not try it this year?

Sometimes, employers feel that the solution to any employee problem is to apply a monetary poultice.  With the economy the way it has been lately, this is increasingly difficult and is rarely the solution.  While employee compensation is important, a study was conducted to find out what managers thought was important versus what their employees thought was important.1 Here are the findings:

What Managers Think Employees Want (in order)

1. Good wages
2. Job security
3. Promotion/growth opportunities
4. Good working conditions
5. Interesting work
6. Personal loyalty to workers
7. Tactful discipline
8. Full appreciation for work done
9. Sympathetic help on personal issues
10. Feeling 'part' of things.

What Employees Say They Want (in order)

1. Full appreciation for work done
2. Feeling 'part' of things
3. Sympathetic help on personal issues
4. Job security
5. Good wages
6. Interesting work
7. Promotion/growth opportunities
8. Personal loyalty to workers
9. Good working conditions
10. Tactful discipline

Is it surprising that the top three things that employees say they want from their managers are at the bottom of what managers think employees want? In order to turn this around, it is important for employers to make the following resolutions:

Train Managers and Supervisors

In addition to training management personnel about the importance of spotting employment issues before they become lawsuits, it is also important that they understand that to foster a more productive and cohesive workforce, they should be attuned to what employees want from their employer. Accordingly, train managers to pay attention to those three things above that are most important to employees so that they may modify their own behavior to make the workplace more harmonious.

Audit Employee Handbooks and I-9 Forms

Employment laws change daily, and ICE (Immigration Customs and Enforcement) raids are becoming more commonplace. To avoid potential liability for failing to have proper policies and completed paperwork, make sure to have your employee handbook reviewed by a qualified professional, and conduct an internal audit of the company's I-9 forms.

Regularly Distribute Harassment/Discrimination Policies and Obtain Signed Acknowledgments

Nothing is more frustrating than facing an employee in a harassment suit who claims that he/she was never told about the company's harassment policy. To avoid facing this dilemma, distribute these policies at least once a year and make sure that all employees sign a document acknowledging their receipt of the policy. In addition, make sure that you have a signed acknowledgment from each employee that he/she has received a copy of the employee handbook.

Making these three simple resolutions for your company, and sticking to them, will go a long way in making the New Year very bright and promising!


1 Foreman Facts, from the Labor Relations Institute of NY. This study was replicated with similar results by Ken Kovach (1980); Valerie Wilson, Achievers International (1988); Bob Nelson, Blanchard Training & Development (1991); and Sheryl & Don Grimme, GHR Training Solutions (1997-2001).

DEC 23 EEOC Has Banner Year

EECO Has Banner Year
by Joseph "Trey" L. Wood, III
December 23, 2010

The Equal Employment Opportunity Commission (EEOC) has reported that for FY 2010, which ended September 30, a record 99,922 charges of discrimination were filed.  That is the largest number in the 45-year history of the Commission.  The agency also recovered more than $319 million in monetary benefits for individuals-its highest level ever.  Other achievements include:

  • The mediation program ended the year with a record 9,370 resolutions, 10 percent more than FY 2009 levels, and more than $142 million in monetary benefits.
  • The EEOC also expanded its reach to under-served communities by providing educational training and public outreach events to approximately 250,000 persons.
  • The agency continued its concerted effort to build a strong national systemic enforcement program. At the end of the fiscal year, 465 systemic investigations, involving more than 2,000 charges, were undertaken.
  • The EEOC resolved a total of 7,213 requests for hearings in the federal sector, securing more than $63 million in relief for parties who requested hearings. The agency also timely resolved more than 66 percent of federal sector appeals.

Key factors for this third straight year of record, or near record, charges include layoffs and cutbacks by employers.  While some may believe that the shift in control of the U.S. House of Representatives will stem the rising tide in discrimination claims made with the EEOC, this is likely not true.  While there has been a shift in the legislative branch, the current administration and administrative agencies like the EEOC do not need the approval of Congress to enforce existing laws. 

The most important thing that employers can do to try and avoid this trend affecting their companies is to train managers and supervisors in what is required of them by various employment laws so that they may spot potential issues before they become problems.

DEC 22 Death of the Employee Free Choice Act No Deterrent to National Labor Relations Board

Death of the Employee Free Choice Act No Deterrent to National Labor Relations Board
by Joseph "Trey" L. Wood, III
December 22, 2011

While the last election may have sounded the death knell of the proposed Employee Free Choice Act (EFCA), it does not mean that the current administration is rolling over on the issue of organized labor.  In a startling new maneuver, the National Labor Relations Board (NLRB) has issued a proposed regulation that would require most employers to post a notice advising employees of their rights under the National Labor Relations Act (NLRA), how an employee can file an unfair labor practice complaint, the right of employees to collectively bargain and elect a union, etc.  The language of the proposed poster is set out below.  It is certain that there will be a public outcry over this proposed regulation, but in the end, if the regulation is passed by the Board, expect the amount of union activity to increase significantly.

Employee Rights Under the National Labor Relations Act
The NLRA guarantees the right of employees to organize and bargain collectively with their employers, and to engage in other protected concerted activity. Employees covered by the NLRA* are protected from certain types of employer and union misconduct. This Notice gives you general information about your rights, and about the obligations of employers and unions under the NLRA. Contact the NLRB, the Federal agency that investigates and resolves complaints under the NLRA, using the contact information supplied below, if you have any questions about specific rights that may apply in your particular workplace.

Under the NLRA, you have the right to:

  • Organize a union to negotiate with your employer concerning your wages, hours, and other terms and conditions of employment.
  • Form, join or assist a union.
  • Bargain collectively through representatives of employees' own choosing for a contract with your employer setting your wages, benefits, hours, and other working conditions.
  • Discuss your terms and conditions of employment or union organizing with your co-workers or a union.
  • Take action with one or more co-workers to improve your working conditions by, among other means, raising work-related complaints directly with your employer or with a government agency, and seeking help from a union.
  • Strike and picket, depending on the purpose or means of the strike or the picketing.
  • Choose not to do any of these activities, including joining or remaining a member of a union.

Under the NLRA, it is illegal for your employer to:

  • Prohibit you from soliciting for a union during non-work time, such as before or after work or during break times; or from distributing union literature during non-work time, in non-work areas, such as parking lots or break rooms.
  • Question you about your union support or activities in a manner that discourages you from engaging in that activity.
  • Fire, demote, or transfer you, or reduce your hours or change your shift, or otherwise take adverse action against you, or threaten to take any of these actions, because you join or support a union, or because you engage in concerted activity for mutual aid and protection, or because you choose not to engage in any such activity.
  • Threaten to close your workplace if workers choose a union to represent them.
  • Promise or grant promotions, pay raises, or other benefits to discourage or encourage union support.
  • Prohibit you from wearing union hats, buttons, t-shirts, and pins in the workplace except under special circumstances.
  • Spy on or videotape peaceful union activities and gatherings or pretend to do so.

Under the NLRA, it is illegal for a union or for the union that represents you in bargaining with your employer to:

  • Threaten you that you will lose your job unless you support the union.
  • Refuse to process a grievance because you have criticized union officials or because you are not a member of the union.
  • Use or maintain discriminatory standards or procedures in making job referrals from a hiring hall.
  • Cause or attempt to cause an employer to discriminate against you because of your union-related activity.
  • Take other adverse action against you based on whether you have joined or support the union.

If you and your co-workers select a union to act as your collective bargaining representative, your employer and the union are required to bargain in good faith in a genuine effort to reach a written, binding agreement setting your terms and conditions of employment. The union is required to fairly represent you in bargaining and enforcing the agreement.

Illegal conduct will not be permitted. If you believe your rights or the rights of others have been violated, you should contact the NLRB promptly to protect your rights, generally within six months of the unlawful activity. You may inquire about possible violations without your employer or anyone else being informed of the inquiry. Charges may be filed by any person and need not be filed by the employee directly affected by the
violation. The NLRB may order an employer to rehire a worker fired in violation of the law and to pay lost wages and benefits, and may order an employer or union to cease violating the law. Employees should seek assistance from the nearest regional NLRB office, which can be found on the Agency's website at

You can also contact the NLRB by calling toll-free: 1-866-667-NLRB (6572) or (TTY) 1-866-315-NLRB (1-866-315-6572) for hearing impaired.

*The NLRA covers most private-sector employers. Excluded from coverage under the NLRA are public-sector employees, agricultural and domestic workers, independent contractors, workers employed by a parent or spouse, employees of air and rail carriers covered by the Railway Labor Act, and supervisors (although supervisors that have been discriminated against for refusing to violate the NLRA may be covered).

This is an official Government Notice and must not be defaced by anyone.

DEC 17 Texas Governor Rick Perry Proposes “Loser Pays” Tort Reform, But Does Anyone Win?

Texas Governor Rick Perry Proposes "Loser Pays" Tort Reform, But Does Anyone Win?
by Andrew Pearce
December 17, 2010

Following his recent re-election, Texas Governor Rick Perry is apparently proposing a British-style "loser pays" rule.  Currently, only plaintiffs can recover litigation costs, and only in limited circumstances.  Under the "loser pays" rule, a plaintiff could be required to pick up the costs of the defendant if the plaintiff loses the lawsuit. 

Not surprisingly, arguments are being made both for and against such a rule depending on the politics.  Some argue that there are too many frivolous lawsuits filed; others assert that a "loser pays" system would have the effect of closing the courthouse doors to ordinary citizens. 

An opinion from the Wall Street Journal claims that the "loser pays" rule - which would only apply to claims defined as "groundless"  (in other words, any case that is lost) - would provide an extra disincentive for the tort industry to bring such groundless claims.  And in doing so, Texas would arguably build on reforms in 2003 and 2005 that have vastly improved the state's legal climate.

However, an argument from provides that the "loser pays" system can actually have the opposite effect because plaintiffs are encouraged to file potentially strong cases involving trivial amounts without worrying about the expense.  Further, parties are less likely to settle because the motivation to avoid the expense of protracted litigation is lessened when a party believes it will recover the costs at trial.

Time will tell whether Governor Perry intends to aggressively pursue a "loser pays" system in Texas.  And, as with most things, the consequences of such a system are equally unclear.

