At a recent slumber party, three 13-year-old girls stripped down to their bras and panties and began snapping candids of each other with their cell phones.  The giggling girls then sent the photos to some of their classmates.  The teens thought it was just harmless, innocent fun.  Local law enforcement thought it was child pornography. Now the girls, and those who received the photos, face the prospect of serious jail time and registering as sex offenders under Megan’s Law.  While sexting–the practice of sending erotic images and messages via cell phone–has become shockingly popular among teens (1 in 5 admit to sexting), law enforcement agencies are scratching their heads as to whether current child pornography laws should be enforced against children like these three girls and their classmates, particularly when the children are the very ones who the law seeks to protect.  In a curious twist, in this unusual criminal case the child victims are also the perpetrators.

Across the country, law enforcement and state legislators fear that technology is outpacing current child pornography laws which could easily classify this scenario as a felony involving the possession or dissemination of lewdness involving a minor.  This past March, the Utah Legislature passed lighter penalties for sexting, reducing it from a felony to a misdemeanor.  In Vermont where possession of nude photos of persons under the age of 18 is a felony, legislators are considering making sexting legal.

Tilting the Scales in Your Favor:  As states like Utah and Vermont contemplate new laws, existing laws will cause law enforcement officers difficulty in discerning the difference between slumber party antics and true child pornography.  Parents of teens should warn their children that sexting is not merely high tech flirting and that it may result in jail time and the lifetime label of “sex offender”.  Even if law enforcement officers in Texas do not regard the slumber party antics as worthy of criminal prosecution, racy images once posted to the internet are difficult to retrieve and can circulate on the internet for a very long time.  Parents should counsel their teens that if someone sends their teen a picture, it is best to immediately delete the photo.  As always, seek legal counsel if your teen is being investigated for, or has been charged with, a crime.

Commentary: Is ‘sexting’ child pornography?

For most of the late 1990s and early 2000s, it was considered nearly impossible to have an enforceable non-compete in Texas. After clarification by the Texas Supreme Court in 2006, non-competition agreements in Texas found new life.

This April the Texas Supreme Court again affirmed that noncompetition agreements are alive and enforceable in this great State of Texas.

A Houston accountant argued the noncompetition provisions of his signed at-will employment agreement were unenforceable. Yes, he promised not to disclose confidential information. However, his employer made no express return promise to provide any confidential information. Two lower courts agreed with the accountant. The “Supremes” went with the employer.

The bottom line? Covenants not to compete are enforceable when properly implemented.  An employer does not have to make an advance promise to provide confidential information to an employee to create an enforceable non-compete. The employer must only actually provide confidential information pursuant to the employee’s promise to keep the information secret.
So, employees beware.

See Mann Frankfort Stein & Lipp Advisors, Inc.,  MFSL GP, L.L.C., and MFSL Employee Investments, Ltd., v. Brendan J. Fielding, WL 1028051, 52 Tex. Sup. Ct. J. 616 (Tex. 2009)

See April 24, 2008, Tilting the Scales – Business Issues with a Legal Slant “Non-Compete Repeats in Texas” at http://lrmlawblog.com/tilt/2008/04/24/non-competes-repeat-in-texas.

It is a magnificent April day and the ballpark has that palpable air of excitement that only opening day can bring.  For on this one day, everyone is still batting a thousand and your team is undefeated despite the fact that the owner refuses to pay for good pitching.  The stands are filled with the smells of popcorn, hotdogs and the fan next to you that has had too much to drink.  Ahhhhhh….baseball season is back!  As you rest comfortably in your front row seat along the third base line, you contemplate the great American past time and whether your boss believes that you are really home sick.

Just then, you hear the crack of the bat and suddenly a line drive foul ball comes screaming into the stands like it was shot out of a cannon.  The ball smacks harmlessly against an empty seat, narrowly missing two young girls who are texting each other on their iPhones.  The crowd breathes a collective sigh of relief.  The drunken fan next to you leans over and tells you, with conviction, that if one of those girls was hit, “she would own the team.”  Is he right?

