Kentucky Supreme Court Decision Drastically Impacts All Non-Compete Agreements

Earlier this year, the Kentucky Supreme Court reversed the Kentucky Court of Appeals’ holding in Creech, Inc. v. Brown, and held, in a landmark decision, that continued employment, standing alone, is no longer sufficient consideration to justify or support enforcement of a non-compete agreement. This reverses prior precedent that employer-employee agreements may be executed in exchange for merely retaining one’s job. While the case has an intricate and complex set of facts, this article focuses on the consideration requirement only, as the Kentucky Supreme Court chose not to address any other issues.

The case arosThe Employee Handbooke out of a dispute between and employee and employer over the extent to which the employer could enforce a non-compete agreement that was executed during the course of employment. Prior to this decision, employers routinely requested existing employees to execute non-compete agreements citing their continued employment as sufficient consideration for the agreement.

 

 

The Court of Appeals outlined a six factor test in determining whether the non-compete portion of the Agreement was enforceable. At the outset, this six factor test should be reviewed in drafting any non-compete agreement and could assist in defending against a claim that the non-compete is not enforceable. The Court of Appeals also held, as a matter of law, that the employee’s continued employment constituted sufficient consideration to support the Agreement. The parties sought discretionary review from the Kentucky Supreme Court.

On review, the Kentucky Supreme Court rendered the Agreement non-enforceable holding that continued employment is insufficient consideration and did not alter in any meaningful way the six-part test enunciated by the Court of Appeals. Although no clear guidelines were provided, it is clear from the Supreme Court decision that employers may consider more than just monetary consideration. In addition to an increased salary or wages, employers may also offer incentive compensation, additional training or a promotion as consideration. What consideration is sufficient will require an extensive fact-based evaluation of the business of the employer and the nature of the job of the employee.

From a best practice standpoint, employers must now be sure that non-compete agreements, if presented after employment, are coupled with adequate consideration. The party making the promise must be given a benefit and the party to whom the promise is made must incur a loss or detriment of some sort in order for a non-compete to be considered enforceable. What constitutes adequate consideration will vary depending upon the factual circumstances applicable to the employee and the industry he/she is employed in. Payment of monetary compensation and/or the promise of additional training may constitute adequate consideration but, once again, analysis of the prevailing factual scenario is critical.

In light of this decision, it is recommended that all employers review their existing non-compete agreements and identify which were executed after the employment relationship began, and review all agreements against the six part test. This will assist employers in determining whether the non-compete agreement could be rendered unenforceable as a matter of law for lack of consideration. As these agreements are essential to many businesses, this review is highly recommended.

Cindy Effinger

 

 

 

 

Cynthia L. Effinger, attorney with McBrayer, McGinnis, Leslie & Kirkland, PLLC is located in the firm’s Louisville office. Ms. Effinger’s practice is concentrated in the areas of employment law and commercial litigation. Her employment law practice is focused on drafting employment manuals and policies, social media, wage and hour, non-compete agreements and workplace discrimination. Ms. Effinger can be reached at ceffinger@mmlk.com or (502) 327-5400.

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Getting “Sandwiched” Into a Non-Compete Agreement

The Huffington Post recently reported that Jimmy John’s, the national sandwich chain, requires its workers to sign strict non-compete agreements. The agreement was disclosed as part of a lawsuit by employees, and many in the employment industry are wondering if such an agreement is really necessary for the company’s minimum wage workers. These agreements are usually saved for high-level executives or those subject to proprietary information – not the guy behind the counter making a sub.

According to the company’s agreement, a worker is prohibited from taking a job at a competing sandwich shop for a period of two years following employment at Jimmy John’s. A “competitor” is any business that derives 10 percent or more of its revenue from the sale of sandwiches, and that resides within 3 miles of a Jimmy John’s location. That means, in effect, that a worker would have to wait for two years before going to work, for instance, at Subway – quite a harsh consequence for these base-level employees.

Vintage Deli Sandwiches Rubber Stamp Sign

 

 

 

 

Non-compete agreements are fairly common in the business world, but the purpose of them is to keep a business’s trade secrets, proprietary information, and talent safe from the competition. While it may be legal to have hourly employees sign an agreement, that does not necessarily make it a smart business decision. Non-competes should be carefully drafted for a specific individual with thorough, applicable provisions – reducing them to part of a generic signing package is ineffective and may very well be considered unenforceable by a court. After all, though non-competition agreements are favored in Kentucky, courts have warned that they may not be enforced if “very serious inequities would result.” Lareau v. O’Nan, 355 S.W.2d 679, 681 (Ky. 1962).

It is highly unlikely sandwich makers or delivery men would be privy to information that could harm Jimmy John’s corporate structure. Considering the high turn-over rate associated with fast food employees, enforcing a non-compete would be particularly damaging to those who signed it and essentially unfeasible for the company to enforce. Indeed, several workers have sued Jimmy John’s seeking to invalidate the non-competition provision on the basis that it is overbroad and oppressive.