To read more about the Wall Street Journal Opinion, visit:

The Argument can be read here:

DEC 07 Department of Labor Now in the Attorney Referral Business

Department of Labor Now In the Attorney Referral Business
by Joseph "Trey" L. Wood, III
December 7, 2010

As most of you know, overtime wage claims and FMLA claims have sky-rocketed. The Department of Labor (DOL), which is responsible for handling these types of matters, has now announced that if they are too busy to handle one of these claims, a new federal program will help make sure the employee is referred to a lawyer who is qualified to pursue the complaint on behalf of the employee. The referral program is part of the Obama administration's Access to Justice Initiative. The following is a description of the program from the White House press release:

"The Department of Labor and the American Bar Association (ABA) (have) announced a collaboration to help workers resolve complaints received by DOL's Wage and Hour Division (for) not getting paid the minimum wage or not being paid overtime, or being denied family medical leave.

Beginning on December 13, 2010, complainants whose cases cannot be resolved by DOL because of limited capacity will be given a toll-free number to a newly created system where they are connected to an ABA-approved attorney referral provider if there are participating attorneys in their area.

In addition, if DOL has conducted an investigation, the complainant will be given information about the findings to provide to an attorney who may take the case, including the violations at issue and any back wages owed.

DOL has also developed a special process for complainants and representing attorneys to obtain relevant case information and documents when available."

The bottom line is this: the current administration is making a clear statement that laws protecting employees will be strongly enforced. The best thing for employers to do is to make sure that their employees are properly classified and being paid overtime and to review their leave policies to make certain they are compliant.

DEC 02 Mandatory Health Risk Assessments Violate the ADA

Mandatory Health Risk Assessments Violate the ADA
by Joseph "Trey" L. Wood, III
December 2, 2010

An Equal Employment Opportunity Commission (EEOC) Informal Discussion Letter reveals the EEOC's opinion that health risk assessments (HRA) are invalid as long as they are mandatory. In other words, an employer could be sued under the Americans with Disabilities Act (ADA) for refusing health care coverage to an individual because he or she failed to participate in an HRA.

An HRA is a type of medical examination to determine an individual's overall level of wellness. It includes a questionnaire asking about lifestyle, diet, exercise choices and biometrics testing cholesterol and blood pressure. After completing the assessment, the individual is given a score and practical ways of improving their health. In answering the HRA questionnaire, however, the individual may disclose information related to disability or medical examinations or both. This information is protected under the ADA and employers may not ask for this type of information unless it is job-related and consistent with a business necessity. Requiring employees to complete an HRA is not considered job-related and consistent with a business necessity because it is not related to an employee's ability to perform an essential job function. An HRA is too general and too subjective for such a purpose.

An HRA is mandatory if non-participating individuals are penalized compared to participating individuals. For example, the denial of health care coverage or other benefits would constitute a penalty, but the forfeiture of an inducement to participate in an HRA is not a penalty, as long as the inducements meet certain criteria set by HIPAA. The value of the participation rewards may not exceed 20% of the total health insurance coverage for the individual employee or the employee and dependent. In addition, the reward must be reasonably designed to prevent disease or promote health, employees must be given the opportunity to participate in the program at least once a year, and similarly situated employees should receive the same reward.

As long as the HRA is part of an employer's voluntary wellness program, the HRA is legal. But, when the HRA is a prerequisite for health insurance coverage, it is a violation of the ADA. Additionally, employers should look at their HRA incentives to make sure they do not violate HIPAA.

NOV 18 Tips for Transitioning 3PL Services

Tips for Transitioning 3PL Services
by Gus Bourgeois
November 18, 2010

Here are a few tips for manufacturers and other consumers of third party logistics (3PL) services to consider when drafting their next 3PL contract, to minimize transition issues, regardless of whether transitioning to another provider or in-house:

  • The transition from your incumbent 3PL to another provider, or from your incumbent 3PL back in-house, is a process - even in relatively basic 3PL arrangements, the transition can often take several months. More importantly, the transition will require the incumbent 3PL to work closely with you and any successor 3PL to ensure that your supply chain is not interrupted. Of course, the incumbent 3PL has its own concerns, such as redeploying employees and equipment in a timely manner, and minimizing "end-of-contract" expenses. It is therefore wise to include a "transition" clause in your 3PL contract, setting forth in reasonable detail those additional duties required of the incumbent 3PL as part of the transition process (including a general duty to act in good faith to assist in such transition), allocating costs related to those additional duties, and most importantly, identifying those critical "end-of-contract" tasks which must be successfully completed before final payments are made.
  • Perhaps the most important service provided by a 3PL relates to information about the flow of goods through your supply chain. Visibility to this data is crucial to your core business, and any gap in that visibility can affect your bottom line. Therefore, one of the most important considerations from the very start of any 3PL relationship is to ensure that you will have unrestricted access to such information during any end-of-term transition period, and that upon termination, such historical data will be provided to you (and to any successor 3PL) in a format that is efficient and economical, in order to facilitate a smooth transition. One key point in this regard is to make certain to include a clause stating that all of your data in the possession of the incumbent 3PL, regardless of the form it may be in or whether the format has been manipulated by such 3PL, remains your sole property.
  • As mentioned, 3PL relationships tend to be long-term, often lasting multiple years and in some cases, more than a decade. As a result, certain key employees of your incumbent 3PL can become so integrated into your supply chain function that losing access to the knowledge base of those employees in any transition would be detrimental to your operations. Of course, 3PL providers recognize this fact and the inherent value of these employees, not only because of the experience and knowledge they bring to the 3PL and its other customers (existing or potential), but because their ability to retain these employees (or, more to the point, to prevent such employees from working directly for you or a successor 3PL for some period of time after any termination) acts as a disincentive to your ending your relationship with such 3PL. As a result, 3PL providers typically include "no-hire" clauses in their customer contracts. You should evaluate these clauses carefully and consider their effect on your future transition plans. At the very least, it is recommended that you include a liquidated damages or "buy-out" clause, so that you have an option to hire any such key persons in-house, in the event that a transition would otherwise involve the loss of the services of such person. It may be easier to negotiate the amount of such liquidated damages or buy-out provisions at the start of the 3PL relationship, when the 3PL is anxious to finalize the contract and start the flow of payments, than to negotiate the deletion of the clause entirely, which will almost certainly be met with stern opposition from even the most eager 3PL.
  • Although an efficient and cost-effective dispute resolution process is critical to any long-term services contract, it is especially important with respect to 3PL contracts in any transition process. You should take care to negotiate a dispute resolution clause that prohibits the 3PL from terminating the contract earlier than the anticipated termination date, suspending services or payments to your suppliers, or otherwise disrupting the flow of goods and information through your supply chain, due to the existence of a pending dispute. While these actions would be detrimental if taken at any time during the term of the contract, they are more likely to occur during a transition, when the incumbent 3PL may feel that it has less to lose in taking such actions (and may also fear that resolving the dispute may have less significance to you once it is no longer the "incumbent" 3PL). It is therefore critical to clearly specify the parameters of the dispute resolution process, and to separate such process from the ongoing provision of services by the incumbent 3PL.
NOV 18 Paycheck Fairness Act is Dead - For Now

Paycheck Fairness Act is Dead — For Now
by Joseph "Trey" L. Wood, III
November 18, 2010

On November 17, the Senate voted 58-41 against proceeding to a floor debate on the Paycheck Fairness Act. That means that the legislation, which had the support of President Obama and was previously passed by the House of Representatives, is dead. As you may recall from my October 10 posting (Paycheck Fairness Act - Fair to Who?), the Act would have made employers liable for unlimited punitive damages under the Fair Labor Standards Act for even unintentional pay disparities, and would have eliminated current limits for back pay as well as for compensatory damages. It would also have made class actions against employers much easier by eliminating a requirement under current law that employees must give their written consent to be included in a class action case. If passed, it would also have hampered an employer's ability to compensate its employees based on criteria such as cost-of-living differences among geographic locations, different work responsibilities within similar job categories, or prior salary history.

With this vote it is clear that the effects of the November election are beginning to reverberate throughout Capitol Hill.

NOV 17 The NLRB's After Us and We're Not Even Unionized!

The NLRB's After Us and We're Not Even Unionized!
by Joseph "Trey" L. Wood, III
November 17, 2010

Many employers think that the National Labor Relations Board is the government's agency responsible for dealing with union issues. While that is true, the NLRB is actually charged with protecting employee rights whether the employer is union or non-union. All employees and employers are covered by the National Labor Relations Act. Section 7 of the NLRA protects employees' "concerted, protected activity". Essentially, employees are allowed to communicate with co-workers about the terms and conditions of employment. An employer's attempt to hinder or interfere with those rights is a violation of the NLRA which could lead to an unfair labor practice charge being filed on the employees' behalf by the NLRB.

As an example, many employers believe that information about their employees' rate of pay is a private matter between the employer and its employees. Accordingly, the employer may have a policy in place indicating that employees should not discuss their rate of pay with anyone. Such a policy would have the effect of preventing employees from discussing their rate of pay, or one of the terms and conditions of their employment, with other employees. Accordingly, the NLRB has taken the position that such a policy is a violation of the NLRA.

In a recent, somewhat frightening development, the NLRB has recently filed a complaint alleging that American Medical Response of Connecticut, Inc. (AMR) violated Section 7 of the act by terminating an employee for posting negative comments about her supervisor on her Facebook page. AMR has a social media policy that prohibits employees from disparaging the company and its supervisors in social media posts, even when posting while off-duty and using a personal computer. Apparently, the policy did not include a disclaimer that the policy would not be construed or applied in a manner that interferes with employees' rights under the NLRA. The Board's complaint is also noteworthy because of the fact that it appears to allege that merely having an anti-disparagement social networking policy violates Section 7 even if the employer does not actually apply the policy and impose discipline.

There is still a long way to go to see if the Board's position will be upheld. Unless the parties settle the AMR matter, the complaint will first have to be heard by an administrative law judge, after which an appeal can be taken to the NLRB and then to a federal court of appeals: something that could easily take more than two years.

What Should Employers Do?
Employers should be cautious about terminating an employee for posting negative comments about the employer on social networking sites, especially when the content of the posting is concerted, protected activity. In addition, it may be wise to review your social media policy to add a disclaimer such as the one mentioned above.

