Many of our recent blogs have focused on noncompete clauses in the workplace, particularly because of how prevalent noncompete clauses are in employment contracts and how limiting they can be on workers’ future career opportunities. We've discussed Noncompete Clauses Validity in Texas and Three Lesser-Known Complications of Noncompete Agreements in the Workplace — and it turns out our firm is not alone in our focus on these restrictive clauses.

Last Friday (July 9, 2021) President Biden issued an executive order that, among nearly 72 other provisions, calls on the Federal Trade Commission to adopt rules limiting the use of noncompete clauses.

White House Press Secretary Jen Psaki said earlier last week of noncompete clauses: “[R]oughly half of private sector businesses require at least some employees to enter noncompete agreements, affecting over 30 million people. This affects construction workers, hotel workers, many blue-collar jobs, not just high-level executives.”

Among the other provisions aimed at promoting economic competition is a limitation on unnecessary occupational licensing requirements, as nearly 30 percent of jobs in the U.S. require a license, and overly burdensome licensing can prevent people from getting jobs.

Biden will further encourage the FTC and the Department of Justice to work together to limit employers’ rights to share worker pay information in ways that could negatively impact workers looking for better paying jobs.

​Whether these orders will withstand legal challenges remains to be seen, particularly given occupational licensing requirements and noncompete agreements are regularly determined by states and not the federal government. Supporters of noncompete agreements strongly believe they protect trade secrets and investments and will likely push back on attempts to prohibit them in the workplace.

The Biden administration has positioned the FTC to draft the final language. FTC Chair Lina Khan has previously voiced support for federal rules restricting noncompete clauses, though, noting they “deter workers from switching employers, weakening workers’ credible threat of exit, and diminishing their bargaining power.”

Nonetheless, Biden’s executive order is a significant shift from current precedent.

​Our firm will be keeping a close eye on further developments, so stay tuned for future posts discussing the impact of the orders and any legal challenges.

One of our recent blogs discussed the validity of non-compete clauses in Texas, but there are often complications that can be easily overlooked. Read on to learn about lesser-known complications of non-compete agreements that every employee should be aware of before signing an employment contract in Texas (or elsewhere). 

What if an employee develops contacts for her employer through the use of a social media account like LinkedIn? If she leaves the employer subject to a non-compete agreement, does she breach the agreement by using those LinkedIn connections she made to solicit business for her new employer?

Unsurprisingly, this is a nuanced issue with many fact-dependent potential outcomes. The Texas Supreme Court has held that restrictions preventing employees from soliciting any of the employer’s customers worldwide, including those with whom she had no dealings during her employment, are not reasonably necessary to protect the employer’s business interest of preventing the employee from taking her clients with her to a competitor.

However, when an employer seeks to protects its confidential business information as well as its customer relations, broad non-solicitation restrictions are reasonable. If the employee above has access to proprietary information that she could use to help her new employer, Texas courts may very well uphold a broad non-compete agreement, or non-solicitation agreement, as reasonable.
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Even if the employee makes every attempt to avoid actively using the former employer’s confidential information, Texas courts acknowledge the extreme difficulty former employees face in not indirectly applying some of that confidential knowledge in her position with the new employer.

The employee would have to establish enough evidence that she can go into competition in the same market and not use the information she acquired with the former employer to rebut the presumption that the employer suffers irreparable injury from a highly trained employee’s continued breach of a noncompete agreement.

Judges in Texas often invoke the so-called “blue pencil” rule to make over-broad noncompete clauses enforceable.

In fact, the Texas Business & Commercial Code actually requires courts to reform restrictions if reformation is necessary to make the restrictions enforceable. However, employers are penalized if reformation is necessary, as the Act prohibits the employer from recovering its actual damages, at least until reformation occurs.

The Act also provides that an employee may recover reasonable attorney’s fees in defending against a restrictive covenant if (1) the employee establishes the employer knew at the time the agreement was executed that the agreement was overly broad and (2) the employer seeks to enforce the agreement to a greater extent than is necessary to protect its goodwill or business interest.

Even if the noncompete agreement is valid and enforceable, the employee may have defenses under Texas law that would prevent the employer from prevailing in a suit to enforce. The employer may have unclean hands or may not have suffered irreparable harm.

