Court Holds That Once An Employer Acts With An Illegal, Retaliatory Motive Against An Employee, The Employee’s Mildly Inappropriate Response Is Not Sufficient To Remove The Taint Of Illegal Retaliation

In Fisher v. Lufkin Industries, __ F.3d __, No. 15-40428, 2017 WL 562444 (5th Cir., Feb. 10, 2017), the African-American plaintiff, Fisher, complained to Lufkin’s VP of HR that his supervisor referred to him as “boy,” which he regarded as racist. HR investigated, and determined that the supervisor used the word “boy,” but not in a racist way. About a month later, a white coworker of Fisher’s went to management and told them that he did not like the fact that Fisher had reported his supervisor for using the word “boy.” The coworker claimed Fisher sold pornographic DVDs from his lunch box at work, and offered to orchestrate a sting operation to prove it. The company agreed, and Fisher was indeed caught selling pornographic DVDs at work. After he was caught, Fisher did not allow the company to search his car, claiming that he had to leave immediately because his wife called him and told him she was ill and needed him. A week later he was fired for an alleged “serious violation of company policies.”

Fisher sued for retaliation under Title VII. The district court held a bench trial. The trial judge found that Lufkin had retaliated against Fisher for his complaint about his supervisor using the word “boy,” but that Fisher’s own misconduct in refusing to cooperate with the company in its investigation, and lying about his wife being ill, broke the causal chain, and, therefore, his termination was lawful. Fisher appealed.

On February 10, 2017, the U.S. Court of Appeals for the Fifth Circuit reversed the district court. The Fifth Circuit agreed with the district court that the evidence demonstrated that the company sought to entrap Fisher in retaliation for his protected activity (complaining about his supervisor’s use of the word boy). The Fifth Circuit also agreed with the district court that selling pornography at work to other employees who wanted to buy it was not a terminable offense at Lufkin, and actually did not appear to even be a violation of any company policy. As such, the court agreed with the district court that Lufkin had targeted Fisher for termination because of his protected activity — which is classic illegal retaliation.

The court disagreed with the district court’s finding that Fisher’s own misconduct in refusing to cooperate with the company in its investigation, and lying, broke the causal chain, and, therefore, his termination was lawful. The court found that finding simply “implausible” given the record evidence. Furthermore, the court observed that, “to shield employers from liability for adverse actions taken in response to such resistance would be to incentivize supervisors motivated by retaliatory animus to initiate groundless investigations with the purpose of causing the targeted employees to resist them, thereby leading to the employer’s adverse actions. We decline to provide such an incentive.” Id. at *5 n.8.

Over the years, retaliation claims have generally fared better with the U.S. Supreme Court and the Fifth Circuit than other types of employment claims. This case is yet another example. While it is a very fact-specific case, it does indicate that once an employer is shown to have acted with retaliatory animus, the plaintiff has significant leeway before a court will conclude that something he or she did removes the retaliatory taint and exonerates the employer from liability.

Posted in Discrimination, Houston Employment Law, Houston Retaliation Law, Retaliation

Fifth Circuit Holds That Employee’s Failure to Provide Doctor’s Note Confirming Reason for Absence Dooms His Claims Under The Americans with Disabilities Act

Mark Oberti writes:

Sometimes, employees ask for time off from work because of medical issues. In those situations, the Americans with Disabilities Act (“ADA”) may protect them from being terminated because of the time they take off from work. However, if an employer asks for medical proof to substantiate the need for time off, and the employee does not provide it, then there is a very good chance the ADA will not protect the employee if they are terminated for taking the time off from work. This was the situation in the recent case of Delaval v. PTech Drilling Tubulars, LLC, __ F.3d __, No. 15-20471, 2016 WL 3031069 (5th Cir. May 26, 2016).