If your company includes a non-compete in every employment agreement, it is time to reconsider that practice. Generally, low-level employees should not be required to sign a contract that restricts their future employment.  Save the agreements for those employees who really do have the potential to jeopardize your business and before asking them to sign anything, consult with an employment law attorney about the applicable law in your state governing such agreements.

Drew Trimble is an associate with McBrayer, McGinnis, Leslie & Kirkland, PLLC and is located in the firm’s Lexington office. Mr. Trimble focuses his practice on General Litigation, Employment Law and Criminal Defense. He can be reached at atrimble@mmlk.com or (859) 231-870, ext. 136.

This article is intended as a summary of federal and state law and does not constitute legal advice.

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Case to Watch: Integrity Staffing v. Jesse Busk

The U.S. SGavel on court deskupreme Court recently heard oral arguments in a case where the fundamental question concerned whether employers have to pay workers for time spent undergoing security checks as part of their entering and or exiting the workplace. The outcome of this case will likely affect how hourly employees are compensated for tasks outside their regular work shift.

The case at issue involves employees of Integrity Staffing Solutions who are responsible for handling merchandise shipped out of warehouses, like those of Amazon.com. In 2010, these workers brought a class-action lawsuit claiming they were forced to spend up to a half hour daily without pay while they went through security screenings aimed at protecting against theft. The lawsuit sought back pay, overtime and damages. In April, the 9th U.S. Circuit Court of Appeals found the screenings were an integral part of the warehousing job, done for the benefit of the employer and that the employees should be compensated under the federal Fair Labor Standards Act. Integrity appealed the decision to the Supreme Court. According to Integrity, the mandatory screenings are akin to traffic jams when an employer is located a high-traffic area, “Both circumstances may result in minor inconveniences to employees, but neither is remotely the type of issue that should be subject to mandatory, government-imposed compensation.”

Although the case is limited to security checks, the Supreme Court’s ultimate decision could impact the compensability of other activities that occur before and after shifts. Retail groups and the U.S. Chamber of Commerce say the appeals court ruling, if upheld, could lead to hundreds of millions of dollars in potential liabilities for employers. During oral argument certain member of the Supreme Court expressed open skepticism of the employees’ arguments, so it is unclear what the final decision on this matter will be. But whatever the decision, it is clear that it will directly affect a great number of employers and their employees. Stay tuned to our blog for updates on this pivotal case.

Luke Wingfield

 

 

 

 

 Luke A. Wingfield is an associate with McBrayer, McGinnis, Leslie & Kirkland, PLLC. Mr. Wingfield concentrates his practice in employment law, insurance defense, litigation and administrative law. He is located in the firm’s Lexington office and can be reached at lwingfield@mmlk.com or at (859) 231-8780. 

This article is intended as a summary of federal and state law and does not constitute legal advice.

 

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FMLA Confidentiality Provisions Supersede OSHA Recordkeeping Requirements

The federal Occupational Safety and Health Review Commission recently issued an important ruling for employers who have to deal with conflicting reporting and confidentiality requirements under the Occupational Safety and Health Act (“OSHA”) and the Family Medical Leave Act (“FMLA”) of 1993, 29 U.S.C. §§ 2601-2654. In Secretary of Labor v. United States Postal Service, OSHRC No. 08-1547 (09/29/14), the Commission held that the FMLA’s confidentiality provisions supersede OSHA’s recordkeeping requirements.

An employee in the USPS distribution center in Seattle, Washington, submitted an application for leave under FMLA after she learned she was allergic to the dust generated at the facility where she worked sorting mail. The application included a statement from her doctor that she had “a serious health condition…caused by her work environment exclusively.” The postal service did not record the illness as work-related on its OSHA 300 log or 301 form pursuant to 29 C.F.R. Part 1904. The employee filed a complaint with OSHA. After an investigation, OSHA issued a citation for failure to record the illness, claiming that the USPS had knowledge that the employee’s condition was work-related.

The USPS contested the citation, arguing that a FMLA regulation, 29 C.F.R. § 825.500(g), required the postal service to maintain the information confidential; that the knowledge of the employee’s FMLA coordinator about the nature of the employee’s illness could not be imputed to the USPS; and that the employee’s supervisor had no independent knowledge of the illness. After a hearing, an Administrative Law Judge upheld the citation, including the $500.00 proposed penalty, and the USPS appealed. The Commission agreed with the employer on all points and reversed the decision.

This is an important and welcomed decision for employers and human resource managers, who routinely have to navigate a minefield of conflicting and confusing regulations. The upshot is that, if an employer receives information in connection with an application for leave under FMLA indicating that the employee’s condition may be work-related, the employer does not have to record the injury or illness on its OSHA logs and reports. Although this decision was federal, Kentucky’s Occupational Safety and Health Review Commission will likely follow it as precedent.

Kembra Sexton Taylor

 

 

 

 

Kembra Sexton Taylor, a partner located in the firm’s Frankfort office, practices in the areas of labor and employment, personnel, administrative, regulatory, appellate, and insurance defense law. She has extensive experience in representing clients regarding wage and hour, OSHA, state personnel, and other regulatory matters. She can be reached at taylor@mmlklaw.com or (502) 223-1200.