No.  Since the beginning of baseball, courts have grappled with the duty that stadiums have to spectators.  Given the great deference that our society has traditionally placed on the game of baseball, courts have ruled in favor of stadiums, finding that spectators assume the risk of injury, as the danger of a foul ball is common knowledge.  Over the years, as baseball’s popularity has waned, a shift has taken place in favor of spectator safety.  Although rules differ from state to state, in Texas, a stadium owner has only a limited duty to provide adequately screened seats for all those who wish to sit behind a screen.  The owner does not have the additional duty of informing spectators of the availability of the screened seats as the screen is obvious to all those who attend the game.

To the chagrin of stadium and team owners, it appears as though the courts and legislatures may continue to erode some of the favorable presumptions that baseball once enjoyed.  In a New Jersey case, a fan left his seat to purchase beer at a concession stand inside the stadium’s mezzanine.  While standing in line, the fan was hit with a foul ball in the face, causing serious injury.  He sued.  Although the trial court found in favor of the stadium under traditional assumption of the risk principles benefiting baseball, the New Jersey Supreme Court disagreed, maintaining that a different standard of care was appropriate for those fans outside the stands.  “While watching the game, either seated or standing in an unprotected viewing area, spectators may reasonably be expected to pay attention and to look out for their own safety; but the activities and ambiance of the concession area predictably draw the attention of even the most experienced and the most wary fan from the action on the field of play…[therefore, the team and the vendor] have a concomitant duty to exercise reasonable care to protect them during such times of heightened vulnerability.”  Given the slow, but discernable, shift toward spectator safety, it is likely that this New Jersey decision will have an impact on stadiums across the country.

Dent v. The Texas Rangers, Ltd., 764 S.W.2d 345 (Tex.App. Fort Worth 1989, writ denied) and Maisonave v. The Newark Bears Professional Baseball Club, 881 A.2d 700 (2005).

A year ago Standup Stanley bought Hotel 8 Properties. Stan’s banker Betty Maekit-hapen was able to get him the purchase money and an operating line of credit loan from DaytonaMac Bank. Hotel 8 was able to use its valuable Arizona real estate and cash flow as collateral without Stan’s personal liability so long as Hotel 8 did not incur any additional debt, or go into bankruptcy. Betty warned Stanley that if Hotel 8 defaulted, it had no right in their loan agreement to cure the problem.

Late last fall Hotel 8’s cash flow got tight. Being a Standup guy, Stanley made multiple personal loans to Hotel 8 which was a violation of the loan documents. Betty Maekit-hapen was aware of Stan’s personal loans because they were used to make DaytonaMac loan payments, and she was working with Stanley to keep his business afloat. Even though Hotel 8’s real estate was still worth more than the remaining DaytonaMac loan balance, this last quarter Hotel 8’s financial condition got even worse. Bankruptcy reorganization is Hotel 8’s only hope.  Alas, DaytonaMac also fell on hard times. Late last year DaytonaMac was closed and its loans were sold to Vapid Vulture Fund. Vapid is in the business of buying cheap loans in the hope of acquiring valuable property, like Hotel 8’s, at a deep discount. Vapid is forcing Hotel 8’s property to be sold at foreclosure, probably then to be purchased by Vapid. Vapid also advises Stanley that, if Hotel 8 files for bankruptcy, Stan will become personally liable for the remaining loan balance.

Tilting the Scales in Your Favor.