NOV 14 Final Regulations for GINA Released

Final Regulations for GINA Released
by Joseph "Trey" L. Wood, III
November 14, 2010

At long last, the EEOC has published final regulations that interpret and implement the non-discrimination provisions of the Genetic Information Non-Discrimination Act of 2008 (GINA).  The regulations may be found at

Of particular interest to employers is disclaimer language that the EEOC has drafted that all employers should insert into any of their medical exam and medical inquiry forms. Such forms are frequently used for post-offer medical exams, FMLA medical certifications and ADA medical information requests.  The specific language offered by the EEOC reads as follows:

The Genetic Information Nondiscrimination Act of 2008 (GINA) prohibits employers and other entities covered by GINA Title II from requesting or requiring genetic information of employees or their family members. In order to comply with this law, we are asking that you not provide any genetic information when responding to this request for medical information. 'Genetic information,' as defined by GINA, includes an individual's family medical history, the results of an individual's or family member's genetic tests, the fact that an individual or an individual's family member sought or received genetic services, and genetic information of a fetus carried by an individual or an individual's family member or an embryo lawfully held by an individual or family member receiving assistive reproductive services.

Employers who insert this language into their medical certifications and requests will be alleviated from liability under GINA in the event that a medical provider discloses genetic information in spite of the warning.

NOV 05 Top 10 Mistakes Made By Employers

Top 10 Mistakes Made by Employers
by Joseph "Trey" L. Wood, III
November 5, 2010

Frequently, a disgruntled employee will talk to a plaintiff lawyer about perceived harassment or discrimination in the workplace. The plaintiff lawyer may find that the complaint that the employee comes calling about is much ado about nothing. However, crafty plaintiff lawyers are always on the lookout for different ways to trap an unwary employer and, by questioning the employee in depth, they may uncover violations that the employee had no idea was occurring.

Here are some of the top mistakes made by employers that could lead to costly awards to employees or ex-employees:

1. Poor Policy Management
Employers without employment policies in place (or out-of-date policies) and managers who don't know the company's policies or apply them inconsistently are two reasons employers are found to illegally discriminate against employees.

Fixing the Problem: Create, or update, an employee handbook. Then, educate managers and supervisors about the policies and make certain that the policies are applied consistently and fairly.

2. Lack of Proper Training, Resources and Tools for Managers
It is difficult enough for managers to handle their employees, but if they are expected to do so without proper training and resources, it is almost an impossible task.

Fixing the Problem: Provide managers and supervisors with periodic training on policies and procedures as well as a basic understanding of the principles of discrimination, harassment and retaliation.

3. Lack of Clarity
Problems can arise if an employee's performance expectations are misunderstood, or the employer makes promises that it does not keep.

Fixing the Problem: Clear communication is critical. Be clear in general communications with all employees, as well as with communications to individual employees. Finally, make only promises you intend to keep.

4. Poor Recordkeeping
If an employer fails to document performance or disciplinary issues, in the eyes of a jury the problems never existed.

Fixing the Problem: Keep proper factual documents on performance reviews, attendance, time records/tardiness, disciplinary issues and requests for accommodation. For key documents, make certain to document that the employee received a copy.

5. Lack of Objectivity and Patience
All employers have their favorite employees. But failing to be objective with those employees, while being impatient with other employees, may be perceived as illegal discrimination.

Fixing the Problem: Don't be "trigger happy" when it comes to terminating employees. Treat everyone the same - both good performers and bad. Finally, take a deep breath and see the big picture of the climate of the workplace.

6. Acting In a Way That Seems Punitive
The goal of progressive discipline is to rehabilitate a poor performing employee. Discipline, or treatment that seems like punishment, may push an otherwise non-litigious employee into the hands of a lawyer.

Fixing the Problem: Don't threaten employees lightly or act in a way that seems punishing. When counseling an employee, do not make personal or unprofessional comments. Finally, do not submit performance information on employees on uncontested claims for unemployment.

7. Failure to Guard Against Retaliation Claims
Terminating an employee shortly after the employee has made a complaint of harassment or retaliation is frequently a recipe for disaster. Such a step should only be taken if it can be backed up by documentation or if it involves verifiable misconduct on the employee's part.

Fixing the Problem: Be very careful with impacting the employment status of any employee who has taken "protected activity," that is, complaining of harassment or discrimination, or who has filed a charge of discrimination or lawsuit against the company.

8. Lack of Thoroughness and Follow-Through
If the employer provides a mechanism for employees to complain, make sure to take all complaints seriously and follow through with a proper investigation and resolution of the complaint.

Fixing the Problem: Investigate complaints thoroughly and promptly. (The investigation should begin no later than 24 hours after the complaint has been made.) Also, take decisive action in response to the complaint and follow up with the complaining employee once the investigation is complete.

9. Overloaded Managers
Many of the mistakes above are not the result of intentional neglect or inattention, but rather managers and supervisors with too many irons in the fire.

Fixing the Problem: Keep a pulse on your managers' and supervisors' workloads and make sure your staffing levels can handle your volume of work.

10. Improper Handling of Termination
Very often, the way you handle a termination dictates whether an employee will leave quietly, or run to the nearest lawyer.

Fixing the Problem: Rather than try to spare the employees feelings, be honest with the reason for termination. The termination meeting should be brief and to the point and do not argue with the employee - you don't need to feel victorious after the termination meeting. Finally, if you decide to offer the employee severance, only do so in exchange for a written release.

Little mistakes can add up and land you in court, so it is best to avoid them altogether with a strategy to follow a proper HR plan.

NOV 02 Wait Before You Terminate: FMLA Lessons

Wait Before You Terminate: FMLA Lessons
by Joseph "Trey" L. Wood, III
November 2, 2010

One of your employees calls in sick on November 6 and 7 saying she needed to care for her sick son. On November 8 and 9 she calls in saying that now she is sick and has an appointment with a doctor. She finally forwards to you a doctor's release indicating that she will return to work on November 14. That day comes and goes and the employee never shows up. On November 20 you call the employee to let her know that her job would be in jeopardy if she could not produce documents that confirmed her need to be off of work. She tells you that she sent you the wrong medical certification and would send you one from her primary care physician. On November 24, after you have received nothing, you decide to terminate her under the company's absence policy. On November 28 you send her a termination letter dated the 24th informing her of the decision. You also decide to contact her personally on the 28th to let her know that she was being terminated. That evening you receive a fax FMLA medical certification signed by a nurse practitioner stating that the employee would not be able to return to work for a month. Is this a story of too little, too late for the employee? Not according to the Sixth Circuit Court of Appeals1.

In Branham v. Gannett Satellite Information Network, Inc., the court found that the employee under these facts had established that she was entitled to FMLA leave. The court held that employees are entitled to the full 15-day certification period to provide a medical certification supporting the need for FMLA leave. That means that even though the employer received a note from a doctor indicating that the employee could come back to work, the employee was still entitled to the full 15 days to seek a medical certification that supported the leave. The company's mistake was assuming that the first doctor's note was the only paperwork that they would receive from the employee. In addition to this, the Sixth Circuit also found that the company could not deny FMLA leave to the employee because there was no evidence that it ever formally requested the employee to provide a medical certification in accordance with FMLA regulations.

Lessons learned:

  • Follow the FMLA regulations to the letter when requesting medical certifications from employees
  • Allow employees all the time that they are entitled under the FMLA to return a medical certification
1The Sixth Circuit covers Kentucky, Michigan, Ohio and Tennessee.




OCT 26 ADA Tool Kit

ADA Tool Kit
by Joseph "Trey" L. Wood, III
October 26, 2010

Given the (over) breadth of the Americans with Disabilities Act Amendment Act (ADAAA), almost any given condition may be found to be a covered disability.  The emphasis for employers now shifts to an inquiry as to whether the employee is a "qualified individual with a disability." In other words, can the employee perform the essential functions of the job with or without reasonable accommodation.  

The Office of Disability Employment Policy (ODEP), which is part of the Department of Labor, has developed a "tool kit" to try and help employers (and employees) with ways to understand how to return employees back to work following an injury or illness that qualifies as a disability.  The tool kit is especially helpful for employers who may be struggling to come up with ways to reasonably accommodate an employee.  The tool kit also guides employers on how to increase the effectiveness of their return to work strategies by developing an integrated disability and absence management (IDAM) program, which the ODEP believes will enable an employer to reduce job-related injuries and accommodate employees. The employer tool kit also provides overviews of employers' obligations under workers' compensation laws, the FMLA, ADA, and the Rehabilitation Act of 1973. 

To access the tool kit, click HERE.


OCT 20 When an In-House Counsel’s Bar Membership Goes Inactive, the Attorney-Client Privilege May Go With

When an In-House Counsel's Bar Membership Goes Inactive, the Attorney-Client Privilege May Go With It
by Andrew Pearce
October 20, 2010

A New York magistrate judge recently ruled that an in-house counsel's inactive status in his state bar association resulted in the loss of the attorney-client privilege and therefore exposed his client communications to discovery by the opposing party. Gucci America, Inc. v. Guess?, Inc., No. 09 Civ. 4373 (SAS)(JL), 2010 WL 2720079 (S.D.N.Y. June 29, 2010).

In Gucci America, Inc. v. Guess?, Inc., Gucci sued Guess and others, asserting trademark infringement and related claims arising out of the defendants' use of certain trademarks, logos and designs. During the course of discovery, Gucci submitted a privilege log that included e-mail communications of its in-house counsel. Gucci's in-house counsel subsequently testified during his deposition that he was an inactive member of the California Bar and had been so for years.

Guess demanded that Gucci produce the in-house counsel's communications, arguing that they were not covered by the attorney-client privilege because, given his inactive bar status, the in-house counsel was not an attorney to whom the privilege would apply.

A New York federal court agreed with Guess, holding that the attorney-client privilege contemplates that the client communicate with an individual who is not simply trained in the law, but is actually authorized to engage in the practice of law. Because the in-house counsel did not possess the type of bar membership that authorized him to engage in the practice of law, Gucci's communications with him did not satisfy any standard of the attorney-client privilege.

Further, even though there was "strong evidence" that Gucci believed its in-house counsel was a licensed attorney, the court found that such a belief was not reasonable. In fact, the court held that although Gucci was plainly in a position to confirm the extent of its in-house counsel's qualifications as a legal professional, it failed to do so even though a simple search of the California State Bar website would have revealed that the in-house counsel had been an inactive member since 1996. Thus, the court concluded, Gucci itself bore responsibility for allowing its counsel to represent its interests without ensuring that he was authorized to do so.

