Considerations for Buyer Enforcement of Non-competes in the Purchase of a Business

Ruth Binger

By Ruth Binger



You are a business owner whose company is buying the assets of a Missouri business with locations in both Missouri and Illinois.  Your company intends to hire the seller’s employees. It is your understanding that those employees have signed restrictive covenants/non-competes with the seller (“Seller Agreements”).  You have instructed your attorney to advise you on how to protect your company against the seller’s current highly trained employees walking out the door with the customer relationships, trade secrets, and confidential information you are purchasing.  For administrative purposes, to the extent possible, you would like to use one strategy with both the Missouri and Illinois employees.

Here’s a look at some of the complexities of personal service contracts and non-competes you will want to consider.

Restrictive Covenants and Non-compete Agreements

The phrases “restrictive covenants” and “non-compete agreements” are used interchangeably by the public.  More confusingly, the term “non-compete” is often used to describe three different types of covenants or promises: time and space clause, non-solicitation clause and anti-raiding clause.

The most restrictive non-competition covenant is a promise by the employee not to engage in the same type of business for a stated time in the same geographical market as the employer (“time and space clause”).

More common is a non-solicitation clause, where the employee is allowed to engage in the same type of business in the same geographical area but is prohibited from soliciting the employer’s customers for a stated period of time. Continue reading »

False Economy: Why Saving a Few Dollars on Legal Fees Now Can Cost You Big Later

A. Thomas DeWoskin

By A. Thomas DeWoskin



 

 

  • You’re about to sign a lease for your company’s new premises. Should you have a lawyer review it, or save the money?
  • You’re about to sign an employment agreement with your new employer. Should you have a lawyer review it, or save the money?
  • You and your best friend are going to start a new business. Should you have a lawyer advise you, or get the forms off the internet and save the money?

Both in jest and with some seriousness, business people, especially entrepreneurs, tend to view lawyers skeptically. Their perception is that lawyers run up fees, make simple transactions complicated, and sometimes cause deals to fall apart completely with all of their questions.

This is a short-sighted view of how attorneys can help you and your business. Experienced business minds understand that lawyers, when properly used at the beginning of a transaction rather than later after problems have developed, can be problem avoiders. And a problem avoided can be big money saved.

In the lease situation above, for example, your lawyer would be sure that you signed the lease in such a way that only your company, not you personally, would be liable. She might negotiate a provision that you don’t pay any rent while the space is being readied for your occupancy or for reduced rent if the landlord doesn’t provide promised services. An experienced attorney has seen a lot of leases, and knows the traps they often contain.

Lawyers aren’t deal breakers. Their job is to point out the potential risks in a transaction so you, the client, can decide whether those risks are worth the potential benefits of proceeding. If the risk/reward ratio isn’t to your liking, then YOU break the deal. If the risk is acceptable, then you proceed. In either event, you have made the decision in an informed and practical manner. You are in control; your lawyer, like all of your professional service providers, works for you. Your attorney’s role is to provide advice, share wisdom and insight, and help you make the business decisions. Continue reading »

Legislative Update: Missouri & Illinois Address Issue of Employer Requests for Employee/Job Applicant Social Media Account Information (Part 2 – Missouri)

David A. Zobel

By David A. Zobel



Legislation addressing the question of the extent to which an employer may request an employee’s social media account information has been introduced or is pending in 36 states with seven already enacting legislation in 2013.

As a follow-up to the discussion of Illinois’ recent legislative efforts, let’s look at Missouri’s legislative efforts.

Unfortunately, at this time the Missouri Legislature has not enacted any legislation to clarify the question of whether an employer may lawfully request or require employees or job applicants provide that employer with their social media account login information. Although the 2013 legislation session recently ended without a bill being passed in both houses, one bill, Senate Committee Substitute / Senate Bill 164, which would have created “The Password Privacy Protection Act,” passed in the Senate and fell just one vote shy of passage in the House. This bill’s partial success likely indicates the direction Missouri will ultimately take.

Like the Illinois legislation, SCS/SB164 began with a general ban of the practice of requesting or requiring the disclosure of account information. Specifically, the bill read:

Subject to the exceptions provided in subsection 4 of this section, an employer shall not request or require an employee or applicant to disclose any user name, password, or other authentication means for accessing any personal online account or personal online service.