  • Keep your banker informed. No one, particularly your banker who is trying to keep her job, likes surprises. Give them plenty of warning if your company is experiencing problems – even if the problems are just compliance with financial loan covenants.
  • Take the loan covenants seriously. Before signing the loan documents, consult with your bookkeeper to assess whether you can consistently keep the financial loan covenants current. Do not assume that all problems can be worked out with the lender.
  • Before taking any action, pay particular attention to those loan covenants that may trigger personal liability if there is a violation of the company’s loan agreement, often referred to as a “springing recourse guaranty.”
  • Consult with legal counsel before contributing or loaning funds to the borrower entity, since this form of cash infusion may trigger a default under the loan covenants.
  • When considering a bankruptcy filing, make sure you understand the scope of any springing recourse guaranties that have been given by parents, affiliates, and, if the borrower is part of a joint venture relationship, your partners and/or their affiliates. If in a joint venture, pay particular attention to contribution or other back-stop provisions that would make your partner’s liability your own. Consider whether the bankruptcy will generate sufficient new value to outweigh the new recourse liability.
  • Delay tactics with the lender, which are intended to forestall foreclosure, can be risky if the borrower’s defenses to collection are not successful. In some instances, merely raising a defense can trigger springing liability into a personal guaranty.
  • If you are a guarantor who is not in control of the borrower, stay on top of the borrower’s business in order to avoid being surprised by springing liability created by the actions of others.
  • If your loan documents so require, follow the single purpose entity (SPE) provisions since any material deviation may create personal liability. Examples of SPE provisions include, but are not limited to: keeping separate accounts, maintaining required separate books and records, not commingling funds or other assets, conducting business in the borrower’s name, paying liabilities and expenses only with borrower’s own funds, respecting corporate formalities, maintaining arm’s-length relationships with affiliates, maintaining separate stationery, invoices, and checks, and maintaining adequate capital.

See LaSalleBankNA v. Mobile Hotel Properties, LLC, 367 F. Supp 2d 1022 (2004); Heller Financial, Inc. v. Lee, 2002 WL 1888591 (N.D. III. Aug 16, 2002); FDIC v. Prince George Corporation, 58 F.3d 1041 (1995); First Nationwide Bank v. Brookhaven Realty Associates, 223 A.D.2d 618 (1996)

Snidely Whiplash, a personal injury lawyer, was trying to get business from his friend “Attila” who is a chiropractor. Attila’s common law wife Hun loves mud-wrestling matches.  “If I could arrange something to please Hun,” thinks Snidely, “surely Attila will send me some business!”

Snidely learns that the world mud wrestling playoffs are coming to town.  Sadly, the tickets are sold out!  Using his connections, Snidely contacts a ticket-scalper and finds he can acquire ring-side seats for $500 apiece (the face price is $200 apiece).  Since Hun will be attending, Snidely figures that his wife will probably be suspicious if she is not invited to come too.  So Snidely peels off $2000 and buys four tickets.  Belatedly, Snidely calls his tax lawyer:  “Surely this is all tax-deductible? Right?”

Sadly, Snidely, the answer is “No”.

Tilting the Scales with our LRM Tax Lawyer Tom Rhodus.

Deductibility: Under the best of circumstances, business entertainment expenses are only 50 percent deductible.  Buying four tickets (to take along spouses) is probably just fine, because it would be a bad idea for Snidely not to include his wife. Attila is the one who has the business, even though Hun is the one being entertained. In addition, only the face amount of the tickets is deductible; the excess charged by the scalper is not.

Business Discussion: There must also be a business discussion in order to declare a deduction for the tickets.  A sporting event is not considered a place where a serious business conversation can take place. So to be deductible, Snidely needs to take Attila and Hun to dinner before (or perhaps for drinks after) the mud-wrestling match, so that he can explain to Attila why he needs to hire him.

Records: To avoid making the news, hang on to the receipts in case you are audited by the IRS. The IRS agent, and maybe more, will definitely want to see them. In addition, include the date and time of the event as well as who attended and what was discussed. In the case of Snidely, maybe he can write a check to the scalper (or get a receipt) for the tickets to document the cost of the tickets. As for the drinks and dinner, that’s easy – put it on a credit card and Snidely will automatically have a record of the time and location. However, he will need to record Attila and Hun’s names (and his wife’s as well) on the receipt, note the nature of his relationship with Attila and Hun (“prospective clients”) and the nature of the business that was discussed (“cases I have won for people like Attila”).

————————————————

Thanks to Tom Rhodus in the Dallas office of Looper Reed & McGraw for providing this fun insight into one of those thorny tax issues that seems to be grabbing the headlines lately.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.

It’s March and NCAA Madness is in full swing. Cindy Rella, your office manager, is now a water cooler fixture bragging about her imminent victory in the office basketball bracket.  Sitting at your cubicle bitter that your team lost in the first round, and even more bitter that Cindy, the office sports idiot, used the best looking team jerseys to pick last year’s Cinderella team, you wonder out loud whether the office pool is even legal.