Danny Delaval was given permission to take time off work from his job at PTech to get some medical testing. After he completed the testing, he sent his employer and e-mail to know he was “cancer free,” but had been diagnosed with kidney stones and an enlarged spleen. Delaval said he would be back to work soon. The owner of his employer told him to follow his doctor’s orders and keep them informed. A week later, Delaval returned to work. His employer asked him for medical documentation to demonstrate that he had been undergoing medical testing or treatment while he was out. Delaval did not provide any. At that point, he was fired for allegedly “failing to show up at work for more than three consecutive days without notifying a supervisor.” Delaval sued for failure to accommodate and disability discrimination under the ADA. The district court dismissed his claims on summary judgment, and Delaval appealed to the U.S. Court of Appeals for the Fifth Circuit. The Fifth Circuit affirmed the district court’s decision.

As to Delaval’s failure to accommodate claim under the ADA, the Court found that Delaval’s request for time off for medical testing, and then treatment, was a request for a reasonable accommodation under the ADA. However, the Court observed that the law permits employers to demand medical proof of the medical need for time off as a condition of granting a reasonable accommodation. That is what PTech did in this case. Yet, Delaval never provided any such proof, so he was terminated. The Court held that his termination was legal, because it was Delaval’s own fault that he failed to provide the medical documentation that PTech was within its rights to ask for. As to Delaval’s disability discrimination claim under the ADA, the Court found that there was not sufficient evidence that PTech’s given reason for his termination was a pretext for disability discrimination. Delaval argued that PTech’s given reason for his termination — “failing to show up at work for more than three consecutive days without notifying a supervisor” — was false because he had e-mailed the owner while he was out, and thus had notified a supervisor. The Court agreed that was some evidence that PTech’s given reason for termination was false, but that was still not sufficient evidence of disability discrimination. Accordingly, the Court affirmed the district court’s decision to dismiss Delaval’s entire case.

Posted in ADA, At Will Employment, Disability, EEOC, Houston Employment Law, Human Resources

Fifth Circuit Holds That Employees Interviewed As Part Of A Sexual Harassment Investigation Have Greater Protection From Retaliation

Mark Oberti writes:

Recently, the U.S. Court of Appeals for the Fifth Circuit, which covers Texas, Mississippi, and Louisiana, affirmed that an employee interviewed as part of a company’s internal investigation into sex harassment complaints is protected from retaliation under Title VII. In EEOC v. Rite Way Service, Inc., No. 15-60380 (5th Cir. Apr. 8, 2016), an employee named Ms. Tennort reportedly “observed two interactions between [supervisor] Harris and another general cleaner, [Ms.] Quarles, that troubled her. The first involved Harris pretending to smack Quarles’s bottom and saying, ‘ooh wee.'” The second was when Harris said he “could tell what was in Quarles’s pants pocket and stated that ‘somebody must be looking real hard at [Quarles’s] behind,'” supposedly adding for emphasis that “I’m a man, I’m gonna look.”

In response to her employer’s request, Tennort submitted a written report about the second incident. That week, Harris was transferred away, but the school replaced Harris with his brother-in-law. After that, “[o]ver the next five weeks, she [Tennort] received two written warnings and up to two oral warnings for poor job performance Her alleged infractions included not properly cleaning areas assigned to her, tardiness, and insubordination. These warnings were the first that Tennort had received since beginning her employment with Rite Way in 2009.”

Ms. Tennort was fired for alleged “neglect of duty,” about a month after filing her witness statement. The EEOC sued Rite Way on her behalf, claiming that her termination was in retaliation for her report, and violated Title VII’s prohibition against retaliation.

The district court concluded as a matter of law that “that Tennort did not engage in protected conduct under Title VII’s anti-retaliation provision,” and granted summary judgment for the employer. On appeal, however, the Fifth Circuit reversed, and sent the case back to the district court for a jury trial.
Title VII’s opposition clause in section 704(a), 42 U.S.C. § 2000e-3(a), requires opposition of a practice made unlawful by Title VII (“he has opposed any practice made an unlawful employment practice by this subchapter”). Thus, courts have generally required that the employee had an objectively reasonable belief that the practice “opposed” was illegal. Courts have not generally considered, though, the situation where the party “opposing” the practice was a third-party witness to an event, responding passively to an employer’s request for information. That was the case here.

