Take 5: Views You Can Use – July 2010

This July 2010 issue of "Take 5" was written by Peter A. Steinmeyer, a Member of the Firm and the head of the Labor and Employment practice in EBG's Chicago office.

1. Got Vacation Policies? If So, Regularly Audit These 'Minefields for Lawsuits'

With vacation on most people's minds, summer is a great reminder of the need to periodically audit your company's vacation policies. This is particularly true if you are a multistate employer and have operations in such tricky states as California, Illinois, or Massachusetts. For example, determine whether the states in which you operate require that you pay out earned but unused paid vacation time upon termination. Also consider: Do these states mandate that vacation time is earned proportionately, thereby entitling an employee who works part of the year to a pro rata share of his or her earned vacation time? Can you have a use-it-or-lose policy in which an employee cannot carry over vacation days from one calendar year to the next? Alternatively, can you cap the total amount of vacation earned but unused by an employee? If you are considering changes to your vacation policies—such as implementing a use-it-or-lose policy (if permissible)—please note that such changes likely have to be implemented on a prospective basis. In those jurisdictions where paid vacation time is considered to be earned wages, any retroactive change to an employer's vacation policy may constitute an illegal forfeiture of earned wages. Better to learn about any flaws in your vacation policy from a self-audit than from a class action plaintiffs' lawyer.

2. Minimizing the Risk that a New Hire Will Lead to Trade Secret Litigation: Some Simple Preventive Steps

When hiring new employees, you can minimize the risk of inadvertently becoming embroiled in trade secret litigation by taking a few simple steps. First, new hires should be verbally instructed to be "good leavers" —meaning that they should take absolutely nothing with them when heading out the door from their old job, and should return all property of their former employer at termination, including laptops, cell phones, Blackberries, thumb drives, and any property kept at home. Similarly, no e-mails or electronically stored documents or information should be retained on personal computers, thumb drives, etc. Second, because offer letters can become litigation exhibits, they should instruct new hires not to bring, distribute, or use any confidential information, trade secrets, or any other property of a former employer. Third, offer letters should require new hires to confirm in writing that the new hire has reviewed the duties and responsibilities of the new position and can perform them without using or disclosing confidential or proprietary information of another entity and without violating the terms of any applicable agreement. Finally, employee handbooks and/or confidentiality agreements/policies also should contain similar language prohibiting the use or distribution of confidential information or trade secrets of former employers. While such actions are no guarantee against trade secret litigation stemming from the hiring of a new employee, they will certainly lower the risks.

3. How Conducting Exit Interviews Can Help Protect Your Trade Secrets

HR professionals will tell you that an exit interview is a valuable tool for learning what a company is and is not doing well; what they may not tell you is that exit interviews are also an important tool for managing the risks of the electronic workplace. According to a recent study, 59 percent of departing employees admitted stealing data from their employer, 92 percent owned up to taking CDs/DVDs, and 73 percent acknowledged taking USB memory sticks. In light of these statistics, exit interviews should be used to remind departing employees to return all company property and information (paper or electronic) and of their continuing obligations regarding the company's confidential information and trade secrets. Additionally, consider having departing employees sign a termination certification stating that the employee has returned all company property. These procedures will decrease the likelihood that a departing employee will improperly retain company property by forcing the employee to think about such matters and reminding the employee of his or her obligation to return such items. Additionally, if the employee lies on the termination certification—i.e., falsely states that he or she has returned all such items—and litigation ensues, that written lie will become a valuable piece of evidence as it will show the employee's dishonesty and bad faith.

4. You Can Draft a Non-Compete Agreement that Is Both Enforceable and Protective of Your Needs

Courts tend to be wary of expansive non-compete agreements and often refuse to enforce them. Thus, you should resist the urge to draft overly broad restrictive covenants for deterrent purposes. You may not get everything you want with a narrowly drafted non-compete agreement, but you can certainly get most of what you need. For example, if you have a salesperson who sold to the mid-Atlantic region, do you really need to prohibit her from working anywhere in the United States? Instead, you could restrict her from selling in her old sales territory and/or to any of the clients she serviced during the last 12 months of her employment. Such narrow drafting focuses on your real concerns about this individual and shows a reviewing court that you are being reasonable. Similarly, rather than having an 18-month post-employment restrictive covenant, why not make it six or 12 months—but couple that shortened period with a tolling provision providing that it does not run during any period of breach? Because an employer may not learn of a breach until considerable time has passed, and because of the slowness of the litigation process, a short-term restrictive covenant with a tolling provision may actually provide greater protection than a long-term one without a tolling provision. Moreover, the shorter the underlying restriction, the more likely a court will be to enforce it.

5. Want to Ensure that a Court Will Enforce Your Releases? Lose the Legalese!

Releases are among the most common employment-law documents; all too often they are also among the most incoherent. Incoherent releases are subject to challenge—especially under the Older Workers Benefit Protection Act ("OWBPA"), which requires that releases "be written in a manner calculated to be understood by [the employee]." Simply put, just because incomprehensible release provisions are "boilerplate" doesn't mean they are enforceable. If you struggle to read and fully understand your own release language because of poor sentence structure, excess length, or legal jargon, your employees and any reviewing judge will too. Keep it simple. When drafting releases, write like Hemingway, not Faulkner. Also, be careful not to draft the release agreement so as to release future claims. An agreement that states that the employee releases all claims from the beginning of time until the effective date of the release could be problematic if the release does not become effective until a date in the future. For example, under OWBPA, an employee may revoke acceptance of a release within seven days of executing that agreement. Typically, the release does not become effective until expiration of this seven-day revocation period. Hence, if a release waives all claims through such future effective date, it does not comply with OWBPA.