In the vast majority of states, including Texas, gambling is a crime that is defined so broadly in most penal codes that office pools are very likely illegal. Reports are that in 2008 nearly $2.5 billion changed hands in March Madness office pools and that over 25% of the American workforce participated in NCAA bracketology. NCAA tournament pools, like most other forms of gambling, are probably, technically illegal in the vast majority of states and could result in misdemeanor charges, perhaps even jail time.  So what is the risk of Cindy going to jail for betting $20 on North Carolina and this years Cinderella team?  Probably pretty remote.

Tilting the Scales Suggestions. Pay out all the winnings. Make the pool individually managed, not corporate. The bigger risk may be to your company if it explicitly or implicitly permits such gambling.  Most companies have policies to prohibit office gambling.  Allowing office pools for the NCAA basketball tournament, Super Bowl or even for the birth weight of an employee’s child may very well be technical violations of such office policies.  The selective enforcement of certain policies might even affect a company’s credibility on other workplace policies, for example harassment, theft, etc., and might expose a company to uncomfortable questions, possibly unnecessary lawsuits.  Accordingly, while most companies “wink” at office pools and judge the legal risk and lost productivity as being outweighed by the camaraderie and esprit de corps that such pools foster, this is another one of those company bets where the potential risk should be thoughtfully weighed.

Marianne Haste and William Arryme developed a close relationship through a popular online dating service.  After dating for several months, Marianne and William recognized that they were meant for each other and scheduled a Valentine’s Day wedding.  After a beautiful, fairytale wedding, the newlyweds were whisked away in a limousine to live happily every after.  Or so they thought.  That night, Marianne discovers that her new husband has certain “performance issues” that cannot be cured with a little blue pill.  During their brief courtship, William had somehow failed to mention his medical condition.  William seeks forgiveness.  Marianne seeks an annulment.  Can she get it?

Yes. The facts satisfy the limited conditions for an annulment, so a divorce is not necessary.  An annulment is the legal nullification of a marriage and reverts the spouses back to their status before the marriage.  In other words, the marriage is treated as though it never happened.  Divorce, on the other hand, treats marriage as having been terminated or ended.  Annulment can be granted immediately.  Divorce has a 60 day waiting period.

Now, back to our frustrated bride.  Under Texas law, a person may obtain an annulment if either party was permanently impotent at the time of the marriage.  So, if Marianne got married with the full expectation of being able to have normal sexual relations with William (and she didn’t know of his condition at the time of the marriage and didn’t voluntarily live with William once she found out), she can get an annulment.

Marianne or William may also seek annulment on the grounds that she/he was under 18 (and didn’t have parental consent to marry), that she/he was drunk at the time of the marriage, that she/he used fraud to obtain the marriage, that she/he was mentally incompetent at the time of the marriage, that she/he had concealed a divorce that was granted within 30 days of the marriage, that she/he are related by blood or that she/he had previously been married and never obtained a divorce.  The last two categories listed above are considered “void” marriages or marriages that never could have been, while the rest of the list are voidable marriages or marriages that never should have been.

See Texas Family Code Section 6.106.

Valentine’s Day is over and, despite the fading roses on Connie’s desk, Dale Dalliance and Connie Canoodle were adamant that they have no romantic involvement. That is, until the new company security camera caught them in a compromising situation in the warehouse last week. To compound the problem, Dale is married and is a line manager at Get Sacked. Connie works for Dale on his line and is also married … but not to Dale.

Recognizing the risk of liability to the company for workplace romances, their boss used to have a “no dating” policy. Now Get Sacked has a required consensual relationship agreement, or “love contract.” Under the new company policy, the employee handbook provides that “if a supervisor and subordinate are having a romantic relationship, it is the responsibility of the senior person to disclose the relationship to human resources or be in violation of the policy.” Get Sacked reserves the right to transfer one or both of Dale and Connie because they are in the same chain of command.

Can Get Sacked require a “love contract?” If signed, will a “love contract” end the exposure?

