Category Archives: Litigation

What Employers Should Know About the EEOC Mediation Process

Beginning in the 1990s, the EEOC implemented a mediation program as an alternative means for resolving employment discrimination complaints filed by employees against their employers or former employers.  You can read more about the mediation program’s history on the EEOC’s website.  This article offers some insights into the EEOC mediation process for employers, as well as tips for employers who are attending or are considering attending an EEOC mediation session.

The EEOC Mediation Referral Process

When an employee files a discrimination complaint against his or her employer, the employer and employee may have the opportunity to participate in the EEOC’s mediation process.  The EEOC will determine upon filing whether the complaint is appropriate to refer to its mediation program, and if so, the EEOC will offer both parties the chance to elect to participate.

If both parties agree, the matter is moved from the EEOC’s investigative division to the mediation division and the employer’s response deadline is suspended pending the mediation.  The EEOC mediator will coordinate with both the employer and the employee to schedule the mediation date.  If the mediation is successful, the complaint is resolved through a settlement agreement.  If, however, the parties do not come to an agreement at the mediation, then the matter is referred back to the EEOC’s investigative unit and the EEOC will give the employer a new deadline to file a response to the complaint.

What Happens at the Mediation

Every mediation is different but most follow a standard formula.  The parties usually start out in separate rooms upon arrival.   Most mediation sessions begin with the mediator bringing both parties together for a joint session where the mediator will explain the mediation process and the rules governing the mediation.  Each side usually has an opportunity to make an “opening statement” outlining its position with regard to the complaint that has been filed during this joint session.  Some mediators may allow the employee to decide whether or not there is a joint session.

The mediator may continue the joint session in hopes of further identifying underlying issues in the dispute or in hopes of a quick resolution if the matter is relatively simple and straight forward.  Most of the time however, the parties will move back to their individual rooms after the joint session and the mediator will begin shuttle negotiations.  During this process, the mediator will meet with each side individually to gain a better understanding of the employer and the employee’s positions.  After the initial round of individual sessions, the mediator will continue shuffling between the parties.

Each time the mediator meets with a party, the mediator will attempt to ascertain whether that party wants to make an offer or respond to an offer from the other party.  The mediator may also evaluate that particular party’s position by asking questions and pointing out weaknesses in that party’s argument or assessment of the facts.   The mediator may also comment on the other party’s position and suggest strengths or weaknesses to consider in evaluating or responding to an offer.

The mediator’s purpose is to assist the parties in reaching a resolution of the complaint.  Parties will and should share information with the mediator that they would not share with the other party.   One of the most significant benefits of mediation is that the mediator has (confidentially) heard both parties’ positions and can suggest alternatives or solutions to bring the parties together that they might not otherwise consider.

If the employer and the employee reach an agreement, then the mediator will draft a settlement agreement for both parties to sign.  The details of the settlement will be specific to the issues in each complaint, but the EEOC has a standard form and the settlement should result in no further investigative action by the EEOC.

Tips for Employers When Attending an EEOC Mediation Session

There are a number of things employers should keep in mind about an EEOC mediation to ensure the best chance of resolving the complaint before having to deal with an EEOC investigation.  Many of these are general tips for mediation but they apply equally well in this situation.

  1. First and foremost, leave your emotions at the door.  The purpose of the mediation is to resolve the dispute.  The issue can be just as emotional for the employer (particularly smaller employers) as it is for the employee but the employer does itself no good by allowing emotions to dictate its position or its response to the employee during the mediation.
  2. Remember that you do not have to reach a resolution.  There will be other opportunities to resolve the dispute with the employee at a later date (but not necessarily the EEOC).
  3. Remember that the mediation is not about determining who is right or wrong.  The mediator is not a judge or jury.  There is no fact finder.  The mediation is simply a forum to try to reach a resolution, agreeable to both sides, that resolves the matter.  Discussing strengths and weaknesses in both parties’ positions can be useful for coming to a resolution, but ultimately no one is going to determine which side is right at the mediation.
  4. Listen.  Sometimes employers can get a lot further along in resolving an employment dispute simply by listening to the employee and his or her concerns.  Sometimes employees just feel like they haven’t been heard and need an opportunity to vent.
  5. Very rarely will you reach a resolution that you are completely satisfied with.  Most settlements end with each side happy about some points and disappointed in others.

 Whether An Employer Should Be Represented By An Attorney at an EEOC Mediation Session

Being an attorney, I naturally answer this question yes.  But let me offer a few reasons why having an attorney is important for employers when attending an EEOC mediation by explaining the benefits to an employer in having an attorney represent the company.