The exceptions include and relate to:

(1)   Any electronic communications device supplied by or paid for in whole or in part by the employer;

(2)   Any accounts or services provided by the employer;

(3)   Any account or services the employee uses for business purposes; or

(4)   Any accounts or services used as a result of the employee’s employment relationship with the employer.

The bill also included several anti-retaliation provisions and a provision barring employees from transferring “an employer’s proprietary or confidential information or financial data to an employee’s personal online account” or service without employer authorization (i.e., barring an employee from posting trade secrets on Facebook without permission).

Like its Illinois counterpart, SCS/SB164 sought to clarify what it was not intended to do as well. It specifically stated, in part, that it should not be construed to prevent an employer from restricting or prohibiting an employee’s access to certain websites while using devices paid for by the employer, monitoring electronic data stored on an electronic communications device paid for by the employer (or such data that is traveling through or stored on an employer’s network), or restricting an employer’s review of public domain information.

While the bill sought to remedy one perceived problem, it may have actually emphasized another. The bill’s exception for employer-paid devices and interpretation not to prevent monitoring of data stored on such devices or flowing across employer’s networks leaves open the issue of the extent to which an employer may obtain an employee’s social media account information, or any information such as bank or health information, stored on the employer-paid device. Hopefully this potential loophole will be addressed when the Missouri Legislature reconvenes in the next session.

Although SCS/SB164 demonstrates what form a successful bill on this topic might take, SCS/SB164 has not been passed by the Missouri Legislature or signed into law. Therefore, the question remains unsettled in Missouri at this time.

Posted by Attorney David A. Zobel. Zobel primarily represents individuals and corporations in the defense of civil litigation, including contract, negligence, and real estate matters. In addition to his court room work, Zobel assists in advising clients on contract and employment issues and regarding issues arising under the Sunshine Law.

Legislative Update: Missouri & Illinois Address Issue of Employer Requests for Employee/Job Applicant Social Media Account Information (Part I – Illinois)

David A. Zobel

By David A. Zobel



In the spring of 2012, national news media reported an increasing number of employers demanding employees and job applicants provide social media account login information (usernames and passwords) for searching and content monitoring purposes. In my blog post “The Facebook Folly” posted in April 2012, I noted at that time there was no explicit indication as to the legality of this practice.

Since early 2012, however, legislatures in both Missouri and Illinois have worked to clarify the issue in their respective states’ workplaces. We’ll focus on Illinois’ efforts first, and follow up with Missouri in Part 2.

Illinois was an early adopter of a policy prohibiting employers from asking employees or prospective employees for their social media account login information. On January 1, 2013, Illinois and California joined Michigan, New Jersey, Maryland and Delaware making such a practice illegal by enacting Public Act 97-0875, amending the Illinois Right to Privacy in the Work Place Act to read, in part:

It shall be unlawful for any employer to request or require an employee or prospective employee to provide any password or other related account information in order to gain access to the employee’s or prospective employee’s account or profile on a social networking website or to demand access in any manner to an employee’s or prospective employee’s account or profile on a social networking website. 820 ILCS 55/10(b)(1).

However, in an apparent attempt to balance the interests of both employees and employers, the Act further states and clarifies that it is not intended to limit the employer’s right to create and maintain lawful workplace policies governing Internet use, limit the employer’s ability to monitor usage of the employer’s electronic equipment or electronic mail (as long as the employer does not request or require the employee “provide any password or other related account information”), or limit the employer from obtaining information about its employees or prospective employees from the public domain. Continue reading »

Common Sense Road Map to Employee Discipline and Termination

Ruth Binger

By Ruth Binger



Owners and managers frequently face the difficult process of terminating an employee for a reason other than lack of work. The reasons are many and varied, ranging from being placed in the “wrong seat on the bus” to poor cultural fit to “good cause” reasons, such as performance or behavior. Although employment at will is the rule of law, laws exist that undercut the employer’s absolute power to terminate for any reason whatsoever. Many of these laws are just plain common sense and can be compared to administering discipline with your own children.

Decisions made in haste or poorly executed have a very long damage tail including lawsuits, reduced morale, and loss of business momentum. By looking through the lens of both human nature and law, managers and owners can learn to make and execute decisions that are generally defensible both inside and outside the company culture. Knowing what could be coming and where it’s coming from will create a wiser decision process, a more legally defensible position, and buy-in from your watchful employees.