OCT 19 How Bullying Bosses Could Bring Liability

How Bullying Bosses Could Bring Liability
by Joseph "Trey" L. Wood, III
October 19, 2010

Did you know that October 17-23 is Freedom from Workplace Bullies Week? While many still associate bullying with overgrown kids taking lunch money on the school playground, the issue of bullying in the workplace is also serious and prevalent. More than a third of American workers have been bullied at work, and nearly half — 49 percent — say they have been affected by bullying, either through experiencing it or witnessing it, according to a recent survey by The Workplace Bullying Institute.

Workplace bullying damages morale, can lead to workers' compensation claims, hampers productivity and can force high employee turnover. While employers have not often been taken to court for bullying behavior, since it is generally not illegal, that could change soon as several states consider legislation that would hold employers liable for allowing bullying on the job.

The liability could be even greater when employers tolerate, or at least ignore, bullying by bosses. And most bullying is done by bosses, according to the Institute. The survey found nearly three-quarters of those who bully at work are in supervisory positions, and they are most likely to bully the most vulnerable employees, the rank and file workers. When it comes to being bullied, non-supervisory employees account for 55 percent of those who are bullied. Those who are less dependent on an employer or who rank highest in an organization are less likely to be bullied, the survey found. Temporary employees and contractors represent only 5 percent of the bullied, and less than 5 percent of executives, board members and owners are among the victims.

Men are more likely to be bullies — 60 percent of bullies are men, and 40 percent are women. Women are more likely to be targeted for mistreatment, the survey found — 57 percent of victims are female, and 43 percent are male. "The bully boss stereotype is real," the survey's authors reported. "Bullies operate with confidence that they will not likely be punished because they enjoy support from higher-ups who can protect them if and when they are exposed." Workplace bullies do tend to get away with it, the survey found. In 62 percent of cases, employers either escalated the problem or did nothing at all when they learned about the bullying. Less than a third of the time did employers help the bullied employee.

The Workplace Bullying Institute defines bullying as repeated, health-harming mistreatment of one or more persons which takes one or more of the following forms:
verbal abuse; threatening, humiliating or offensive behavior/actions; and work interference — sabotage — which prevents work from getting done. Bullying may resemble such clearly illegal acts as discrimination and harassment; but in some ways is an even greater risk since it can be committed against any employee, not just those in protected classes, such as minorities and the disabled. Employers should begin to take bullying as seriously as the more recognized forms of harassment and discrimination, since at least 17 states have introduced legislation that would provide legal recourse for abusive workplace behavior.

States Taking Action
The bill that Washington State has considered but not yet passed offers one example. According to House Bill 2142 which was introduced in 2008, the state legislature intends, among other things to "provide legal redress for employees who have been harmed, psychologically, physically, or economically, by being deliberately subjected to abusive work environments..." The legislation would also offer legal incentives to employers to prevent and respond to their employees' mistreatment at work. The bill would hold employers liable for up to $25,000 in emotional distress even if the victim was not demoted, fired or otherwise suffered a "negative employment decision" as part of the bullying.

Besides Washington, other states that have introduced anti-workplace bullying legislation are New Jersey, Vermont, New York, Oregon, Illinois, Wisconsin, Utah, Nevada, Montana, Connecticut, Hawaii, Oklahoma, Kansas, Missouri, Massachusetts and California.

Are the Feds Next?
U.S. Senator Frank Lautenberg (D-NJ) said on Wednesday, Oct. 6 that he would introduce federal legislation requiring colleges and universities to adopt policies or codes of conduct that prohibit bullying and harassment in the wake of the suicide of a Rutgers University student, freshman Tyler Clementi, whose gay sexual encounter in his dorm room was streamed online by his roommate, Dharun Ravi and Molly Wei. However, at this point, no legislation has been introduced that would offer recourse against employers.

What Employers Should Do
While workplace bullying is not yet "illegal," it is easy to see how it may affect the morale of a workplace. In today's economy, employers should be doing everything they can to promote a productive environment in the workplace. By developing and enforcing strict policies and training, companies can better protect themselves from potential liability if they are ever faced with an accusation of workplace bullying. Employers should clearly define what types of behavior are unacceptable and cross the line into bullying. When it comes to workplace behavior, it's not always clear when a boss is simply aggressive or has become abusive. After all, any boss can have a bad day and become frustrated with an employee. The severity and consistency of behavior are identifying characteristics of a bully. If a supervisor makes a habit of screaming, insulting or intentionally putting down employees, that can indicate that bullying is taking place.

Employees who feel bullied should have a reporting process where they can register complaints; this is particularly important when an employee's immediate supervisor is the one doing the bullying. Employers should also outline specific steps to take when an employee has been accused of bullying and apply them consistently.

As they did on the playground, bullies in the workplace are often trying to exert their control, and they often target one or two specific people. Unlike the schoolyard bully, though, a bully boss will frequently publicly question the competence of the victim. Supervisors and managers should be trained to recognize when a boss's legitimate criticism crosses the line into bullying. Beyond having a policy, it is imperative that employers create a company culture that is free of any type of harassment and bullying. That will create a more productive workforce, and ultimately help stave off liability and litigation from unhappy employees.

OCT 18 Independent Contractor or Employee: The Stakes Are Getting Higher

Independent Contractor or Employee: The Stakes Are Getting Higher
by Joseph "Trey" L. Wood, III
October 18, 2010

The U.S. Department of Labor and the Internal Revenue Service are actively searching for and prosecuting companies which misclassify employees as independent contractors. The federal government claims that such misclassifications cost the government billions of dollars in revenue each year. In fact, Congress has recently re-introduced legislation seeking to increase the stakes for employers who continue with the practice. The Employee Misclassification Prevention Act seeks to deter employers from improperly classifying employees, including drivers, as independent contractors versus employees by:

  • Ensuring that employers keep records that reflect the accurate status of each worker as an employee or non-employee and clarifying that employers violate the Fair Labor Standards Act when they misclassify workers.
  • Increasing penalties on employers who misclassify their employees and are found to have violated employees' overtime or minimum wage rights.
  • Requiring employers to notify workers of their classification as an employee or non-employee.
  • Creating an "employee rights web site" to inform workers about their federal and state wage and hour rights.
  • Providing protections to workers who are discriminated against because they have sought to be accurately classified.

In addition to legislative efforts to curb this practice, the courts have been coming down hard on companies who misclassify employees. Last July, the Ninth Circuit Court of Appeals, which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington ruled against EGL Inc. in a case in which EGL, a Texas corporation, classified its drivers as independent contractors. EGL even had written independent contractor agreements in which the drivers agreed that they were independent contractors and that any questions about the agreement were to be settled by Texas law. Some of the drivers claimed that they were actually employees who were entitled to overtime as well as benefits under the California Labor Code. If the language of their contracts ruled and Texas law were to be applied, they would not be able to recover. The Ninth Circuit ruled against EGL finding that the California Labor Code, not the contract, was at issue. The Court then found that under California's multi-faceted test for determining employee/contractor status that the drivers had produced enough evidence of an employment relationship to justify a jury trial on their claims.

What This Means for Employers
Companies that employ "independent contractors" will want to closely examine the true nature of their relationship to determine if they have been properly classified. This may mean reviewing and possibly revising independent contractor agreements and staying away from "form" agreements. Also, reconsider any automatic renewal/termination provisions in those agreements as they may be interpreted to more closely resemble an "at-will" employment relationship. Finally, you should carefully evaluate any forms, training materials, or policies that you provide to independent contractors to ensure independent contractor status.

OCT 14 All Atwitter Over Twitter (and other Social Networking Concerns)

All Atwitter Over Twitter (and Other Social Networking Concerns)
by Joseph "Trey" L. Wood, III
October 14, 2010

When it comes to marketing a company and/or its products, employers want their employees to spread the word. But employees doing so via blogs, social-networking sites (like Twitter) may pose potential liability concerns for their employers. This is because recently the Federal Trade Commission (FTC), which has had little to do with the employer/employee relationship, has issued Guidelines which restrict the representations that may be made in on-line postings.

The New Guidelines
The FTC's new Guidelines establish that liability can be imposed on companies who fail to make required disclosures that exist between on-line posters and the companies upon which they were commenting. An obvious relationship that must be disclosed is the employment relationship between the on-line writer and the company. So, if an individual is misled by the on-line author into purchasing a defective or dangerous product or service, not only would the on-line author be liable, but also the Company, regardless of whether the communication was known or not. No industry is exempt from these guidelines.

Solving the Problem
One way to become more aware of what your employees are doing is to monitor their work activities and take action against those who use social networking sites in a way that could raise legal problems. Generally, employers may discipline employees who use company equipment (computers, smart-phones) inappropriately. Federal and state laws limit how far an employer can go to monitor their employees' social networking activities. For the most part, courts try to seek balance between the employer's interest in objecting to the employee's conduct (the potential harm to the employer) with the employee's expectation of privacy. A way to reduce this risk is to advise all employees in writing that the employees should have no expectation of privacy in using any company owned equipment and that their use of the equipment will be monitored.

An additional step should be the implementation of a "Blogging and Social Networking Policy." Such a policy should instruct employees that any on-line communications are subject to the company's policies and procedures. It should also prohibit employees from posting any confidential or proprietary information, forbid employees from using the name, trademark or logos of the company, and require employees to make it clear in their postings that the views and opinions they express about work-related matters are their own and not those of their employer. Finally, before disciplining or terminating an employee for use of social networking sites, consider the potential legal consequences of such actions.

OCT 13 Failure to Post May Lead to Lost Defense

Failure to Post May Lead to Lost Defense
by Joseph "Trey" L. Wood, III
October 13, 2010

The Civil Rights Act of 1964 requires employers to post a notice describing the law's provisions in an accessible format. The posting must be conspicuously posted in the same place where other employee notices are customarily kept. The notice must also be prepared by or approved by the EEOC.

Failing to post such a notice may be mean that employers could lose a defense that untimely claims should fail. In a recent New York federal district court case, an employee of a hotel-casino in Atlantic City filed a complaint alleging that she had been discriminated against and fired because of her race, sex and/or national origin. The statute of limitations for filing such complaints is 300 days from the discriminatory act. The employee did not file her claim until 364 days following her termination. The employer, understandably, filed a motion to dismiss the claim as being barred by the statute of limitations. However, the employee countered this argument by stating that her claims were saved because the employer failed to post the required Title VII notices and that, therefore, she was unaware of her rights and responsibilities under the law. The Court found that the employer's failure to post the notice excused the two month delay.