The jury is still out on “love contracts.” Probably to no one’s surprise they originated in California in the entertainment industry. While there are reported to be several thousand such contracts in existence TS finds no reported cases on them – only anecdotes of employees who sued and, when confronted with “love contracts” previously signed, dismissed their claims. Under the right circumstances it does seem appropriate for an employer to address office romances. After all, it is the employer who risks a retaliation claim once the relationship ends, not to mention the risk of decreased employee morale and productivity, and the appearance of unprofessional behavior to customers and vendors.

Tilting the Scales in Your Favor:

  • Any love contract policy should be incorporated into the employee handbook and be widely disseminated
  • The love contract should acknowledge
    • The relationship is voluntary and consensual
    • The employees agree to abide by the company’s conduct policies
    • They promise to report any perceived harassment to management
    • They agree to behave professionally and to not allow the relationship to affect their work
    • They agree to avoid behavior that offends others in the workplace
    • They agree not to engage in favoritism.
    • They are free to break up without adverse effects on their jobs.

Introduction: What Is There to Worry About?

Most employers know that Texas is an “employment at-will” state, meaning that—unless there is an employment agreement guaranteeing employment for a specific amount of time—employees can be terminated for any lawful reason. Being legally entitled to do something, however, doesn’t necessarily make it “safe.”  Litigation is expensive, and ultimately winning your case can be cold comfort when compared to the cost to get there. This guide identifies some of the problems and offers possible solutions and practical tips to minimize the risks associated with the different types of employee terminations.

“For Cause” Termination

Can the terminated employee sue us for discrimination?

Federal and state laws protect employees from discrimination based on race, color, gender, national origin, religion, age, or disability.  Federal law also protects employees who are on leave under the Family Medical Leave Act and who are on active military duty.  If the employee fits into one of these categories, they could claim that their termination was discriminatory.  You can always terminate any employee for a legitimate, non-discriminatory reason, but it pays to be careful.  In addition, some of these categories—i.e., disability—can be hard to figure out.  It might be a good idea to consult your lawyer if you have concerns about the termination.

How can we be sued for discrimination if we have “good cause” for termination?

Terminated employees in a protected class will often claim that what an employer calls a “good cause” for their termination was really a cover for discrimination.  For example, excessive absenteeism might be related to a disability or a medical condition that is covered by the Family Medical Leave Act.  Or what appears to be insubordination might be a miscommunication arising from cultural difference related to the employee’s national origin.  In most cases, you can still terminate the employee even if he or she might want to claim that it is “discrimination by proxy,” but it is worthwhile to analyze the possibility and decide the best way to proceed.

How can we protect the company from discrimination claims?

One of the best ways to defend against a discrimination claim is to show documentation that objectively demonstrates the reasons for the termination.  Courts and juries are very suspicious, however, of documents created immediately before or after the termination.  Unless the termination is based on a single, egregious event, it’s best to have a written history of problems with the employee.  If the only written documentation justifying the termination is something you just created (or will be creating later), you might want to wait a while and establish a better paper trail before letting the employee go.

What do we have to pay and when do when have to pay it?

In Texas, involuntarily terminated employees must be paid their final paycheck within 6 days.  Unless you have a policy that specifically promises to “cash out” employees for unused vacation time and sick leave, you are not obligated to pay terminated employees for those items.  Even if you have a great claim against the employee for damages or lost money or property, you may not deduct anything from the final paycheck without express written authorization—a blanket authorization signed at the time of hiring is probably not good enough.

Should we pay severance?

Even if you have done everything right, an unhappy former employee may still bring some type of claim against you.  Litigation is expensive, even when you are right.  A good safeguard against future litigation is to offer the employee some type of severance in exchange for the employee’s full release of all claims.  If the employee is over 40, you must comply with the Older Workers Benefit Protection Act, which requires that you give the employee at least 21 days to consider the release and to consult with an attorney and seven days to revoke the release after it is signed.  Do not pay the employee until the final seven day revocation period has elapsed.  The OWBPA does not require employees to return the severance pay if they revoke the release.

“Just Because” Termination

Do we have to have a good reason to fire employees?  What if they are annoying?