The Fifth Circuit concluded that the “reasonable belief” standard applies equally to persons cooperating in an investigation. The EEOC argued based on Crawford v. Metropolitan Government of Nashville and Davidson County, Tennessee, 555 U.S. 271 (2009), that it was enough that the employee “opposed” conduct “by responding to someone else’s question.” The Court rejected that argument, stating that “creating a lower threshold for reactive plaintiffs bringing retaliation claims would be at odds with Crawford’s reasoning that the language of the opposition clause does not permit courts to treat reactive opposition any differently than proactive opposition.”

Notwithstanding its refusal to budge from the “reasonable belief” standard, the Court still reversed summary judgment. Even if the one incident the claimant witnessed would not by itself constitute harassment as a legal matter, the circumstances might tilt into gray-zone “reasonable belief” – at least enough to allow a jury to decide it. “She heard Harris tell Quarles that he was looking at and admiring her rear end … [T]his was conduct directed at a specific fellow employee. That it came from a person in a supervisory position is another important consideration.” The earlier near-slap is also “relevant to how she assessed the seriousness of Harris’s later comment that he was ‘gonna look’ at Quarles’s rear end because he was a man.”

Finally, Tennort’s belief was informed by a pamphlet furnished by the employer that “sexual harassment” – including “unwelcomed sexual . . . comments” and “other verbal or physical conduct of a sexual nature” – should be reported. In sum, “If Tennort had not yet reached a view that Harris violated federal employment law when he made offensive comments and gestures about Quarles’s rear end, the circumstances surrounding her questioning may very well have caused her to do so.” Thus, the Court found that Tennort had a reasonable belief that what she reported was actually sexual harassment that violated Title VII, and so the district court’s summary judgment was reversed and the case sent back to the district court for a jury trial on the question of whether Tennort had been fired because of her report.

This decision was written by Judge Gregory Costa.

Posted in Discrimination, EEOC, Houston Employment Law, Houston Retaliation Law, Retaliation, Whistleblower

Employee Loses Retaliation Claim Based On Coworker’s Use Of The Phrase “Heil Hitler”

Some employees think that any workplace complaints over inappropriate conduct or statements are protected from retaliation — meaning that the employer cannot retaliate against them for making such complaints. But, the law is actually far different, as illustrated by a recent case decided the U.S. Court of Appeals for the Fifth Circuit, which covers Texas, Mississippi, and Louisiana.

In Satterwhite v. City of Houston, 602 Fed.Appx. 585 (5th Cir.), cert. denied, 136 S. Ct. 87 (2015), the plaintiff, an employee for the City of Houston, reported his co-worker for allegedly using the phrase “Heil Hitler” during a meeting. The co-worker later became the Plaintiff’s supervisor, and subsequently allegedly recommended that the plaintiff be demoted. The City ultimately agreed with the demotion. Following his demotion, the plaintiff brought an unlawful retaliation claim under Title VII of the Civil Rights Act of 1964. He alleged that he was demoted in retaliation for reporting his co-worker for using the phrase “Heil Hitler” at the meeting.

The district court granted summary judgment for the City, finding that the plaintiff had failed to show that he was actually demoted because of his complaint. The Fifth Circuit Court of Appeals affirmed this decision, but not for the same reason as the district court. Instead, the Fifth Circuit determined that the plaintiff’s reporting of his co-worker did not even rise to the level “protected activity.” For employees to be protected from retaliation by Title VII, they must objectively “reasonably believe” that the conduct they report violates Title VII. As a result, for the plaintiff’s report of his co-worker to have constituted protected activity, the plaintiff had to reasonably believe that a single “Heil Hitler” created a hostile work environment in violation of Title VII. The Fifth Circuit determined that no reasonable employee could have held such a belief, and therefore Title VII’s anti-retaliation provisions did not protect the plaintiff. In other words, even if the plaintiff was demoted in retaliation for his complaint against his co-worker, it would not be illegal under Title VII. The court accordingly affirmed summary judgment for the City. The plaintiff sought review of the Fifth Circuit’s decision from the U.S. Supreme Court, but his request was denied in late 2015.