  1. Preparation.  A lot of employers have limited or no experience dealing with an EEOC discrimination complaint nor any experience with mediation.  An attorney can serve as a useful guide to provide confidence and security to the employer.
  2. Knowledge of the Law.  Employers greatly benefit by having a thorough understanding of the law that applies to the employee’s complaint.  That understanding is important in determining the employer’s settlement position and whether any given settlement offer is reasonable.  An employer wouldn’t want to miss out on an early settlement opportunity if the liability and damage exposure were clearly in the employee’s favor.  Likewise, an employer wouldn’t necessarily want to settle an employee’s claim for a significant sum if the employer has a strong defense to liability or a basis for limiting its damages exposure.
  3. Stronger Negotiations.  No matter the setting, if you can apply objective standards to relevant facts and present logical arguments in support of your position then you are more likely to convince an opposing party to accept your position.  An attorney’s knowledge of the law, ability to distinguish relevant facts, and analysis of those facts, can support the legitimacy of the employer’s position.  This strengthens the employer’s arguments in support of its settlement position.  It also increases the burden on the opposing party to offer a specific and logical reason or a basis for the employee’s position. This could result in the revelation of new information that may be beneficial to the employer’s position or a lack of information that could weaken the employee’s position.
  4. Acts as a Firewall.  A mediator’s goal is to encourage the parties to settle the matter.  This includes critiquing a party’s position and asking questions about possible outcomes to test the party’s resolve.  An attorney can help an employer decipher whether the mediator’s questions and statements are legitimate concerns or mere puffery designed to encourage settlement.
  5. Settlement Documents.  EEOC mediators use a standard settlement agreement that often does not include a number of terms an employer would want to include in any settlement agreement.  An attorney can make sure the employer’s terms are included in the agreement, or alternatively, come prepared with a separate form to use at the settlement.

 

What is the Texas Business Opportunities Act?

Almost everyone is familiar with the concept of franchises and franchise law but many people are unaware of another statute governing business opportunities called the Texas Business Opportunities Act.  The importance of understanding this law cannot be understated due to the penalties involved – failure to comply is by law a deceptive trade practice in violation of the Texas Deceptive Trade Practices Act. So here is what you need to know.

What is a “business opportunity?”

A business opportunity can be quite literally, anything.  Whether the opportunity falls within the statutory definition is determined by the promises or representations made by the person or entity selling the opportunity.

To fall within the statutory definition of a “business opportunity,” the seller must:

  1. sale or lease more than $500 of products equipment, supplies, or services that the purchaser will use to begin a business;
  2. the seller must represent that the purchaser will or is likely to earn a profit in excess of the amount paid to the seller; and
  3. the seller must:
    1. provide a location or assistance in finding a location for the business;
    2. provide a sales, production or marketing program; or
    3. make a promise to buy back or buy back the products, equipment, supplies, or products resulting from them.

Are there exceptions to the definition of a “business opportunity?”

Yes, there are a number of exceptions to the definition of a business opportunity.  For example, franchises that comply with the federal Franchise Rule can claim an exemption from the Texas Business Opportunities Act.  Other examples of exceptions include the sale or lease of an established and ongoing business, a retailer’s sale of goods or services, a sale or lease to a business enterprise that also sells or leases other products, equipment ,or supplies, and exceptions for certain high net worth individuals.  There are detailed rules and requirements for each exemption that must be carefully scrutinized to ensure the transaction fits within the exemption.

In addition, exemptions are not always automatic.  To claim an exemption as a franchise, the franchisor must file an exemption notice with the secretary of state’s office.

What does the Texas Business Opportunities Act require if you intend to offer a “business opportunity” for sale or lease?

The Texas Business Opportunities Act lists a number of requirements for sellers to comply with in order to avoid sanctions under the statute.  For example, there are record keeping requirements as well as bonding, trust account, and letter of credit requirements.  Most importantly, sellers are required to register the business opportunity with the secretary of state and provide specific disclosures in a disclosure statement provided to prospective purchasers.  The statute also lays out minimum time periods for providing the disclosure statement to a purchaser before they can purchase the business opportunity.

The act also provides specific requirements for the terms that must be included in the business opportunity contract.

What disclosures does the Texas Business Opportunities Act require in a disclosure statement?

Before offering a “business opportunity” for sale, the seller must file a copy of the disclosures with the secretary of state’s office.  The seller must provide a copy of the disclosure statement to each prospective purchaser.  The act requires the disclosure statement to contain, among other things, information relating to the following topics:

  1. A statutorily specified cover sheet.
  2. Names and address for the seller as well as information on the seller’s business.
  3. Information regarding the sales period for the business opportunity.
  4. A detailed description of the services the seller will perform.
  5. Recent financial statements of the seller.
  6. A detailed description of any training services offered by the seller in connection with the business opportunity.
  7. A description of the security maintained by the seller as required by statute.
  8. Information on delivery dates and cancellation rights.
  9. Information supporting any sales or earnings representations made by the seller.
  10. A history of legal actions involving the seller and certain individuals involved in the seller’s business.
  11. Information regarding any bankruptcies or reorganizations involving the seller or certain individuals involved in the seller’s business.
  12. A copy of the business opportunity contract.