The moral of the story: You can save your statute of limitations defense every easily and cheaply by complying with the mandatory notice requirements. You can go to and order up to 10 posters in four different languages from the EEOC.

OCT 11 Classifying Outside Sales Staff: Do They Actually Make Sales?

Classifying Outside Sales Staff: Do They Actually Make Sales?
by Matthew S. Veech
October 11, 2010

Employers that classify its outside sales people as exempt should make sure that those employees actually make sales.

In In re Novartis Wage and Hour Litigation, the U.S. Court of Appeals for the Second Circuit found that pharmaceutical sales representatives do not meet the outside sales exemption because the representatives' duties are not actually making sales but rather only promoting a product in an effort to convince doctors to prescribe certain pharmaceuticals. Additionally, the Second Circuit found that these sales representatives do not meet the administrative exemption because the representatives did not exercise discretion and independent judgment as to matters of significance to the employer because the representatives duties — answer questions from the doctors about the products — were merely the result of skills the representatives gained from training by the employer.

As always, the lesson here is that the employer should not rely on the employee's job title but instead should focus on the employee's duties. In the case of the outside sales exemption, the employer must make sure the employee is actually making sales and not just promoting a product or service.

OCT 10 Paycheck Fairness Act (Fair to Who?)

Paycheck Fairness Act (Fair to Who?)
by Joseph "Trey" L. Wood, III
October 10, 2010

The Paycheck Fairness Act is back. Previously passed by the House of Representatives, the Act was introduced in the Senate in early 2009 but never came to a vote. Now, Senate Majority Leader Harry Reid (D-NV) has placed the proposed legislation on the legislative agenda.

Why should business owners worry? Well, for one, the bill would make employers liable for unlimited punitive damages under the Fair Labor Standards Act for even unintentional pay disparities, and eliminate current limits for back pay as well as for compensatory damages. It would also make class actions against employers much easier by eliminating a requirement under current law that employees must give their written consent to be included in a class action case. If passed, it would also hamper an employer's ability to compensate its employees based on criteria such as cost-of-living differences among geographic locations, different work responsibilities within similar job categories, or prior salary history.

The bill is being attacked by business groups including the U.S. Chamber of Commerce. One labor attorney giving testimony during hearings last March said the Act has the potential to cripple companies, particularly smaller businesses. This begs the question, if this legislation would have the effect of driving some companies out of business, displacing those employees, how fair is it?

AUG 25 UK Companies - Choosing a Legal Entity to Operate in Texas

UK Companies — Choosing a Legal Entity to Operate in Texas
by Gary W. Miller
August 25, 2010

Once a UK company has decided to begin doing business in Texas, an important choice must be made as to what legal entity will be selected or created to operate in Texas. Options include:

  • qualifying the UK company to do business in Texas
  • forming a new corporation in one of the states in the US
  • forming an entity other than a corporation in one of the states in the US

In the US, forming an entity or qualifying to do business is done on a state-by-state basis. If an entity is formed in one state and conducts business in other states, it will be necessary to qualify that entity to do business in each of the states in which it is doing business. What constitutes "doing business" is a question of law. While just making an occasional sale into a state may not constitute "doing business" for purposes of requiring qualification, having an office in the state or maintaining employees in the state will generally constitute "doing business".

Most UK companies do not simply qualify their existing UK entity to do business in the US. They do not want to subject the "mother company" to liability in the US (too many fears about litigation in our court system), and they do not want the UK company to pay taxes in the US. Some UK companies may incorporate a "single purpose" UK company and then qualify that entity to do business in the US. Most UK companies operating in the US and primarily in Texas, however, will incorporate a new corporation under the laws of Delaware (famous for its pro business attitude) or Texas. Most UK companies do not form other types of legal entities such as limited partnerships or limited liability companies, since those entities are usually formed to achieve a tax status that flow through to the parent company. UK companies generally use a corporation that pays taxes in the US, and distributes its earning to the parent through dividends.

Sometimes, the first indication to a UK company of the requirement for qualifying or incorporating in Texas is the refusal of a Texas bank to open an account until this step has been taken. Qualifying a UK company to do business in Texas or forming —a new entity in Texas is not usually an expensive or time consuming project, but does take some advance planning and cooperation between your tax experts and US attorneys.

AUG 24 Litigation to Collect a Past Due Account

Litigation to Collect a Past Due Account
by Jennifer L. Hebert
August 24, 2010

In this difficult economy, collecting receivables from customers can be challenging. This posting describes some of the litigation basics to collect past due receivables.

Demand Letter
Sending a demand letter from an attorney may spur the delinquent customer into making a payment - or at least spark a negotiation. Under Texas law, sending a demand letter may also (but does not automatically) allow you to collect attorneys' fees in the event you do file a lawsuit to collect the amounts owed (which is similar to the UK requirement to show that the lawsuit was necessary).

Filing a lawsuit requires a petition prepared by an attorney and filed with the court. Often in collection cases, where the facts are not in dispute, the lawsuit can be a "suit on a sworn account" which may allow parties to dispense with a lengthy discovery process and lead to a speedier result if the debtor does not assert affirmative defenses.

Discovery Process
The discovery process allows the parties to learn more about the facts and the opposing party's case, typically through depositions (questions by the attorney asked of the witness under oath in front of a court reporter), requests for production of documents, requests for admission (written factual assertions that must be either admitted or denied), and interrogatories (written questions that must be answered under oath by the other side). This process is similar to the discovery process in UK litigation, but wider in scope and with the added burden of the deposition procedure.

Summary Judgment
A summary judgment motion is filed when a party believes the facts are not in dispute and, as a matter of law, the party should win. It is often used by creditors in collection cases where the debtor either does not appear in court or fails to state a credible defense.

If the creditor has not won on summary judgment, he may actually have to prove his case before a judge or jury in a trial. However, the vast majority of cases in Texas are settled prior to trial. The time from filing the lawsuit to judgment often ranges from six months to two years. Though most cases are not appealed, there is generally a two-stage appeal process in Texas, first to the Court of Appeals and thereafter to the Texas Supreme Court.

While courts in the US have a reputation for being slow and proceedings may be expensive as compared to courts in the UK, the collection process can proceed faster than other litigation when the facts are not in dispute. The most difficult part of a collection lawsuit can be collection of a judgment after the lawsuit is won. (This will be the subject of a future posting.) A crucial distinction from the UK system is that the filing of an appeal does not delay enforcement of a judgment unless the debtor posts security for the judgment amount.

AUG 23 Restrictions on Competition in Texas

Restrictions on Competition in Texas
by Matthew S. Veech
August 23, 2010

In Texas, as well as in many parts of the United States, employers often expect their key employees to sign agreements not to compete that take effect once the employee terminates employment and moves on to a new job. Under the right circumstances, Texas courts and laws will favor the protection of a business by enforcing a covenant not to compete even at the risk of making it more difficult for the employee to earn a living. These covenants may be drafted to keep the former employee from soliciting business from a customer he worked with while under the agreement and/or restrict the employee from working altogether in the same type of business as his former employer.

Elements of an Enforceable Non-Competition Agreement in Texas
Among other requirements, a non-competition agreement in Texas must be reasonable in time (how long is the employee restricted), territory (where is the employee restricted from competing) and scope (what is the employee prohibited from doing). Drafting these restrictions properly is dependent upon the individual situation. Typical provisions will include:

  • a one-year time restriction
  • a prohibition in the geographic area in which the employer was doing business (which might be world-wide under the right circumstances)
  • limiting the employee from performing the same services for a new employer as he was performing for his old employer

A key to an enforceable non-competition agreement is the promise of the employer to provide the employee with confidential information in order for the employee to perform his job, and the employer actually making good on that promise (meaning the employer did provide the confidential information).

Non-competition agreements are often a key part of doing business for employers and their key employees in Texas. Drafting and enforcing these agreements requires an attorney who experienced in this arena and who keeps up with the ever-changing law and court decisions.

AUG 20 Nursing Mothers: Give them a Break!

Nursing Mothers: Give them a Break!
by Joseph "Trey" L. Wood, III
August 20, 2010

The Patient Protection and Affordable Care Act (PPACA) was one of the laws that was enacted as part of President Obama's healthcare reform initiative. Contained within the thousands and thousands of pages of the law's text is a provision that amends the Fair Labor Standards Act (FLSA), which governs wages and hours work, to provide a break time requirement for nursing mothers. This law provides that employers must provide reasonable break time for an employee to express milk for her nursing child for one year after the child's birth each time such employee has the need to express the milk. Employers with fewer than 50 employees are not subject to the law if compliance would impose an undue hardship. However, all employees who work for the employer must be counted — not just those at a particular work site. Also, employees who are exempt under the FLSA are excluded from the break time obligation.

Recently, the Department of Labor has attempted to provide guidance to employers on complying with the Act. Contained within one of the DOL's informal "Fact Sheets" it indicates that the law became effective when the PPACA was signed into law on March 23. While the DOL did not specify any minimum number, frequency or duration for the breaks, it does indicate that the employer must provide a place other than a bathroom as a location for the break. The location need not be reserved exclusively for a nursing employee's use and it may be a location that is temporarily created or converted for this purpose. The location must be:

  • Functional as a space for expressing breast milk;
  • Shielded from view; and,
  • Free from any intrusion by co-workers or the public.

Employers are not required to treat these breaks as compensable time, or hours worked. However, if the employer allows paid breaks, it must compensate a nursing employee in the same way it does other employees if she uses it for the purpose of expressing breast milk. Also, the time for the break must be paid if the employee is not completely relieved from duty during the break. So, for example, if the nursing employee is on a business telephone call while expressing breast milk, that time is compensable.

While this new law is untested, and the guidance provided by the DOL is informal, the prudent course of action is for all employers covered by the act to follow these pronouncements pending further developments of the law.