This case teaches that not all complaints about inappropriate conduct or statements in the workplace are protected from retaliation — even a statement as vile and repulsive as “Heil Hitler.”

Posted in EEOC, Houston Retaliation Law, Retaliation

EEOC Takes Aggressive Positions On Homosexual Rights In The Workplace Under Title VII

The Equal Employment Opportunity Commission (“EEOC”) sometimes announces its position on legal issues under Title VII. While the EEOC’s pronouncements are not binding on courts, they often have consequences on employers anyway because the EEOC is the government agency that decides whether or not an employee’s Charge of Discrimination with the agency has merit. Also, sometimes, courts give some degree of deference to the EEOC’s views. Recently, the EEOC made an announcements concerning its view of the law under Title VII concerning gay rights that merits attention from employers and employees.

Specifically, the Commission took the position that a claim of discrimination on the basis of sexual orientation necessarily states a claim of discrimination on the basis of sex under Title VII, and is thus illegal. To prove its point, on March 1, 2016, the EEOC announced that it has filed its first two sex discrimination cases based on sexual orientation. The EEOC filed suit in the U.S. District Court for the Western District of Pennsylvania against Scott Medical Health Center, and, in a separate suit, in the U.S. District Court for the District of Maryland, Baltimore Division, against Pallet Companies, dba IFCO Systems NA.

In its suit against Scott Medical Health Center, EEOC charged that a gay male employee was subjected to harassment because of his sexual orientation. The agency said that the male employee’s manager repeatedly referred to him using various anti-gay epithets and made other highly offensive comments about his sexuality and sex life. When the employee complained to the clinic director, the director responded that the manager was “just doing his job,” and refused to take any action to stop the harassment, according to the suit. After enduring weeks of such comments by his manager, the employee quit rather than endure further harassment.

In its suit against IFCO Systems, EEOC charged that a lesbian employee was harassed by her supervisor because of her sexual orientation. Her supervisor made numerous comments to her regarding her sexual orientation and appearance, such as “I want to turn you back into a woman” and “You would look good in a dress,” according to the suit. At one point, the supervisor blew a kiss at her and circled his tongue at her in a suggestive manner, EEOC alleged. The employee complained to management and called the employee hotline about the harassment. IFCO fired the female employee just a few days later in retaliation for making the complaints, EEOC charged.

The EEOC’s General Counsel, David Lopez, stated, “[w]ith the filing of these two suits, the EEOC is continuing to solidify its commitment to ensuring that individuals are not discriminated against in workplaces because of their sexual orientation.” Mr. Lopez further remarked that, “ [w]hile some federal courts have begun to recognize this right under Title VII, it is critical that all courts do so.”

Since Title VII was passed in 1964 many federal courts have held that discrimination based on sexual orientation is not prohibited by Title VII. Accordingly, these two new cases are novel and will test out the EEOC’s recently announced position that, contrary to decades of case law holding otherwise, Title VII really does prohibit discrimination based on sexual orientation.

Posted in Discrimination, Dodd Frank, Houston Employment Law

Fifth Circuit Holds That A Manager’s Threat To Reduce An Employee’s Pay In Retaliation For the Employee’s Hiring Of A Transgendered Employee Was Not An Adverse Employment Action That The Threatened Employee Could Sue Over

In a case decided in December 2015, Brandon v. Sage Corp., 808 F.3d 266, 270 (5th Cir. 2015), the U.S. Court of Appeals for the Fifth Circuit addressed a retaliation claim brought by the plaintiff Brandon, the former Director of the San Antonio Campus of Sage’s truck driving school. The plaintiff had hired a transgendered employee. According to the Plaintiff’s allegations, when the defendant’s National Project Director, Regional Director for the Western United States, and School Director for the Billings, Montana site (Ms. Campanian), found out, she asked Brandon if she was “stupid,” and threatened to cut the plaintiff’s pay by 50% as a means of disciplining her for hiring the transgendered employee. Ms. Campanian was also a stockholder and part-owner of Sage, but she was not a supervisor of the plaintiff. Nevertheless, the plaintiff claimed to be fearful of Ms. Campanian’s threats against her and she resigned after she tried, but was unable to get ahold of Sage’s President, who was traveling at the time. The Plaintiff then sued Sage, claiming that Ms. Campanian’s threat to cut her pay by 50% constituted actionable retaliation in violation of Title VII.