Texas is an “at-will employment” state, which means that you can fire an employee for any legal, non-discriminatory reason—even for being annoying.  Being legally allowed to do something, however, doesn’t always make it a good idea.  If the employee is in a protected class (race, color, gender, national origin, religion, age, disability, on FMLA leave, or on active military status), the employee could bring a claim for discrimination under state or federal law based on the termination.  The primary method to defend against these claims is to demonstrate that there was a legitimate, non-discriminatory reason for the termination.  Terminations based solely on the employee’s “annoying personality” or “inability to fit in” can be very hard to justify in the face of a discrimination claim.  You should think carefully about a “just because” termination before letting the employee go.

Can we fire an employee for being gay or having an “alternative lifestyle?”

Texas law and federal law do not specifically protect homosexuals, transsexuals, and cross-dressers from employment discrimination.  There is a great deal of legal advocacy, however, trying to protect these groups through creative application of the existing laws.  Firing an employee for being gay is not illegal discrimination, but firing an employee for not being “masculine enough” or “feminine enough” could create a viable discrimination claim.  It’s a good idea to get qualified legal advice if you want to terminate an employee based on their sexual orientation or other, non-traditional characteristics.

What do we have to pay and when do we have to pay it?

In Texas, involuntarily terminated employees must be paid their final paycheck within 6 days.  Unless you have a policy that specifically promises to “cash out” employees for unused vacation time and sick leave, you are not obligated to pay terminated employees for those items.  Even if you have a great claim against the employee for damages or lost money or property, you may not deduct anything from the final paycheck without express written authorization—a blanket authorization signed at the time of hiring is probably not good enough.

Should we pay severance?

Even if you haven’t done anything wrong, an unhappy former employee may still bring some type of claim against you. Litigation is expensive, even when you are right.  A good safeguard against future litigation is to offer the employee some type of severance in exchange for the employee’s full release of all claims.  If the employee is over 40, you must comply with the Older Workers Benefit Protection Act, which requires that you give the employee at least 21 days to consider the release and to consult with an attorney and 7 days to revoke the release after it is signed.  Do not pay the employee until the final seven day revocation period has elapsed.  The OWBPA does not require employees to return the severance pay if they revoke the release.

Voluntary Termination

If the employee quits, we’re in the clear, right?

Often, employees who voluntarily resign are moving on to greener pastures, and they don’t bear their former employer any ill-will.  Some employees, however, quit because they believe that they can no longer perform their job in a hostile or abusive work environment.  The law calls this “constructive termination” and, if the hostile work environment is related to a protected classification (race, color, gender, national origin, religion, age, disability, on FMLA leave, or on active military status), the employee may still be able to sue, even though he or she resigned.  Employers need to have clear anti-harassment policies that require employees to report harassment and establish an easy process for making a report.  Even if you have a reporting policy, it’s not a bad idea to ask resigning employees why they are leaving (even if you are happy to see them go).  If they don’t complain about any harassment in response to your inquiry, make a note in their file. It will be hard for them to make a viable claim later if they didn’t raise it when specifically asked.

Can we require employees to give two weeks notice?

In most cases, it is a practical impossibility to require employees to stay and work when they don’t want to.  What’s more, employees who feel like they are being forced to stay for another two weeks are of questionable benefit to the company.  A better approach is offering an incentive to employees who give two weeks notice.  Because Texas does not require employers to pay departing employees for unused vacation and sick leave time, many employers offer to pay those amounts (or a percentage of them) to employees who give two weeks notice of termination.

What do we have to pay and when do we have to pay it?

In Texas, employees who resign must be paid their final paycheck on the next regular payday.  Many times, resigning employees may have wages or salary that would not normally be paid until the payday after the next payday.  The law, however, requires the employee to be paid in full on the next regular payday.  Unless you have a policy that specifically promises to “cash out” employees for unused vacation time and sick leave, you are not obligated to pay resigning employees for those items.  Even if you have a great claim against the employee for damages or lost money or property, you may not deduct anything from the final paycheck without express written authorization—a blanket authorization signed at the time of hiring is probably not good enough.

Reductions in Force

Does it matter whom we lay off?