AUG 19 Texas Courts Will Define “Prevailing Party” if You Do Not

Texas Courts Will Define "Prevailing Party" if You Do Not
by Forrest Gordon
August 19, 2010

Recently, in Intercontinental Group Partnership v. KP Home Loan Star, L.P., the Texas Supreme Court was confronted with the task of interpreting what is commonly referred to as a prevailing party provision of a contract. A prevailing party provision is a boilerplate provision that can be found in most written agreements, regardless of subject matter, and typically provides that in the event of any litigation between the parties with respect to that agreement, the prevailing party will be entitled to reimbursement by the non-prevailing party for its attorney's fees and court costs. The definition of prevailing party may be set forth in the provision or may, as is more commonly the case, be absent all together. After all, most people assume that in the event that litigation actually occurs, one party will emerge as the clear cut "winner" and the other the "loser."

In Intercontinental, the parties had included a typical prevailing party provision in their contract, but "prevailing party" was not defined. A disagreement between the parties ensued and KP sued Intercontinental Group for breach of contract. KP sought lost profit damages in the amount of $1,000,000 as a result of the alleged breach. The jury found that Intercontinental Group had in fact breached the contract but found $0 in damages. KP sought attorney's fees as the prevailing party.

In its opinion, the majority of the Court declared that whether a party prevails turns on whether or not that party prevailed upon the court to award it something, either monetary or equitable. In this particular circumstance, KP recovered no damages, nor did it secure any declaratory or injunctive relief. As a practical matter, the Court pointed out that "no misconduct was punished or deterred, no lessons taught." In the end, the Court found that KB was not the prevailing party despite having successfully convinced the jury that Intercontinental Group had in fact breached the agreement in question.

When considering including a prevailing party provision in a contract, the parties to the agreement should understand that they can tailor the definition of prevailing party exactly to their expectations, but if they do not, the courts will define it for them.

JUL 30 Delaware Court Applies Entire Fairness Standard to Transaction Beneficial to Controlling Shareholder

Delaware Court Applies Entire Fairness Standard to Transaction Beneficial to Controlling Shareholder
by Taylor Hayden
July 30, 2010

In Gentile v. Rossette, the Delaware Court of Chancery recently reaffirmed the duty of a board of directors of a closely-held corporation to establish the "entire fairness" of both process and price of a transaction that was likely to benefit the controlling shareholder.

In Gentile, SinglePoint Financial, Inc. had a two-member board of directors composed of Douglas Bachelor and David Rossette. SinglePoint owed Rosette a substantial amount of shareholder debt . The board of directors, in an effort to alleviate the resulting pressure on SinglePoint's balance sheet, approved the conversion of Rossette's debt into common stock at a rate of $0.05 per share. As a direct result, Rossette's equity interest in SinglePoint rose from 61% to 95%. While the $0.05 price per share was markedly lower than the per share price in other recent transactions, Rossette took the position that, and attained a concurring fairness opinion that, SinglePoint's untenable financial position required this transaction at this price.

A minority shareholder of SinglePoint sued Bachelor and Rossette, claiming breach of fiduciary duty. The defendants argued that the burden should be upon the plaintiff to prove unfairness "because Bachelor, as one member of a two-person board, was independent and received no benefit from the transaction." The Court rejected this argument, pointing out that Bachelor had neither the experience nor the assistance of independent counsel necessary to determine the appropriateness of the debt conversion. Additionally, the Court dismissed the fairness opinion, finding that it was not completed prior to Bachelor's decision and so could not have aided in validating his independence, and was completed without complete and accurate financial records.

Due to the foregoing, the Court shifted the burden to the defendants to prove the "entire fairness" of the transaction, looking for both fair dealing and fair price. The Court determined that the price was not fair and set the actual "fair value" of the shares for purposes of the debt conversion at $0.40 per share, and, consequently, the minority shareholders were determined to have suffered damages of $309,000.

JUL 30 The Inventory Effect

The Inventory Effect
by Gus Bourgeois
July 30, 2010

U.S. Gross Domestic Product (GDP) was recently revised downward from a seasonally adjusted annual rate of 3.0% to 2.7% for the first quarter of 2010. Standing alone, this is sobering news for the U.S. economy, after an encouraging 5.6% reading during the fourth quarter of 2009. But this reduction has particular relevance to the transportation and logistics industry.

Looking behind the numbers that make up the downward revision for the first quarter of 2010, Tim Lacono, founder of the investment website Lacono Research, notes that "[t]he change for the first quarter was a result of downward revisions to personal consumption and net exports that more than offset upward revisions to inventory, which has been the primary driver for the U.S. economy since last summer."

That statement reflects two important points: first, one of the primary economic drivers of the U.S. economy in the last year has been the rise in inventories (which has obviously been very beneficial to the transportation and logistics industry). That fact shouldn't be surprising, considering the prolonged drop in inventory levels witnessed during the Great Recession — at some point, businesses deplete their inventories to "bare-bones" levels, and are forced to replenish or go out of business. This is a normal part of the "end-of-recession" cycle, and is generally followed by an increase in personal consumption and net exports, as the roots of the economic rebound take hold and consumer confidence increases —  which feeds and extends the cycle of recovery and expansion, and returns transportation and logistics activities to more normal levels.

But Lacona notes that for the first quarter of 2010, "[t]he change in inventories alone accounted for a full 1.75 percentage points of the just revised first quarter growth rate of 2.7%." That ratio, coupled with the fact that the recent GDP reduction was based primarily on downward revisions to personal consumption and net exports, is troubling.

The recent inventory replenishment cycle has been just what the doctor ordered for the transportation and logistics industry, as business levels bounced off of the Great Recession lows, and transportation rates began to find some support. But at some point, businesses will have replenished their inventories from the depleted levels of the Great Recession, and will be looking for signs that the consumer is buying before continuing the cycle. The numbers behind the recent GDP revision suggest they aren't going to find it.

JUL 23 Damages from the BP Spill

Damages from the BP Spill
by Chris Hanslik
July 23, 2010

The BP oil spill has adversely impacted the lives and businesses along the Gulf Coast and beyond. People have lost jobs and certain ways of life are gone for years if not generations. One of the first questions asked is who will be responsible for the harm caused by this disaster. While there are several companies who may end up being help accountable, the more appropriate question is will those affected be able to recover for the monetary damages they have suffered. The subject of damage caps has received a lot of attention recently because of the size and scope of the oil spill. While there are caps on damages under certain statutes they will not work to limit the ultimate liability of certain companies.

The primary statute at issue is the Oil Pollution Act of 1990 (OPA). The OPA was enacted in 1990 in response to the Exxon Valdez oil spill in Alaska. The principal purpose of the OPA is to compensate any party suffering damages from discharges of oil or hazardous substances. The OPA is designed to provide protection for the environment as well as to aid the victims of oil spills.

To establish liability under the OPA only two elements must be proven: (1) that there is a discharge of oil or covered oil-related substances, and (2) that the discharge either went into navigable waters or poses a substantial threat to navigable waters of the United States. If a plaintiff proves these elements, he will recover all damages covered by the OPA that result from the discharge.

The OPA provides four classes of damages:

1. removal costs;
2. damage to real or personal property owned or leased by the claimant;
3. damages to natural resources that the claimant used for subsistence; and
4. economic damages because of damage to property or resources even if the claimant did not own or lease the damage property (this covers damage to or impairment of earning capacity).

The OPA provides a cap on the damages against a responsible party relating to an offshore facility. The general rule is that the total liability of a responsible party is capped at the total of all removal costs plus $75,000,000.00. However, the OPA provides two exceptions to the cap on damages: (1) gross negligence or willful misconduct; or (2) the violation of an applicable Federal safety, construction, or operating regulation by the responsible party or someone acting on behalf of the responsible party.

In addition, the OPA does not preempt state law and the damages that flow from state law claims. Therefore, claims to recover damages resulting from the spill will not necessarily be limited to the caps set forth in the OPA.

JUL 21 The Great Freight Recession

The Great Freight Recession
by Gus Bourgeois
July 21, 2010

The Council of Supply Chain Management Professionals released a report in late June 2010 entitled "The Great Freight Recession", which stated that U.S. business logistics costs plummeted to $1.1 trillion in 2009, a decrease of $244 billion from 2008. In addition, the report noted that in 2009, "U.S. logistics costs as a percentage of Gross Domestic Product (GDP) hit a record low of 7.7 percent, the lowest point ever recorded in the 30 years that data has been collected. In the past, a low ratio signified that American logistics managers were doing a good job controlling costs and efficiently moving and storing goods. But last year, that number slipped for a different reason. As the volume of goods produced in the United States declined, so did the amount of tonnage to be shipped, thus dragging down logistics spending."

The fact of the downturn in logistics spending is certainly no surprise — but the depth of this downturn remains a major concern, not only for the transportation and logistics industry, but for the U.S. economy as a whole. Conventional wisdom holds that the Great Recession ended in late 2009 and that economic activity began to substantially rebound in early 2010, with manufacturing leading the way. However, unless shipping and logistics activities enjoyed a significant bounce in the first two quarters of 2010 — which appears unlikely, in light of recent downward GDP revisions for that time period — then, to paraphrase Mark Twain, reports of the death of the Great Recession may have been greatly exaggerated.

JUL 19 The Big Squeeze, Wal-Mart Style?

The Big Squeeze, Wal-Mart Style?
by Gus Bourgeois
July 19, 2010

Wal-Mart announced in mid-June 2010 that it is considering pulling business from its outsourced transportation providers (including, potentially, Swift Transportation, Con-way Freight and Greatwide Logistics) with respect to delivery of goods from suppliers to its distribution centers, and instead moving that freight using its in-house private fleet, wherever it is cost-effective to do so. According to a Bloomberg report, Wal-Mart is in the processing of contacting manufacturers about this approach, with the goal being to lower costs for its suppliers, which in turn would lower the cost of goods to Wal-Mart.

The real question is whether this represents a serious effort by Wal-Mart to reduce costs by using its in-house resources (which aren't exactly sitting idle now, as anyone traveling any U.S. interstate this summer can attest), or whether this is merely the first move by Wal-Mart to force its outsourced transportation providers to cut their rates.

The larger question involves the effect of this move on the U.S. trucking industry. According to John Schulz of the Gerson Lehrman Group, "If Wal-Mart were to pull that freight off common carriage — or even threaten to pull it — that would result in tons of excess capacity at a time when the U.S. trucking industry is just recovering from a three-year freight recession."

I think it's reasonable to assume that forcing its outsourced transportation providers to cut their rates in order to keep the business would have a similar detrimental effect on the U.S. trucking industry, just at the time when many hoped that even a small recovery in U.S. manufacturing activity would at least offer support to current (already discounted) rates.

