Top Ten Employment Practices Employers Should Avoid

The Top Ten Employment Practices Employers Should Avoid

  1. Enforceable Competition Covenants And Trade Secret Agreements
  2. Investigating Employee Complaints
  3. Drafting Employee Severance Agreements
  4. Employment Torts
  5. Drugs And Alcohol Testing Of Employees
  6. Independent Contractors
  7. Family And Medical Leave Act
  8. Age Discrimination
  9. The Americans With Disabilities Act
  10. Agents v. Employees

Also see our noteworthy cases.


1. Enforceable Competition Covenants And Trade Secret Agreements

The motivating factors for employers to utilize covenants not to compete are based primarily upon the economic considerations of today's marketplace. The employer pays the upfront cost of recruiting and training employees. When the employee becomes skilled, the employer puts the employee in direct contact with the client. The employee may be privy to his employer's marketing strategies, financial goals, profit analysis, and other tools essential to the growth and development of the employer's business.

By providing its employees with the identities of existing and potential customers, and the requirements and the technical expertise to service the clients, employers essentially empower employees to compete against them. Without some restrictions or controls on employee competition, employers could literally face competition on a Monday from employees who left their positions the preceding Friday. The competition for clients and the mobility of the modern work force create a tension between the employer's desire to have fully trained and competent employees and its desire to avoid competition from within its own ranks.

The increased use of restrictive covenants is a direct reaction to this economic tension. Although common law duties arising out of the relationship exist which provide some protection to employers, an express restrictive covenant supplements and enhances the employer's ability to protect its interests. Matters that employers should consider in covenants are:

  • Restrictions on competition
  • Restrictions on solicitation of clients/employees
  • Restrictions on use of information
  • Scope of the restrictions
  • Remedies, damages and injunctive relief

2. Investigating Employee Complaints

Companies have obligations to take appropriate action when they receive complaints of improper employee conduct. Devising thorough and comprehensive policies for conducting internal investigations enhances the likelihood that the employer itself will not be found to be liable for any misconduct. Structuring these policies includes:

  • Preparing standards for the initial interview with the employee raising the complaint
  • Before a formal investigation, determining the extent of the company's obligation and the resources necessary to assist the company in resolving the matter
  • Planning and conducting the investigation while considering steps to protect the company and preserve confidentiality
  • Developing effective techniques for asking questions, including measures of dealing with hostile or evasive employees
  • Developing standards for determining whether the company's policies or procedures have been violated
  • Providing training to assess and determine whether local, state or federal laws require action to be taken
  • Developing policies and standards for instituting discipline
  • Implementing policies for maintaining compliance with the company's documentation policies

3. Drafting Employee Severance Agreements

Severance agreements can be as varied as the factual circumstances from which they arise. To be effective, employers must be able to effectively draft severance agreements to fit each particular set of circumstances. Employers, furthermore, should strive to make sure each severance agreement covers any and all possible claims that may arise from the underlying circumstances giving rise to the settlement agreement. Important provisions of such agreements address:

  • Ensuring that the employee is making a knowing and voluntary waiver of his rights
  • Determining whether the employee is receiving consideration for the release, i.e., the employee must receive something to which he is not otherwise entitled in exchange for the waiver
  • The amount of time afforded the employee to review the documents
  • Whether or not the employee should be advised to engage legal counsel before executing the agreement
  • Whether or not the agreement should require indemnification by the employee for future claims
  • Considering injunctions of future claims, charges and complaints by the employee
  • Preventing the employee from soliciting the employment of the company's employees
  • Including liquidated damages provisions for violations of the agreement's terms

4. Employment Torts

Employment torts are actions in the employment context based upon an employee's allegation that a duty was breached. The following selected topics are those with which employers should be particularly concerned, as they arise most often. In this area of burgeoning litigation in the employment field, courts are demonstrating a willingness to recognize additional public policy exceptions to the at-will employment doctrine and new torts for invasion of employee privacy. An employer must be aware of, for example, the following actions available to aggrieved employees in order to prevent costly litigation:

