Friday, July 1, 2016

Employment Agreements: Current Issues

Employment agreements are not unusual, particularly for managers and executives. As new laws come into existence and as the work environment is changed by data and data security, drafting adequate, enforceable agreements can be a challenge.  Before your next round of hiring, or as you revisit existing agreements to see if changes are necessary, we encourage you to keep these points in mind.

Trade Secrets & Confidential Information: Employment agreements often include provisions defining the employer’s confidential information and trade secrets and requiring the employee not to disclose that information during or after employment. Under the new federal Defend Trade Secrets Act, an employer who successfully sues for a breach of contract involving disclosure of trade secrets or confidential information may be eligible to receive punitive damages and attorneys’ fees, but only if the employer clearly notified the employee that they cannot be sued for disclosure to a governmental body or their own attorney.

Data Security:  Data security requirements may be wrapped up in the trade secrets and confidentiality provisions of an employment agreement.  It’s important to make sure that references to data security, wherever they appear in an employment agreement, are complete and current.  Agreements should cover all forms of sensitive data, including, for example, personally identifiable information and financial data.  The inclusion of data security provisions may provide an employer with some recourse if an employee’s actions lead to a data breach. 

Confidentiality of Compensation:  With proposed pay reporting on the EEO-1 and state laws that explicitly allow employees to share wage information, it can be risky to include requirements regarding confidentiality of compensation in employment agreements.  The National Labor Relations Board has taken an interest in confidentiality provisions when employees are not members of management, and has found provisions that forbid employees to discuss their wages to be in violation of Section 7 rights. If an employer wants to keep some or most of an employment agreement confidential, it is important to exclude wage and salary information from the description of information that cannot be shared.  

Non-disparagement:  Given the existence of Glassdoor and other forms of social media, employers’ reputations can be damaged by a single post, tweet, or negative review.  One law firm is even suing Glassdoor over anonymous negative reviews.  To prevent employees from publishing negative comments, some employers include non-disparagement provisions in employment agreements.  In employment agreements with non-managers, inclusion of non-disparagement provisions can be viewed as violations of law by the National Labor Relations Board.  Rather than attempting to prohibit employees from saying bad things through provisions in employment agreements, employers should work to create a positive work environment and respond to negative reviews as they appear.

Non-competition:  Non-competition provisions are criticized by the media and often viewed unfavorably by the courts.  California prohibits them outright.  If an employer’s true goal is to prevent an employee from using trade secrets or soliciting clients or customers, confidentiality and non-solicitation provisions will suffice, and are often more enforceable than non-competition provisions.  When non-competition provisions are essential, they should be carefully tailored.  Non-competition provisions that are overbroad are less likely to survive the scrutiny of a court.  Employers should also be aware of state-specific requirements related to consideration.

Class & Collective Action Waivers:  For the last few years, class and collective action waivers in employment agreements have come under significant scrutiny. The NLRB has taken the position that such provisions are unlawful.  The Board’s position and subsequent court decisions have resulted in a Circuit Court split on whether these clauses are enforceable.  Employers should consider court decisions in their jurisdiction and their own tolerance for litigation risk when considering whether or not to add class and collective action waivers to employment agreements.

Given the constant changes in employment law, agreement templates should be reviewed periodically, and the application of particular terms to each employee should be carefully considered.   

Posted by Kate Bischoff