JUL 05 The Great Freight Recession

The Great Freight Recession
by Gus Bourgeois
October 5, 2010

The Council of Supply Chain Management Professionals released a report in late June 2010 entitled "The Great Freight Recession", which stated that U.S. business logistics costs plummeted to $1.1 trillion in 2009, a decrease of $244 billion from 2008. In addition, the report noted that in 2009, "U.S. logistics costs as a percentage of Gross Domestic Product (GDP) hit a record low of 7.7 percent, the lowest point ever recorded in the 30 years that data has been collected. In the past, a low ratio signified that American logistics managers were doing a good job controlling costs and efficiently moving and storing goods. But last year, that number slipped for a different reason. As the volume of goods produced in the United States declined, so did the amount of tonnage to be shipped, thus dragging down logistics spending."

The fact of the downturn in logistics spending is certainly no surprise — but the depth of this downturn remains a major concern, not only for the transportation and logistics industry, but for the U.S. economy as a whole. Conventional wisdom holds that the Great Recession ended in late 2009 and that economic activity began to substantially rebound in early 2010, with manufacturing leading the way. However, unless shipping and logistics activities enjoyed a significant bounce in the first two quarters of 2010 — which appears unlikely, in light of recent downward GDP revisions for that time period — then, to paraphrase Mark Twain, reports of the death of the Great Recession may have been greatly exaggerated.

JUL 01 Texas Supreme Court Decides in Favor of Employers on Issue of First Impression

Texas Supreme Court Decides in Favor of Employers on Issue of First Impression
by Matt Veech
July 1, 2010

In Waffle House v. Williams, the Texas Supreme Court was presented with an issue of first impression relating to the exclusivity provision of the Texas Commission on Human Rights Act (TCHRA). In Waffle House, the employee prevailed at trial on her claims of sexual harassment and negligent supervision and retention. The trial court entered judgment on the negligence claims under an election of remedies because the employee was able to avoid the TCHRA's statutory cap on damages.

After the Court of Appeals affirmed that judgment, the Texas Supreme Court granted petition to consider several issues, including an issue of first impression: "may a plaintiff recover negligence damages for harassment covered by the TCHRA?" In its June 11, 2010 opinion, the Texas Supreme Court recognized that the TCHRA is preemptive in nature, and as such, the Court held that the plaintiff could not recover on her negligence claims when the complained-of negligence is intertwined with the complained-of harassment. In its opinion, the Court stated:

The root of [the employee's] negligence claim is that Waffle House kept around a known harasser, but this claim does not arise from separate, non-harassment conduct; it is premised on the same conduct that the TCHRA deems unlawful.

As the complained-of acts constitute actionable harassment under the TCHRA, they cannot moonlight as the basis for a negligence claim, a claim that presents far different standards, procedures, elements, defenses, and remedies. It is untenable that the Legislature would craft an elaborate anti-harassment regime so easily circumvented.

The court's opinion is an obvious victory for employers. The opinion is particularly significant to employers when faced with employment discrimination, harassment or retaliation lawsuits that also assert claims of negligent hiring or negligent retention.

JUN 23 Obama Proposes New Taxation of Private Equity Fund Managers' Carried Interest

Obama Proposes New Taxation of Private Equity Fund Managers' Carried Interest
by Steve Kesten
June 23, 2010

President Obama recently proposed to tax the income from so called "carried interest" as ordinary income rather than capital gains as it is under current law.

Currently, ordinary income is subject to marginal tax rates up to 35% (39.6% in 2011) while income from capital gains is taxed at a maximum rate of 15% (20% in 2011). Carried interest accrues to certain investment fund managers, including managers of private equity funds, hedge funds and venture capital partnerships. These managers often receive part of their compensation in the form of an interest in the partnership, which entitles them to a share of partnership profits. If the partnership earns a capital gain, the manager reports his share - the carried interest - as capital gain income. Obama's proposal would tax this income as ordinary income on the grounds that the income represents compensation for services, not a return on investment.

APR 28 Employees May Have a Privacy Interest in Emails Sent from Employer-Provided Computers

Employees May Have a Privacy Interest in Emails Sent from Employer-Provided Computers
by Matt Veech
April 28, 2010

Since the use of email and the internet have become a predominant method of communication, employers have established written policies governing their employees' use of email and access to the internet.

The typical practice for employers is to include a policy in the Employee Handbook that states all email and internet usage may be monitored at any time by the employer and that the employee should not expect any such usage to be private and confidential. However, in a recent ruling by the New Jersey Supreme Court, the court recognized that there are limitations to such monitoring by the employer. In Stengart v. Loving Care Agency, Inc., 2010 WL1189458 (N.J. March 30, 2010), the court stated that an employee has an expectation of privacy in email communications when corresponding with an attorney through a personal email account (i.e. not an email account provided by the employer) despite the employer's written policy stating that email communications should not be considered private or personal to any employee. Importantly, the employer's written policy did not clearly address whether the company would monitor internet-based email services accessed through the employer's computer system.

The Court framed the issue succinctly: "This case presents novel questions about the extent to which an employee can expect privacy and confidentiality in personal emails with their attorney which they accessed on a computer belonging to their employer". In conducting its analysis, the court noted that there were two principal areas involved: 1) notice provided by the employer's policy and 2) important public policy concerns of the attorney-client privilege.

Ultimately, the court held that the employee could reasonably expect e-mail communications with their lawyer through a personal account to remain private, and that sending and receiving email via a company computer did not eliminate the attorney-client privilege that protected them. Importantly, the court stated that its decision does not mean that employers are prohibited from monitoring workplace computers. Rather, employers can adopt lawful policies, enforce those policies, and discipline employees for violations of those policies when appropriate. However, the court expressly recognized that employers have no need to read the specific contents of privileged communications to enforce a company policy.

APR 18 Texas Supreme Court Clarifies Post-Arbitration Appeal Rights

Texas Supreme Court Clarifies Post-Arbitration Appeal Rights
by Chris Hanslik
April 18, 2010

On March 12, the Texas Supreme Court overruled two previous court of appeal's decisions to settle a debate over the State's arbitration statute.

At issue in East Texas Salt Water Disposal Co. Inc. v Werline was whether a party could appeal a trial court decision to deny confirmation, vacate the award and direct a new arbitration to be conducted.

Werline won the underlying arbitration, but the company petitioned the district court to vacate, modify or correct the award while Werline counterclaimed for confirmation of the award. The trial court denied confirmation and vacated the award. However, the trial court did not stop there — it went on to make certain fact findings and ordered a new arbitration consistent with its findings. Werline then appealed. The company's position on appeal was that the appellate courts lacked jurisdiction because the trial court had vacated the award and ordered a rehearing.The specific statute at issue was Section 171.098(a) subsections (3) and (5).

The Texas Supreme Court found that the trial court's judgment was appealable because it fit under subsection (3). The court recognized that the right to appeal under Section 171.098(a) assures that a trial court does not exceed its authority in reviewing an arbitration award. It further noted that that purpose would be circumvented if a trial court's order for rehearing could not be appealed immediately. This opinion will help keep trial court's review of arbitration awards in check while protecting the parties' right to contract when they have agreed to "final and binding" arbitration of their disputes.

APR 16 Logistics Data Points to Improving Economy

Logistics Data Points to Improving Economy
by Gus Bourgeois
April 16, 2010

The commercial strength of logistics providers is often seen as a leading indicator of an expanding economy. The Council of Supply Chain Management Professionals recently reported that the March 2010 Supply Chain Index (SCI), a monthly index of accounts receivable activities covering approximately 350,000 businesses, dropped to 7.65 days beyond terms, its lowest level since August 2008.

"Payment behavior can been seen as a barometer of confidence in future sales and demand. And when payments between partners show this kind of improvement, it provides an indicator of overall optimism," says Jim Swift, CEO of Cortera, creator of the SCI. "It remains to be seen whether such optimism can be maintained, but it is clearly a positive development for businesses seeking what has been an elusive improvement in cash flow."

MAR 25 Implied Warranty Recognized in Commercial Construction

Implied Warranty Recognized in Commercial Construction
by Lee Collins
March 25, 2010

In an opinion and order issued March 12, 2010, Federal Court in the Southern District of Texas recognized, under Texas law, the existence of implied warranty of good and workmanlike performance in commercial construction.

In denying a motion for summary judgment filed against a BoyarMiller client, the Judge's accompanying opinion held that the implied warranty extends beyond ordinary vulnerable home buyers in the residential context to sophisticated entities in a commercial context, where the contractor failed to complete the work it was required to perform under the parties' contract.


FEB 01 Social Networking Impersonation Now a Felony in Texas

Social Networking Impersonation Now a Felony in Texas
by Matt Veech
February 1, 2010

The Texas legislature passed a new law effective September 1, 2009 that deals in part with impersonating another on a social networking website (Texas Penal Code Section 37.07-"Online Harassment"). This law makes it a felony to use the name or persona of another person to create a web page on or to post one or more messages on a commercial social networking site (1) without obtaining the other person's consent; and (2) with the intent to harm, defraud, intimidate, or threaten any person.

The law further provides that it is a misdemeanor for a person to send an electronic mail, instant message, text message or similar communication that references a name, domain address, phone number or other item of identifying information belonging to any person (1) without obtaining the other person's consent; (2) with the intent to cause a recipient of the communication to reasonably believe that the other person authorized or transmitted the communication; and (3) with the intent to harm or defraud any person.

This law could prove to be particularly helpful to employers who are presented with the issue of a disgruntled former employee posting or sending under the name of someone else disparaging statements about the employer's business, management, or other employees.

The law could also prove helpful to employers that are dealing with the task of effectively monitoring employee communications about company-related business on the various social-networking websites.

JAN 20 ADA Amendments Act Expand Scope of Protected Disabilities

ADA Amendments Act Expand Scope of Protected Disabilities
by Chris Hanslik
January 20, 2010

In 2009, Congress drafted the Americans With Disabilities (ADA) Amendments Act to address the increasingly narrow definition of "disability" that courts, including the U.S. Supreme Court, have applied in interpreting the original act for more than a decade. The Amendments Act took effect on January 1, 2010 (a similar amendment to the Texas Commission on Human Rights Act took effect on September 1, 2009).