This article is intended as a summary of federal and state law and does not constitute legal advice.

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Employment Law Cases To Watch During U.S. Supreme Court’s New Term

The Supreme Court of the United States began its new term on Monday, October 6, 2014. Typically, the Court hears between 60-70 oral arguments per year and reviews approximately another 50-60 more cases on briefs alone. This year, there are two significant employment discrimination cases on the docket.Gavel on court desk

 

 

The first is Young v. United Parcel Service, set to be heard on December 3. In this case, the Court will decide whether the Pregnancy Discrimination Act (“PDA”) requires an employer that provides work accommodations to non-pregnant employees with work limitations to accommodate pregnant employees who are “similar in their ability or inability to work.” The plaintiff is Peggy Young, a UPS delivery driver who became pregnant and whose doctor recommended that she refrain from lifting packages heavier than 20 pounds. UPS denied Young’s request for accommodation, even though the company had a practice of giving light duty assignments to other employees who were temporarily unable to perform their jobs. UPS instead forced Young to take an extended, unpaid leave of absence until she could return to work after child birth. In addition to wages, Young lost her medical insurance during her leave.

Young sued UPS under the PDA, which amended Title VII of the 1964 Civil Rights Act definition of “discrimination” to include discrimination in employment “because or on the basis of pregnancy, childbirth, or related medical expenses.” The district court granted summary judgment, ruling that UPS did not discriminate against Young, because its policy was based on “gender-neutral,” “pregnancy-blind” criteria, such as whether an employee was injured on or off the job. The Fourth Circuit Court of Appeals upheld the judgment, concluding that the plaintiff did not present any direct evidence of pregnancy discrimination.

The second case, EEOC v. Abercrombie & Fitch Stores, touches on religious liberty. Teenager Samantha Elauf, a Mulsim, wore a head scarf during her 2008 interview for a position at Abercrombie Kids. Ms. Elauf’s religion was not discussed during the interview. Later, a district manager said that, under the company’s “Look Policy,” employees were not allowed to wear hats to work. Ms. Elauf was then given a low score in the company’s “appearance and sense of style” part of the evaluation, and was not offered a job.

A federal trial judge found the company liable for discrimination, determining that Abercrombie knew Ms. Elauf wore the head scarf for religious reasons. Subsequently, a jury awarded the claimant $20,000 in damages. The appellate court reversed the decision, holding that Ms. Elauf never explicitly notified the company that she had a religious practice that conflicted with company policies. The EEOC said in its petition for review that the ruling could affect civil rights protections in a large number of cases, because job applicants will not always know when their religious practices might present an issue that needs to be addressed with an employer.

Watch this space for details on how the Court rules in these important cases.

Kembra Sexton Taylor

 

 

 

 

Kembra Sexton Taylor, a partner located in the firm’s Frankfort office, practices in the areas of labor and employment, personnel, administrative, regulatory, appellate, and insurance defense law. She has extensive experience in representing clients regarding wage and hour, OSHA, state personnel, and other regulatory matters. She can be reached at taylor@mmlklaw.com or (502) 223-1200.

This article is intended as a summary of federal and state law and does not constitute legal advice.

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EEOC Sues Companies for Transgender Discrimination

The Equal Employment Opportunity Commission (“EEOC”) has just filed suit against two companies for alleged discrimination against transgendered employees. The suits were filed separately in Florida and Michigan, against Lakeland Eye Clinic and G.R. Harris Funeral Homes, Inc., respectively. In both cases, employees alleged that they were fired after they disclosed they were undergoing gender transitions.

Title VII does not specifically protect against transgendered persons. In 2012, however, in Macy v. Dep’t of Justice, EEOC Appeal No. 0120120821 (April 20, 2012), the EEOC ruled that employment discrimination against employees because they are transgender, because of gender identity, and/or because they have transitioned (or intend to transition) is discrimination based on sex, and thus violates Title VII.

The EEOC identified “coverage of lesbian, gay, bisexual and transgender individuals under Title VII’s sex discrimination provisions” as one of their top enforcement priorities in its 2012 Strategic Enforcement Plan. Thus, these suits should not be surprising. Earlier this year, President Obama also issued an Executive Order prohibiting federal contractors from discrimination against lesbian, gay, bisexual and transgender workers.

In light of the recent emphasis on the protection of these individuals, employers should take extra precautions to ensure that no discriminatory practices are in force in the workplace. Further, all adverse employment decisions should be properly documented and managers and supervisors should be properly trained about what to do should a discrimination-related issue arises.

Ben Riddle

 

 

 

 

 

Benjamin L. Riddle  is an associate in the Louisville, Kentucky office. Mr. Riddle is a member of the firm’s Litigation team, where he focuses his practice on employment law, commercial disputes and personal injury matters. Mr. Riddle can be reached at (502) 327-5400, ext. 305 or briddle@mmlk.com

This article is intended as a summary of newly enacted federal law and does not constitute legal advice.

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