Practicing the following 10 rules will put you on a road map of common sense when dealing with issues related to employee discipline or termination:

  1. Investigate. Investigating the facts protects the integrity of the process and lessens the ability of an employee to establish an unlawful motive. Poking in the weeds also provides feedback to you on what is working, what is not working, and what should be changed. Look for facts – not hearsay and speculation. Determining credibility is your job. Companies are human collaborative efforts containing many actors with varying motives and agendas that can be constructive, bad, opportunistic or even crooked. Consider plausibility, demeanor, motive to lie, corroboration, and past record when making judgment calls.
  2. Interview witnesses and the employee in question. Ask the employee in question to explain what happened in front of two management witnesses. Write down exactly what the employee states and ask him/her to sign it.  Ask the employee for objective facts or witnesses to support his/her position. Your aim is to pin down the employee to “one recollection.” Interview complainants and witnesses by asking who, what, where, when and how questions. Let them know that you will try to keep the investigation as confidential as possible under the circumstances and in compliance with the law. This arduous process prevents tears at the fabric of your culture. Continue reading »

New Family and Medical Leave Act Guidance for Families of Adult Children with Disabilities

Misty A. Watson

By Misty A. Watson



Families now have clarification on when parents may use leave to care for an adult child with a mental or physical disability.

On January 14, 2013, the Wage and Hour Division of the Department of Labor issued additional guidance to help employers determine eligibility of employees to take leave under the Family and Medical Leave Act (FMLA) when the employee has an adult child with a mental or physical disability incapable of self-care due to a serious health condition.

Generally,  entitlement to FMLA leave ends when a child is 18 years old. “Incapable of self-care” means that the individual requires active assistance or supervision to provide daily self-care in three or more of the “activities of daily living” or “instrumental activities of daily living.” Continue reading »

Employers and the Health Reform Law

Laura Gerdes Long

By Laura Gerdes Long



On June 28, 2012, the Supreme Court, in a 5-4 decision, upheld the Patient Protection and Affordable Care Act (the “Act”), more commonly known as the health reform law, including the highly controversial individual mandate. While the Court limited the Act’s planned expansion of Medicaid, the decision was overwhelmingly a “win” for President Obama.

Now that President Obama has been elected to a second term, those who resisted implementing the first set of provisions (waiting for the Court to rule) will have to begin earnestly working to comply with both provisions already in effect and forthcoming provisions, including key provisions which require compliance in 2014: the individual mandate and the employer mandate.

Provisions currently in effect include:

  • No lifetime limits on coverage.
  • Restrictions on annual limits.
  • No “rescissions,” meaning health plans cannot cancel coverage once you are sick unless you committed fraud when you applied for coverage.
  • Dependent care coverage is provided up to age 26 for adult children without employer-sponsored coverage.
  • Federal small business tax credits have also been available for employers who provide coverage, with credits differing depending on the size of the company and increasing to 50 percent in 2014.
  •  Many consumer employees have already experienced not having to pay out-of-pocket costs for certain preventative services, such as breast cancer screenings and cholesterol tests, and the disqualification of over-the-counter drugs as medical expenses for Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs).
  • Insurers will have to provide rebates to consumers if they spend less than 80 to 85 percent of premium dollars on medical care.

The impact of both the individual mandate and the employer mandate will not be fully known until closer to 2014; however, there has been great speculation about who will be most impacted. Continue reading »

Two-year, Non-solicitation Activity Covenant Upheld in Illinois for Seasonal Tax Employee

David A. Zobel

By David A. Zobel



An Illinois appellate court recently upheld a two-year, non-solicitation activity covenant and one-year anti-raiding covenant between a tax preparation service and its employee, despite the employee’s seasonal employment of just three months. Zabaneh Franchises, LLC v. Walker, 972 N.E. 2d 344 (Ill. App. 2012).

In July of 2010, Zabaneh Franchises, LLC, an income tax preparation service based in Quincy, Ill., purchased an existing H&R Block, Inc. franchise. The sale included an assignment of employment agreements with H&R Block’s employees, including that with Terri Walker. Walker had signed an employment agreement in November 2009, as she did annually beginning in 2003. Pursuant to this agreement, Walker agreed to work during the 2010 “tax season,” from January 2 through April 15, 2010. Walker completed this tax season employment without incident.

In February 2011, Zabaneh filed suit against Walker alleging that within a few months of leaving Zabaneh in April 2010, Walker started her own tax preparation business, solicited clients, and hired employees of H&R Block in violation of her employment agreement. Zabaneh’s complaint sought a temporary restraining order against Walker to bar her from engaging further in such activities. The trial court found Walker’s employment agreement to constitute a “contract of adhesion” (a “take it or leave it” imbalanced agreement favoring one party) and denied Zabaneh’s request for a temporary restraining order. The case was subsequently dismissed with prejudice.