The district court dismissed the plaintiff’s case, and — despite urgings to the contrary from lawyers with the Equal Employment Opportunity Commission — the Fifth Circuit affirmed that decision. The Fifth Circuit observed that in a retaliation case “a plaintiff must show that a reasonable employee would have found the challenged action materially adverse, which … means it well might have dissuaded a reasonable worker from making or supporting a charge of discrimination.” Burlington N. & Santa Fe Ry. v. White, 548 U.S. 53, 68 (2006). Under this standard, the Court held that no reasonable person would have found Ms. Campanian’s threat sufficient to dissuade them from making or supporting a charge of discrimination because Ms. Campanian was not Brandon’s direct supervisor. Rather, the plaintiff reported directly to Sage’s President. As the Court stated: “[a] reasonable employee in [the plaintiff’s] position would have been familiar with the company’s chain of command, the company’s grievance process, and who had the last word on final tangible employment decisions. Therefore, a reasonable high placed employee would not have been dissuaded from engaging in protected activity as a result of threats or actions by someone outside her chain of command and who she knew had no final decision-making authority.”

This case demonstrates that not all threatening or bad acts by an employer’s managers will suffice to support a retaliation claim. Rather, each situation must be analyzed on its own facts. This case also illustrates that employees who do not diligently and rigorously follow their employer’s chain of command to make complaints about abusive or retaliatory conduct often lose in court.

Posted in EEOC, Houston Retaliation Law, Retaliation, Uncategorized

New Fifth Circuit ADA Decision Illustrates The Pro-employee Impact Of The Amendments Congress Passed To The ADA

In 2011, Jacobs Field Services North America, Inc. offered Michael Cannon, a mechanical engineer with 20 years’ experience, a field engineer position at a Colorado mining site.

But very shortly thereafter, Jacobs rescinded the offer after learning Cannon had a rotator cuff impairment that prevented him from lifting his right arm above the shoulder. As a result, Cannon sued Jacobs under the Americans with Disabilities Act (“ADA”).

A federal district court judge in Houston threw out Cannon’s case on summary judgment, holding that Cannon couldn’t show a “disability” under the ADA or prove he was a “qualified individual.”

In January 2016, the U.S. Court of Appeals for the Fifth Circuit reversed the district court judge’s decision, and ruled that Cannon had sufficient proved his case so as to justify a jury trial. Cannon v. Jacobs Servs. N.A., Inc., No. 15–20127, 2016 WL 157983, ___ F.3d ___ (5th Cir. Jan. 13, 2016).

The Fifth Circuit held that the district court judge erred in holding that Cannot was not “disabled” under the ADA, because the judge failed to consider the ADA post-amendments that took effect before Jacobs rescinded Cannon’s job offer. Those amendments made it much easier for an employee to demonstrate that they suffered from a “disability” as defined by the ADA. The Equal Employment Opportunity Commission’s regulations interpreting the amended ADA state that whether an individual’s impairment “substantially limits” a major life activity “should not demand extensive analysis.” Cannon produced “ample evidence” to show he was substantially limited in lifting and reaching, which the amended ADA and EEOC regulations identify as major life activities, the appeals court said. Thus, based on the amendments, and Cannon’s proof, there was enough evidence to support a finding that he had a “disability” as defined by the ADA.

The Fifth Circuit found that the district court had also erred in holding that Cannon was not “qualified” for the job. Jacobs asserted Cannon was unable to perform essential job functions, but the court said the “record is thin” given the speed with which the company rescinded its job offer. Jacobs argued Cannon’s condition, and the medication he was taking, prevented him from driving and climbing ladders, two essential job functions. But Cannon’s evidence, which included doctor’s reports that he was being weaned off the pain medication, and a video demonstrating he could safely climb ladders, raised a jury issue as to whether he was “otherwise qualified” for the job, the court said. Consequently, the Fifth Circuit remanded the case for trial.