  • Violation of public policy, typically involving scenarios where the employee reports an illegal activity or is a whistleblower; the employee refuses to perform an unlawful act; the employee is terminated for attempting to exercise a statutory right; or the employee is terminated for attempting to perform a statutory or civic obligation
  • Tortious interference with contractual relations, where a third party may be accused of inducing the employer or employee not to perform a contract, preventing the employer or employee from performing the contract, or inducing a prospective employer or employee not to enter into the contract
  • Infliction of emotional distress, where the conduct of the employer is alleged to be a wrongful discharge or subjecting the employee to conditions on the job that result in emotional distress
  • Defamation, a claim which most commonly arises when an employer makes a written or spoken statement about an employee's qualifications or performance, or when statements are made by employees regarding fellow employees
  • Invasion of privacy, which can occur in many scenarios: surveillance and drug testing; intrusion upon the solitude or seclusion of another or his private affairs or concerns; appropriation of name or likeness; public disclosure of private facts; and publicity placing a person in false light
  • Negligent hiring and supervision

5. Drugs And Alcohol Testing Of Employees

Employer substance abuse policies frequently provide for the testing of employees for drugs or alcohol. An employer may require all applicants to submit to pre-employment testing. Further, an employer may select current employees for drug or alcohol testing based upon reasonable suspicion, on a random basis, or post-accident. There are a variety of requirements and limitations placed on substance abuse testing by the federal and state constitutions, statutes and regulations, and the common law, which employers must be aware of, including:

  • Drug testing may not be done with the intent to discriminate on the basis of race, color, religion, national origin, or sex.
  • Apparently neutral drug testing policies may be discriminatory if they have disparate impact or expose systematic bias.
  • Some federal laws compel substance abuse tests by certain employers.
  • An employer's application of its substance abuse testing policy to a qualified person with a disability could result in employer liability.
  • Unilateral adoption of drug testing policies by employers may be a violation of an employer's duty to bargain concerning the terms and conditions of employment in a unionized workplace.
  • State constitutional privacy protections, state disability discrimination statutes, and state common law govern drug and alcohol testing.
  • Substance abuse testing in the private sector may give rise to claims of wrongful discharge, breach of contract, and torts such as invasion of privacy and defamation.

6. Independent Contractors

The use of independent contractors and the related liability issues continue to be crucial matters for employers, in particular for the increasing number relying on temporary employees. There are factors favoring and disfavoring the use of such contractors; various tests for determining an individual's status as an employee or an independent contractor; and considerations in the use of staff leasing services. A nonexclusive list to determine employee v. independent contractor status is:

  • Does the worker provide his services to the public at large?
  • Does the worker provide his services on a continuous basis?
  • Is the worker supervised?
  • Has the individual made a significant investment in his business?
  • Is the individual required to hold any particular license that other employees do not hold?
  • Is the individual paid on a project basis rather than on an hourly, weekly, or monthly basis?
  • Can the relationship be terminated at any time?

7. Family And Medical Leave Act

The Family and Medical Leave Act allows eligible employees of a covered employer to take up to 12 workweeks of unpaid leave in any 12-month period. It also mandates that an employee's medical benefits remain at the same level while the employee is on leave, and that the employee must be generally allowed to return to the same or an equivalent position.

There are extensive Department of Labor regulations addressing many of the issues arising under the Act, and they should be studied in considering the scope and application of the Act. Covered employers should be familiar with the permissible grounds for and scope of FMLA leave, and ensure that eligible employees receive proper notification. Some of the important issues are:

  • Have the grounds for FMLA leave been satisfied?
  • How should the 12-month period be calculated?
  • May the leave be taken intermittently or on a reduced leave schedule?
  • May the employer require that any earned and accrued vacation and sick pay be substituted for FMLA leave?
  • In what circumstances may the employer not count the employee's FMLA leave against the employee's 12-week entitlement?
  • What are the tests used to determine if an employer is a covered employer?
  • What tests are used to determine if an employee is eligible for FMLA leave?
  • What are the notice requirements imposed on employers, and what are the consequences for failure to provide these notices?
  • What are an employee's rights after requesting the leave?