On appeal, the appellate court was asked to consider whether Walker’s employment agreement was reasonable and enforceable. In doing so, the court noted that the Illinois Supreme Court had recently addressed the proper standard for analyzing the enforceability of restricted covenants in an employment agreement in Reliable Fire Equipment Co. v. Arredondo, 965 N.E.2d 393 (Ill. 2012). Continue reading »

Hold the Scissors – Telling Employee to Cut Hair Can Lead to Your Company Suffering a Haircut

David R. Bohm

By David R. Bohm



We have all seen hairstyles that made us ask the question, “What were they thinking?” But when employees show up with such hairstyles in our place of business, do we have the right to restrict hairstyles? Does it make a difference if the hairstyle – or even a head covering – is due to the employee’s religious beliefs?

Recent federal court decisions have made it clear that an employer must tread carefully when addressing an employee’s choice of hairstyle or head dress. Otherwise, it could be the employer being subject to a “haircut,” rather than the employee.

Accommodating Religious Beliefs

Of particular concern are cases where an employee’s choice of hairstyle or head dress may have a religious basis. In such cases, an employer has a duty under Title VII of the federal civil rights act (and in most states under state law, as well) to reasonably accommodate the employee’s religious beliefs. Failure to do so could result in the employer being found liable for religious discrimination, and being required to pay actual and punitive damages, as well as the employee’s legal fees.

In one recent case, reported in an EEOC press release issued April 27, 2012, the owner of a chain of Taco Bell restaurants agreed to pay $27,000 to resolve a religious discrimination lawsuit filed by the EEOC because the owner had fired an employee who refused to cut his hair. The employee was a practicing Nazirite, who, in accordance with his religious beliefs, had not cut his hair in 15 years. After being employed at one of the owner’s restaurants for six years, the employee was told he would have to cut his hair if he wanted to retain his job. Even though he explained that his religion forbade him from cutting his hair, the employer insisted he had to do so if he wanted to keep his job. As the EEOC attorney handling the case, Lynette Barnes, explained in the press release, “No person should be forced to choose between his religion and his job when the company can provide an accommodation without suffering an undue hardship.” In addition to paying the $27,000, the employer agreed to institute a formal religious accommodation policy.

Continue reading »

Social Media: Six Ways to Protect Today’s You and Tomorrow’s You

Ruth Binger

By Ruth Binger



Thanks to an exponential growth rate in technology, the Internet has changed the world and how we communicate with each other.  In 1995, 16 million people used the Internet.  Last year, 2 billion people used the Internet and in 2020 it is predicted that the number will be over 5 billion.

Google, a 12-year-old company, has certainly fueled this growth.  Social media platforms have also supercharged Internet usage.  Facebook claims to have over 800 million active subscribers, LinkedIn claims 85 million subscribers and YouTube has over 100 million videos online.

However, the way we relate to and judge each other, whether it is for employment, relationships, or credit history, has not changed.  We are all trying to predict each other’s future behavior for the relationship(s) and transactions we seek.

Facebook purports to be worth $104 billion with its purchase of Instagram.  Why is it worth so much?  Because companies are spending over $2 billion per year to collect information from social media outlets about what we as consumers want.  Our behavior and our opinions can be measured in fine detail as we post and that behavior can be monetized.  For example, it is estimated that your personal/buying information is worth $50 to $500 to Google, depending upon how much you spend.  On Twitter, each of your followers, assuming you have a large following, could be worth as much as $2.50 each per month.  In short, personal data greases the Internet.  The data we share (names, addresses, pictures, precise locations, and links) helps companies target advertising based not only on demographic but also on personal opinion and desires.

What does all of this information mean to you as an individual? Technology rules will continue to change, so you need to be vigilant. It is important for you to keep up with the positives and negatives of the rapidly changing technology. Right now, social media is at its height but it is designed for websites. That is predicted to change as the world moves to smartphones.  Nearly $1 million worth of features come with any smartphone and there are a billion smartphones in the world.  Within the next decade, 6 billion people will have a constant connection to the Internet.  This explains why Facebook recently bought Instagram, a mobile app company, for $1 billion. Facebook wants to conquer the smartphone market and not be left behind.  Continue reading »