This case demonstrates that the ADA’s amendments make it much easier for a plaintiff to establish a “disability” under the ADA. The case also points teaches that employers must carefully evaluate whether an employee’s medical impairment renders them unqualified for a job, rather than make rash judgements based on incomplete information.

Posted in Disability, Discrimination, EEOC, Houston Employment Law, Human Resources

Five Questions That Individual Employees Should Ask Before Hiring A Houston Employment Lawyer

Hopefully you will never need an employment lawyer in Houston. Luckily, there are many great Houston employment lawyers, and they work at firms all over the city. Some of them rank highly on Google search results, and others do not. Take your time and search thoroughly; do your research; and find someone who is the right fit for you and your case.

Here are questions we think you should ask before you select an employment lawyer in Houston:

1. Is the lawyer Board Certified in Labor and Employment Law by the Texas Board of Specialization, or does the lawyer devote a significant portion of his or her practice to employment law in Houston? Do not be afraid to ask potential lawyers how many years he or she has practiced as an employment lawyer and how many employment law cases he or she has handled. Such questions can be important in gauging the experience of your potential lawyers.

2. Has the Houston employment attorney actually tried and won big cases in front of juries and on appeal? Ask the lawyer how many trials and appeals he or she has “first chaired,” and what the results were in those trials. Results matter. If your case is going to trial, it makes sense to have a real trial lawyer representing your interests.

3. Is the lawyer asking you to pay money before he or she will take your employment law case? If so, for what purpose and does that purpose make sense to you? There are legitimate reasons a lawyer may ask you for money. Unfortunately, some lawyers ask for money for the wrong reasons. Before you turn over your hard earned money, you need to feel comfortable that doing so is both necessary and will positively advance your case.

4. Does your Houston employment attorney speak or write frequently before other employment lawyers? Such speaking and writing can suggest knowledge about the subject matter and visibility in the community.

5. Did the lawyer hint or outright tell you to lie to make your case stronger? Lying is wrong, and liars get caught. Lawyers who encourage this behavior are acting unethically and do not have your best interests at heart. Your case is not as important as your integrity.

Posted in Houston Employment Law, Houston Executive Lawyer, Houston Retaliation Law

Confidentiality Agreements Used By Many Employers Draw KBR A $130,000.00 Fine From The SEC — Is Your Company At Risk Too?

Mark Oberti writes:

On April 1, 2015, the SEC took action against — including a $130,000.00 fine — a company over concerns that the company was preventing its employees from potentially blowing the whistle on illegal activity. The action is significant because the SEC was targeting typical language in a confidentiality agreement and there were no allegations that the company, KBR, Inc., was violating any substantive securities law.

The Dodd-Frank Act amended the Securities Exchange Act to provide for whistleblower incentives and protections in order to encourage individuals to report possible violations of securities laws, but the new law goes further than merely encouraging reporting. Under SEC Rule 21F-17, companies may not take action to impede individuals from communicating with SEC staff about possible law violations, “including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”

Like many large companies, KBR has a compliance program to process complaints from employees concerning potentially unethical or illegal conduct. KBR has its own investigators who review these complaints and interview witnesses, including the individual who made the allegations. For many years KBR used a form confidentiality agreement in connection with its internal investigations. KBR’s investigators asked witnesses to sign the statement at the beginning of an interview. The form provided as follows: “I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.”

The SEC asserted that this language violated Dodd-Frank and Rule 21F-17. Despite finding that (1) no employee was actually prevented form reporting potential law violations to the SEC, and (2) KBR had not tried to enforce the confidentiality agreement, the SEC nonetheless found that the offending language “undermines the purpose of Section 21F,” which is to encourage individuals to report to the SEC.

Without admitting wrongdoing, KBR agreed to (1) contact employees who had previously signed the agreement and advise them that they do not need permission from KBR’s legal department to report potential illegal activity to the government, (2) refrain from further violations , and (3) pay a $130,000 civil monetary penalty.