What acts does the Texas Business Opportunities Act prohibit?

The act specifically prohibits sellers from the following:

  1. Employing a representation, device, scheme, or artifice to deceive a purchaser;
  2. Making an untrue statement of a material fact or omitting to state a material fact in connection with the documents and information required to be provided to the secretary of state or a purchaser;
  3. Representing that the business opportunity provides or will provide income or earning potential unless the seller:
    1. has documented data to substantiate the representation of income or earning potential; and
    2. discloses the data to the purchaser when the representation is made; or
  4. Making a claim or representation that is inconsistent with the information required to be disclosed by the act in:
    1. any advertising or other promotional material; or
    2. any oral sales presentation, solicitation, or discussion between the seller and the purchaser.

 

You can read more frequently asked questions regarding business opportunities on the Secretary of State’s website.

You can also read more about Texas business opportunities on the Attorney General’s website.

5 Things Your Company Should Consider When Deciding Whether to Enforce a Covenant Not To Compete

Should your company enforce a non-compete provision when an employee leaves to work for a competitor?  I can’t really answer that question beyond saying in typical attorney fashion that, “It depends.”  What I can do is discuss some of the factors your company should consider when making that decision and some of the questions it should answer.

Importance of the Interest Your Company Seeks to Protect

This is the single most important factor.  The purpose of a covenant not to compete or any other restrictive covenant is to protect a legitimate business interest. The most common scenario involves preventing the disclosure of confidential or proprietary information.

So how important is the information your company is concerned about?  Is there a significant risk of exposure?  Did the former employee actually have access to the types of information your company seeks to protect?  Is that information included within the scope of the non-compete provision?

The Employee’s Position With and Value To His New Employer.

What is the former employee’s position at his new employer?  What are his duties in that position? Is there any connection between the types of information the employee had access to at your company and the duties or responsibilities of his new position?  Is there a likelihood that the former employee will use your company’s confidential information in performing his duties for his new employer?

And how valuable is the employee (and the position) to his new employer?  The answer to this question is important because it will provide some insight into how the new employer may respond to an attempt to enforce a non-compete agreement.  If the employee is critical to the company’s business then his new employer is more likely to defend his position.  On the other hand, some lower level positions may not be worth the effort and expense of litigation.

Effects of Not Enforcing the Non-Compete Agreement.

This is another important factor.  What happens if you do not enforce the non-compete agreement?  Employees gossip.  No doubt they will notice if an employee leaves to work for a competitor and your company does not enforce the non-compete agreement.  Not enforcing the non-compete provision may cause other employees to ignore it under the assumption that your company will not enforce it.

The decision to not enforce a non-compete may also come up in subsequent litigation.  If another employee with access to similar information leaves for a similar position with a new company, then your company may have difficulty enforcing the non-compete agreement if you did not try to enforce it the first time.  At the very least you will likely have to answer the question of why you chose not to enforce the non-compete in the first instance.

Impact of Litigation On Business Operations.

You should always consider the impact of potential litigation on your company.  Understand that the former employee’s managers and other high-level employees could become witnesses during the litigation.  Have you given thought about the disruption to your company’s business that would be caused by them having to take the time to prepare for and sit through depositions?  What about testifying at trial?  Have you considered the type of questions your managers and employees may have to answer during a deposition?  Could you end up exposing more information to the other party through litigation than you risk by not enforcing the non-compete provision?

History Between Your Company and the New Employer.

What about the history between your company and the new employer?  Have you hired any employees from the new employer recently?  Were they subject to a non-compete agreement at the time?  Are there any other pending disputes between the companies?

It is certainly worth considering whether an attempt to enforce this non-compete provision could lead to more complicated litigation.

This list is by no means exhaustive and every circumstance will require its own evaluation, but hopefully this provides you with some guidance on the factors your company should consider when deciding whether or not to enforce a non-compete agreement.

Wage and Hour Lawsuites Are On The Rise

Rush Nigut, author of Rush On Business, recently posted Wage and Hour Lawsuits: Your Business Could Be Next.  Rush points out that big businesses are not the only ones at risk for these types of law suits.  I would agree that wage and hour issues are even more prevalent in small businesses because they tend… Continue Reading

Can the underlying assets of a foreign joint venture suffice to create specific jurisdiction in Texas?

According to the Fourth District Court of Appeals, the answer is yes.  In Rattner v. Contos and The Contos Family Trust, the court held that Texas real estate assets were sufficient to create specific jurisdiction over two California residents who had entered into a business relationship in California. Rattner claimed that he and Contos entered… Continue Reading