There are many other issues that may arise with noncompete agreements. Employees would be wise to review any noncompete clause and discuss its terms with an experienced attorney.

Many employment contracts contain clauses whereby an employee agrees any and all disputes between the employee and the employer will be subject to binding arbitration before it can be taken through the court system.
 
An example of what the agreement may look like is below:
Any controversy, dispute or claim arising out of or relating to this [contract] or breach thereof shall first be settled through good faith negotiation [OR company employment program] [other]. If the dispute cannot be settled through negotiation [OR company employment program] [other], the parties agree to attempt in good faith to settle the dispute by mediation administered by [arbitration service provider].
 
Employees confronted by this agreement may have concerns about the scope of these agreements.

Do they limit or prevent employees’ rights to form class action lawsuits?

Does a victim of sexual harassment in the workplace truly maintain substantive Title VII rights as Congress intended under such a clause?

The Federal Arbitration Act of 1925 (FAA) ensures that arbitration agreements contained in contracts involving maritime transactions or interstate commerce are “valid, enforceable, and irrevocable, save upon such grounds as exist at law or in equity for the renovation of any contract.”

The FAA thus empowers federal courts to grant a stay of litigation for any issue referable to arbitration under a valid arbitration agreement. Indeed, the Supreme Court has sought to ensure that the FAA’s authority is not usurped, for “[i]n enacting Section 2 of the federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.”
 
It is common for employers to draft agreements conditional on the signee’s consent to arbitrate any and all claims arising from their relationship with the employer, often impeding just for sexual assault survivors. More than half of American workers—56%—are subject to mandatory arbitration. 60 million Americans have signed such clauses.

​Should a signee refuse to surrender their Seventh Amendment right to trial by jury, she would likely be prohibited from entering the relationship at all. While employers argue these provisions are offered contingent on a consensual agreement to the terms, few employees have the luxury of turning down jobs when confronted with arbitration agreements - particularly given the pervasiveness of the practice.

To be clear, conditional arbitration clauses are not universally criticized and may provide benefits to some employees. Sometimes arbitration does make sense for both parties.

First, the relaxed rules of evidence and the greater control parties hold in the process can make it simpler, and perhaps more rewarding, for employees than litigation. While litigation requires strict compliance with formal procedures and can leave plaintiffs dissatisfied if their primary purpose was to feel heard, the opportunity for a sexual harassment victim to tell her story with less publicity and arguably more attention from the defendant can appeal to these victims.
 
This benefit has its tradeoff, though, where arbitration has almost none of the protections that fundamental fairness and due process usually require. Although an employee compelled to arbitrate may initially believe she is not giving up much in return for a relaxed setting with more opportunity to have her voice heard, the fact-finders in arbitration operate with almost none of the controls and safeguards of litigation.

There are other reasons why the arbitration process may harm employees as well.

First, employers often have arbitrators on retainer to rely on for many arbitration proceedings. It goes without saying that arbitrators on an employer’s payroll may be inclined to skew findings in the employer’s favor.
 
Second, there is less transparency to evaluate awards, so even prevailing employees may receive less in damages than they would have had they not been bound by the arbitration agreement.
 
Third, plaintiffs are prevented from joining in class actions, which is often the surest way to thrust employer misconduct into the public eye and compel employers to conform their behavior to the law. Without the ability to form class actions, individuals will likely not know the scope of employer misconduct and the extent to which the company may truly be liable, resulting in less actual change in company practices.
 
Lastly, arbitration can be incredibly costly despite the popular belief that arbitration avoids the costly expenses of litigation.
 
Thus, arbitration is not always in the best interests of an employee, which is why mandatory arbitration agreements are particularly troubling.

While seeking redress in the courtroom may pose its own challenges to an employee, the choice of forum for a particular grievance should be a consensual decision made by both parties and should not be the exclusive decision of an employer with more leverage. Not only do employers have the benefit of unequal bargaining power when entering into contractual relationships with employees, but courts today construe arbitration clauses incredibly liberally.
 
Broadly written arbitration clauses can include virtually all disputes with any connection to the initial infraction and their broad drafting can create a presumption that any dispute is subject to arbitration. Moreover, once a court has found an arbitration clause is valid, it will resolve any doubts as to the agreement’s scope in favor of arbitration.