The SEC’s order in this case is a warning to other companies that may have similar, otherwise typical confidentiality provisions which are intended to protect privileged communications, and not intended or used to prevent employees from reporting potential law violations to the SEC. Moreover, the fact that the SEC’s action involved a company not even accused of actually preventing such reporting, or violating any substantive securities law, may signal that the SEC intends to be aggressive in searching out similar provisions in confidentiality agreements used by other companies for similar enforcement actions. Accordingly, employers should review their confidentiality agreements to ensure they do not run afoul of SEC Rule 21F-17 as interpreted by the SEC in this case.

Posted in Dodd Frank, Whistleblower

Texas Supreme Court Hands Victory To Employers In The Evolving Law Regarding Non-Competition Agreements

Mark Oberti observes:

On Friday, August 29, 2014, the Texas Supreme Court delivered another victory for employers seeking to enforce post-employment restrictions against former employees who seek to go to work for competitors. In Exxon Mobil Corp. v. Drennan, No. 12-0621 (Tex. Aug. 29, 2014), Drennan had worked for ExxonMobil for more than thirty years. During his employment, he received restricted stock pursuant to an Incentive Progam. As for the restricted stock shares that were outstanding at the time of Drennan’s resignation, ExxonMobil’s Incentive Program provided that ExxonMobil could cancel the shares if Drennan engaged in “Detrimental activity,” including becoming employed by a competitor of ExxonMobil’s. The Incentive Program also contained a New York choice of law clause.

After receiving a negative performance appraisal for the first time in his three decade career, and being told that ExxonMobil was replacing him in his position, but would try to find him another position, Drennan decided to resign. He accepted a job with Hess Corporation. Shortly thereafter, ExxonMobil informed Drennan that by doing so, he had engaged in “Detrimental activity” and thus his outstanding restricted shares — worth millions of dollars — were all cancelled. Drennan sued ExxonMobil for return of the shares. He lost in front of a jury, but the Houston Fourteenth Court of Appeals reversed, and ordered ExxonMobil to give him the shares. The Court of Appeals reached this conclusion by finding that: (i) ExxonMobil’s choice of law clause designating New York law was unenforceable as being against Texas’s fundamental public policy in regards to non-competition agreements; and (ii) under Texas law the “Detrimental activity” provision was unenforceable because it lacked a geographic or any other reasonable limitation. ExxonMobil appealed to the Texas Supreme Court.

The Texas Supreme Court found that the “Detrimental activity” provision was not a non-competition agreement. According to the Court, unlike a non-competition provision, ExxonMobil was not using the “Detrimental activity” provision to try to stop competition, but rather to reward continued loyalty. Since the provision was not deemed to be a non-competition agreement, then it was not against Texas’s fundamental public policy to enforce the New York choice of law clause. Under New York law the “Detrimental activity” provision was was enforceable because Drennan voluntarily resigned. As a result, ExxonMobil was within its rights to have cancelled the restricted shares.

During the previous eight years, the Texas Supreme Court had issued three prior pro-employer decision in non-compete cases. While it is technically true that the Court found that this case did not involve a non-competition agreement, the reality is that this case fits the trend towards finding non-competition agreements enforceable. Multi-state employers can now structure incentive compensation programs like ExxonMobil’s and thereby financially discourage employees from going to work for a competitor for fear of losing their restricted shares, or other incentive-based compensation. In addition, while the Court did not decide whether ExxonMobil’s “Detrimental activity” provision would have been enforceable under Texas law, it strongly hinted that it would have been. As such, this decision very arguably gives Texas employers the green light to implement incentive compensation plans with robust post-employment forfeiture provisions if the employee goes to work for the competition. While it is true that in such a situation the employer could not obtain an injunction against the employee if they went to work for a competitor — since they are legally allowed to compete under such a program — as a practical matter most employees forced to chose between keeping their entitlement to a seven-figure stock award and taking a new job with a competitor will probably not take a new job with a competitor. As such, this type of program would likely be especially effective in dealing with high ranking, highly compensated managers and executives.

Posted in At Will Employment, Houston Employment Law, Houston Executive Lawyer, Non Compete Agreements