Restrictive Covenants for Your Employees to Sign?

I hear all the time that it's not worth having employees sign a noncompete or other restrictive covenant agreement because they are unenforceable. This is more of an urban myth. While restrictive covenants (namely, noncompetes, nonsolicitation and confidentiality agreements) may be challenging to enforce, they can be a valuable tool for a company to use.

Generally speaking, the law governing restrictive covenants is state-specific, so what is binding and enforceable in Ohio may not be sufficient under Georgia law. I usually tell employers that they should view restrictive covenant agreements as deterrants and not ironclad documents. Whether a restrictive covenant is enforceable can depend on the employer's industry, employee's scope of duties, regularity of contact between the employee and customers, the duration of the covenant and geographic territory in which the employer is trying to restrict the employee.

An employer should decide what it is trying to accomplish by having an employee sign a restrictive covenant agreement:

• Are we trying to prevent the employee from taking keep personnel with them to another job if they leave?
• Are we trying to prevent the employee from leaving and opening a competing business?
• Is there confidential or proprietary information that the employee could misappropriate for his/her own benefit?
• Are there customers that the employee has closely worked with that might stop using the employer's services if that person ceases employment?

A restrictive covenant should be drafted in a manner that is the least restrictive as necessary. In states like Georgia, courts will not "blue pencil", meaning they will not rewrite the agreement to make it enforceable if it is overly broad or vague; the restrictive covenant is either enforceable on its face or it fails in its entirety.

Litigating a restrictive covenant agreement can be tricky. If a court rules that it is unenforceable, then every employee who signed the same agreement will be able to claim that his/her agreement is also unenforceable. The employer then has to go back to all employees and have them sign revised agreements (presumably "new and improved"). What if an employee refuses to sign a new agreement? Is the employer prepared to terminate that person for not signing.

Challenging stuff to say the least...

Know who you really are interviewing

I just read an article about an attorney who applied for a position and was disbarred for misrepresenting information on her resume. It seems that the attorney's immediate prior employer was her husband. She did not explain this on her resume, nor did he disclose that she was married to her boss, despite the fact that she used her husband's letter recommendation in support of applying for the position. This scenario shows you that you never know who you are interviewing or how accurate references or resumes are that are submitted to your company.

I have a client that never calls the reference on a resume; they call the supervisor of the employment reference. After all, who is going to provide a reference to someone that's going to say something negative about the applicant?

Also, after making an offer to someone, it's a good idea to conduct a criminal background, credit check (particularly if the position involves A/P, accounting or finance) and to verify employment. I defending a recent employment discrimination case, a plaintiff completely omitted an employer on her resume for employment after leaving my client's employ. Further, in inquiring further, we learned that the person had mispresented her educational background, including claiming to have earned a degree from a particular university. All it took was a call to the registrar's office to learn that they had no record of the person having graduated.

Ask yourself: if a person would lie about their education or employment history to get this job, what would he or she billing willing to lie about to keep this job?

EEO-1 Reports

Effective the end of September, covered employers must use the new EEO-1 reporting form. An employer with 100 or more employees or a federal government contractor with at least one government contract of $50,000 and 50 or more employees is a covered employer and must file an EEO-1 Report form annually.

According to the EEOC, the "EEO-1 report is the principal reporting form by which certain employers provide the federal government with a count of their workforces by ethnicity, race and gender, divided into job categories."

Changes include:

• Adding a new category titled "Two or more races not Hispanic or Latino";
  Separating "Asians" from "Pacific Islanders";
• Adding a new category titled "Asians not Hispanic or Latino";
  Adding a new category titled "Native Hawaiian or Other Pacific Islander not Hispanic or Latino";
• Extending the EEO-1 data collection by race and ethnicity to the State of Hawaii; and
  Strongly endorsing self-identification of race and ethnic categories, as opposed to visual identification by employers.
• Dividing "Officials and Managers" into two levels based on responsibility and influence within the organization: "Executive/Senior Level Officials and Managers" and "First/Mid-Level Official and Managers"; and
• Moving non-managerial business and financial occupations from the "Officials and Managers" category to the "Professionals" category.

This is not an area or issue to take lightly, as there are penalties for noncompliance. The EEOC can obtain a court order requiring you to make a future filing and, for federal contractors, record keeping violations could lead to debarment from future contracts.

No-Match Letters and Regulations

I don't know if you have been reading about the no-match letter issue and new regulations. A no-match letter is where the Department of Homeland Security (DHS)sends a letter to an employer advising it that an employee may be using an improper SSN. The SSN does not match what the DHS has on file - the person's name and SSN do not match up. Of course, every employer should verify a person's right to work in the US before allowing him/her to perform services. Within 48 hours of hire, an employer should present form I-9 to the prospective worker. If you receive a no-match letter, you are required to respond. Getting a no-match letter does not mean that your employee gave a false SSN; it could mean that the person has changed their name (by marriage, for example) or there could be a typo on a filed document (like a transposed number on a W-2). You have to give the employee an opportunity to verify and correct the potential error.

On August 15, 2007 DHS issued a regulation entitled “Safe Harbor Procedures for Employers who Receive a No-Match Letter.” The amended regulation describes the obligations of an employer, under current immigration law, when the employer receives a no-match letter from the Social Security Administration or DHS. It also describes "safe-harbor'' procedures that the employer can follow in response to such a letter so that DHS will not find that the employer had constructive knowledge that the employee referred to in the letter was an alien not authorized to work in the United States.

The proposed rule also states that whether DHS will actually find that an employer had constructive knowledge that an employee was an unauthorized alien in any of the regulation's examples will depend on the totality of relevant circumstances. The "safe-harbor'' procedures include attempting to resolve the no-match and, if it cannot be resolved within a certain period of time, verifying again the employee's identity and employment authorization through a specified process.

On August 31, 2007 a California federal trial judge has issued a temporary restraining order prohibiting the DHS from mailing no-match letters or taking any other action to implement its new regulation. See AFL-CIO v. Chertoff (N.D. Ca. Aug. 31, 2007).

A copy of the regulations is at http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/E7-16066.htm.

The injunction does not mean that employers should not continue to diligently verify whether a worker may be lawfully employed, nor does it mean that you should ignore a n0-match letter if you receive one.

Stay tuned for updates on this matter.

Train, train, train

It amazes how companies can spend thousands of dollars are marketing, branding and the like, but zero time and expense on training. As many of you know, a "best practices" as an employer includes regular training for management and staff on complying with the company's policies and procedures. It is a good idea to periodically confer with counsel on whether your training presentations, employee handbook or other policies are in need of updating. One area that a company should regularly focus on is harassment prevention. When most people think of harassment, they think of sexual harassment only. However, the law covers all kinds of harassmsent, including on the basis of religion, race and even sexual orientation. In some states, such as California, companies are required to conduct mandatory annual sexual harassment training. I advise my clients to conduct at least two training sessions a year that all employees have attend. Aside from harassment, your company should choose a topic that is of concern and that is a potential issue, but you should never single out an employee or a specific situation when training. Keep it generic. When I am asked by a client to conduct training, I also use visual and written materials. While I give specific examples of violations, or inappropriate behavior, the examples are never "personal"; they remain generic.