The ADA Act's original definition of "disability" was "a physical or mental impairment that substantially limits one or more major life activities." Subsequently, the Supreme Court held that courts must take into account the effects of mitigating measures such as medication, hearing aids and prosthetic devices when determining if an individual has a substantially limiting impairment protected by the ADA. In the event such mitigating measures ameliorated the condition the individual was not considered disabled under the act. The Supreme Court also narrowed what could be considered a "major life activity" to something that was of "central importance to most people's daily lives."

The ADA Amendments Act broadens the ADA's coverage by specifically disapproving the Supreme Court's interpretation of "disability." As amended, the new law requires the term to be "construed in favor of broad coverage of individuals ... to the maximum extent permitted by the terms of this Act." But Congress did not stop there. The amended act also states that an impairment that is episodic or in remission qualifies as a disability if it would substantially limit a major life activity when active. In fact, courts are not to consider mitigating measures as a factor when determining whether an impairment substantially limits a major life activity.

Finally, the ADA Amendments Act expands the definition of "major life activities" by including a non-exhaustive list for courts to consider, including: seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, reading, communicating and working. These amendments make it more likely that courts will find impairments qualify as a "disability" under the law.

DEC 28 Creating a Social Media Policy

Creating a Social Media Policy
by Chris Hanslik
December 28, 2009

In today's world of social media, every company with more than two employees should develop a social media policy. These policies serve several purposes, including, but not limited to: (1) educating your workforce on the various types of social media outlets; (2) determining how social media can be used to further your company's business interests; and (3) establishing guidelines for using social media consistent with your company's core values and/or code of conduct.

With this in mind, the best way to start is by not trying to recreate the wheel — several large institutions have social media policies in place that provide a good template for any company to draw from. You can find some of these policies at

Armed with this information, you should form a small committee from different constituent groups within your company to evaluate the various policies. Establish a system to determine what portions of each policy will work for your company given the industry you serve as well as how your company operates. Part of the process should include interviewing your employees to determine which social media outlets they regularly use and how they think using social media can help or hurt the company's ability to accomplish its goals.

Obviously, before any policy is finalized you should make sure that the legal implications are addressed. For example, you want to make sure your employees avoid violating any advertising laws your company may be bound by, guard against employees making defamatory statements or infringing upon intellectual property rights of others, and address privacy concerns. The one legal issue all policies should cover is consequences for violating the policy. This will become an issue if an employee should be terminated because of their conduct on a social media outlet.

Finally, an important aspect of any policy is regularly evaluating whether it is still appropriate for your business. As fast as social media is evolving you will need to make sure your social media policy keeps up with the technology.

DEC 11 All Texas Entities to be Governed by the TBOC Effective January 1, 2010

All Texas Entities to be Governed by the TBOC Effective January 1, 2010
by Forrest Gordon
December 11, 2009

On January 1, 2010, all entities organized in Texas prior to January 1, 2006 under statutes other than the Texas Business Organizations Code ("TBOC") will cease to be governed by the statutes under which they were formed and automatically, without any notice to or action required by the entity's owners and management, become governed by the TBOC.

What does this mean for pre-TBOC entities that have not taken any action to early adopt the TBOC?

Provided that the formation documents of the entity complied with the statute under which it was formed, no further action is required of the entity to bring it into compliance with the TBOC. Fortunately, the TBOC includes a list of synonymous terms so that any reference in an entity's governing documents to now obsolete terms such as "articles of incorporation" and "regulations" are treated as legally synonymous with their TBOC equivalents (which, for the above terms would be "certificate of formation" and "company agreement").

That being said, owners and management should be aware that all actions taken by their entity on or after January 1, 2010 will be governed by the TBOC, regardless of when that entity was formed. Additionally, the entity will be required to conform its articles of incorporation to the TBOC if and when it ever files an amendment to that document with the Texas Secretary of State.

NOV 06 Federal Regulators Release New Policy Statement on Commercial Real Estate Loan Work-Outs

Federal Regulators Release New Policy Statement on Commercial Real Estate Loan Work-Outs
by Bill Boyar & Tim Heinrich
November 6, 2009

On October 30, 2009, the Federal Reserve adopted a new policy statement on commercial real estate loan work-outs, replacing a prior policy statement from 1991. This new statement supports prudent commercial real estate loan work-outs. One of the most significant provisions of this statement is "renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance."

The primary focus of an examiner's review of a commercial loan is directed towards the borrower's ability and willingness to repay the loan, including any support by willing and able guarantors. As such, loans to sound borrowers that are renewed or restructured in accordance with prudent underwriting standards should not be adversely classified or criticized unless well-defined weaknesses exist that jeopardize repayment of the loan.

The policy statement includes a number of examples of commercial real estate loan work-outs, providing illustrations of prudent loan work-outs that would not be subject to adverse loan classification.

Click here for a full copy of the policy statement.

OCT 30 Texas Recognizes New Entity: Series Limited Liability Company

Texas Recognizes New Entity: Series Limited Liability Company
by Stephen Johnson
October 30, 2009

As of September 1, 2009, Texas recognizes a new entity called a "series limited liability company." This is a special form of limited liability company (LLC), originally permitted in Delaware, that allows owners to compartmentalize or isolate certain assets and related liabilities within the same limited liability company.

Here's how it works: Instead of forming a parent limited liability company as a holding company with subsidiary LLC's, or forming several sister LLC's, one can now form a limited liability company with designated series or cells. Each series or cell would own distinct assets and incur liabilities separate from other series within the LLC. As long as certain formalities are followed, the assets of each series are protected from the liabilities of any other series within the series LLC. In other words, the liabilities of a series are enforceable only against assets within that series and not against the LLC generally. This reduces the costs and administrative burdens of maintaining several separate LLC entities.


OCT 27 When Selling Private Securities - No Limit on Number of Accredited Investors

When Selling Private Securities — No Limit on Number of Accredited Investors
by Steve Kesten
October 27, 2009

A client recently called concerned that, in connection with his efforts to raise money for working capital through the sale of units of membership interest in a Texas limited liability company, his company could only sell to 35 investors.  To make matters worse, there were already 10 owners of the company holding membership units, so he could only sell to 25 more investors.  I quickly dispelled him of his concerns. 

There is a common misunderstanding that when selling private securities, an issuer is limited to selling to 35 investors.  It is true that in order to maintain certain exemptions from having to register the sale of securities with the Securities and Exchange Commission, there is a limit in the number of investors to whom an issuer can sell, but such limitations only relate to unaccredited investors.  Alternatively, there is no limit on the number of accredited investors to whom an issuer can sell securities provided the other applicable requirements are met relative to the exemption from registration that an issuer is pursuing. 

So what is an accredited investor?  Generally speaking, an accredited investor is a natural person, entity or institution that has a level of sophistication, net worth and experience in financial matters that the SEC believes does not require the same level of protection relative to the sale of securities than does someone without such traits.  The list of qualifications of accredited investors can be found in Rule 501 of Regulation D, which is a regulation that was promulgated under the Securities Act of 1933.

OCT 12 Recent Changes to Delaware Limited Liability Company Laws

Recent Changes to Delaware Limited Liability Company Laws
by Gus Bourgeois
October 12, 2009

Gus Bourgeois recently gave an in-house presentation to BoyarMiller's Business Group regarding recent changes to Delaware's limited liability company laws as discussed in The Wave of the Future and Advising Your Clients About What to Expect, written by Peter J. Walsh, Jr. and Dominick T. Gattuso published in the ABA Business Law Today. 

Highlights include reviews of Spellman v. Katz, C.A. No. 1838 (Del. Ch. Feb. 6, 2009) which cites parol evidence of members' contrary intent as to dissolution of company inadmissible when language in Operating Agreement is clear and unambiguous; and Fish Venture, LLC v. Segal, C.A. No. 30l7-CC (Del. Ch. May 7, 2008) which cites fiduciary duties may be limited or excluded by clear and unambiguous language in Operating Agreement.  For more information download the complete article at

SEP 15 Court Broadens Geographic Scope of Agreement

Court Broadens Geographic Scope of Agreement
by Chris Hanslik
September 15, 2009

In Vaughn v. Intrepid Directional Drilling Specialists, Ltd. a Texas court of appeals considered whether an employee violated a covenant not to compete by arranging for his own newly-formed company to provide services on a project outside the geographic zone covered by the covenant. The covenant stated that the employee could not interfere "directly or indirectly, in any manner with any relationship between [the employer and] customers within the Restricted Territory." In upholding the injunction against the employee, the court ruled the provision could reasonably be interpreted to prohibit the employee from serving a customer located in the restricted territory even if the work in question was outside the protected territory.

This ruling provides employers with an advantage when trying to enforce non-compete clauses against former employees by expanding the geographic scope beyond the written terms of the agreement.

SEP 09 Supreme Court Finds Implied Promise Sufficient

Supreme Court Finds Implied Promise Sufficient
by Chris Hanslik
September 9, 2009

In Mann Frankfort v. Fielding, the Texas Supreme Court has held that an employer does not have to make an express promise to provide confidential information for a covenant not to compete to be enforceable. The Court held that if the nature of the employment for which an employee is hired will reasonably require the employer to provide confidential information to the employee to accomplish their job duties, then the employer has impliedly promised to provide confidential information making the covenant enforceable as long as the other requirements of the Covenant Not to Compete Act are satisfied.

This ruling strongly favors employers seeking to enforce non-compete clauses against former employees.

SEP 02 Trade Secret Protection

Trade Secret Protection
by Chris Hanslik
September 2, 2009

Companies with trade secrets should adopt a policy prohibiting and/or limiting the copying, disclosure, or dissemination of the confidential information. Recommended steps to protect the trade secrets are:

  • Mark your trade secret information as "confidential" or a similar label. Provide access to trade secret information only to people within the company who reasonably "need to know".
  • Ensure all employees or third-parties (such as consultants, independent contractors, clients or potential clients, or financial institutions) with access to trade secrets sign a non-disclosure agreement. Adopt as many security measures as possible (i.e. cameras, fences, use of visitor badges, "restricted area" signs . . .), including computer security precautions.
  • Make an inventory of your trade secrets and document any measures taken to protect its confidentiality (including location, security measures, and persons with access).

Going through this exercise will help a company accurately assess whether it truly has a trade secret that is capable of being protected in the event litigation arises in the future.

Home | About Us | Attorneys | Practice Areas | Industries | Representative Matters | News and Events | Publications | Careers