8. Age Discrimination

From a legal standpoint, age discrimination is likely to be a front-runner in the civil rights arena for the next decade. As a result of America's aging population, coupled with the economic reality of extensive layoffs and corporate downsizing, litigation concerning age discrimination in employment is expected to reach all-time highs. Consequently, understanding the scope, ramifications, and reach of age-related antidiscrimination laws is essential for employers and employees alike.

There are several different types of age discrimination cases, depending on the type of evidence the complaining party is able to provide. The following must essentially be shown:

  • Membership in the protected class (over the age of 40);
  • The employee was qualified or performing up to the employer's expectations, but nevertheless was either not hired, or was subject to an adverse personnel action;
  • The job was given to a younger employee or a younger employee was treated more favorably; and
  • The complaining party had the same qualifications as the younger employee.

The hostile work environment theory of age discrimination — whereby employees claim that employers create work environments charged with ethnic, sexual, national origin, or race discrimination — is likely to become a widely accepted theory of age discrimination, and such claims will increase. However, defenses to age discrimination claims may be slightly expanding, and, although suits may be more frequent, employers may not always face liability. Employers should avoid using stigmatizing and inaccurate stereotypes in dealing with their older workers, and follow internal policies consistently when making employment decisions.


9. The Americans With Disabilities Act

The adoption of the Americans with Disabilities Act in 1990 represents the most significant development in civil rights since the adoption of Title VII in 1964. It protects the disabled in broad day-to-day activities, including employment. Under Title I of the ADA, employees and prospective employees with disabilities are, with certain exceptions, protected from discrimination by employers based on their disabilities. The ADA also imposes affirmative obligations on employers to reasonably accommodate disabled employees and prospective employees in their job performance under certain conditions.

In light of the seemingly ever-evolving definition of "disability" under the ADA, employers must be mindful of potentially discriminatory practices in hiring and employment. Every effort should be made to provide reasonable accommodation to those who require it.


10. Agents v. Employees

Companies cannot conduct business without an individual's activities. In other words, corporations do not act; employees, officers or directors act on behalf of the corporation. With the foregoing in mind, it is easy to see why the underlying purpose in agency law is to create and/or define the nature and extent of liability of an employer or a principal for its employees or agents. The primary principle is to place liability for injuries or damages on the person or entity that is in the best position to prevent an injury and/or to bear the loss.

It is difficult to state generalizations of the law and to categorize circumstances when one can be liable for the acts or omissions of another. However, several basic statements can be made:

  • Not all agents are employees; not all employees are agents.
  • Not all acts or omissions of an agent or employee create liability on the part of the principal or employer.
  • The liability of the employer or principal is not the same as, nor coextensive with, the liability of the employee or agent.

A question that often needs to be answered before determining agency/principal relationship and liability issues is whether a person is an employee or independent contractor. Often, after dealing with this question, because of companies' frequent use of other companies' employees on an extended or temporary basis, it must further be determined which company employs the wrongdoer for liability purposes. The who-is-the-employer question has also affected tax issues and planning by the IRS in its attempts to collect FICA and other withholding taxes, and it has become a factor in calculating workers' disability compensation premiums.

It is wise when entering an employment contract or an agency agreement to make clear the nature of the relationship, both verbally and in writing. If the intent is that the person or entity is to be an independent contractor, say it. If the person is to be an employee, say it. Certainly, if there are limitations on the authority being granted in the agreement, say it and say it clearly.

Agency is an essential component to the employer/employee relationship. Employers must be aware of the basic tenets of the agency relationship, and the liability which may result.


Noteworthy Cases

Handling hundreds of brokerage litigation and arbitration cases in Texas and elsewhere involving investment products of all kinds, including exchange listed and OTC stocks, investment grade and high yield corporate and government bonds, stock and index options, mortgage-backed securities and derivatives, limited partnerships, commodities, mutual funds and managed money portfolios.

  • Successfully defended brokers in NASD, SEC and state license and regulatory proceedings.
  • Numerous liability suits with multimillion-dollar damages. Examples include successful prosecutions in multimillion-dollar arbitrations involving high yield bonds on margin; financial malpractice suit involving a multimillion-dollar securities offering; and a major lender liability action alleging damages of more than $20 million.