If you have employees with contracts or employees who are part of a collective bargaining agreement with a union, you may be restricted in your ability to lay off those workers.  Otherwise, you are technically free to lay off whomever you want.  You may be exposing the company to discrimination claims, however, if the reduction in force adversely impacts a disproportionate number of employees in a protected class (race, color, gender, national origin, religion, age, disability, on FMLA leave, or on active military status).  Therefore, it pays to exercise some caution when choosing whom to lay off.

How should we decide whom to lay off?

The key issue when selecting employees who will be affected is being able to explain later—if necessary—why there was no discriminatory intent.  As a result, it is important to document the criteria that were used to select those who are to be laid off.  One of the safest practices is to use a two step process: (1) have someone do a blind selection of employees without knowing the names, races, genders, ages, or other protected characteristic of the candidates; and (2) have someone else (or a panel) review the demographics of the selected employees to determine whether a protected group is disproportionately affected.

What if we just lay off all of the poor performers?

The best time to get rid of bad employees is when you recognize that they are not performing satisfactorily.  Using a reduction in force to “weed out” substandard workers can be problematic, and it probably isn’t the best practice.  It’s better to keep economic-based terminations separate from merit-based terminations, both for clarity and to avoid inadvertently enacting the discriminatory biases of individual supervisors.  If you still insist on selecting affected employees based on performance, you should try to base the selection of objective criteria (i.e., annual sales numbers, productivity).  You should also stay clear of criteria that could be proxies for something else.  For example, laying off all the employees who are at the top of their wage scale could disproportionately affect older workers.  Or downsizing employees based on sick days used or number of late arrivals at work could look like you are picking on employees who are disabled or who have recently been on Family Medical Leave.

What do we have to pay and when do we have to pay it?

In Texas, involuntarily terminated employees must be paid their final paycheck within 6 days.  Unless you have a policy that specifically promises to “cash out” employees for unused vacation time and sick leave, you are not obligated to pay terminated employees for those items.  Even if you have a great claim against the employee for damages or lost money or property, you cannot deduct anything from the final paycheck without express written authorization—a blanket authorization signed at the time of hiring is probably not good enough.

Should we pay severance?

Generally, a reduction in force is the result of financial difficulties facing the company, and paying severance to laid off employees can seem counterintuitive.  It might be advisable, however, to safeguard against future litigation by offering affected employees some type of severance in exchange for a release of all claims.  For employees who are over 40, you must to comply with the Older Workers Benefit Protection Act.  For mass reductions in force, the OWBPA requires that you give the employees at least 45 days to consider the release and to consult with an attorney and 7 days to revoke the release after it is signed.  You also must provide a demographic breakdown of the positions and ages of the affected employees.  Do not pay the employees until the final seven day revocation period

has elapsed.  The OWBPA does not require employees to return the severance pay if they revoke the release.

Do we have to provide advance notice of the lay offs?

If you have more than 100 employees, you may be required to comply with the Federal Worker Adjustment and Retraining Notification Act under some circumstances.  Generally, WARN applies when: (1) a work location is being closed down and 50 or more employees will lose their jobs; (2) more than 500 employees will lose their jobs during a 30 day period; (3) more than 50 workers comprising at least 33% of the workforce will lose their jobs; or (4) two or more groups in the preceding categories who don’t meet the minimum thresholds alone lose their jobs within 90 days and meet the minimum threshold when considered together.  If WARN applies, the affected employees are entitled to receive at least 60 days notice of the lay off.  The employer also must give notice to the state’s dislocated worker unit and the chief elected official of the local government.  WARN is a complicated law with many technical requirement and exceptions.  If you think it may apply to your lay off, you should consult with qualified counsel.

About our Guest Author:  Brent Dyer advises employers both in day-to-day personnel matters and in matters involving state and federal administrative agencies. Brent focuses on giving advice that empowers his clients to make informed choices that are in the best interest of their business goals and minimize the risk of adverse legal consequences. Brent also handles cases involving a variety of topics, including employment discrimination, harassment, governmental liability and immunity, complex contract disputes, real estate ownership and management, trade secrets, and commercial liability. Contact Information: bdyer@lrmlaw.com  • 214.922.8915

After her favorite team was perfect in the preseason, Lily Lions just knew that this was their Super Bowl year.  Because she couldn’t go to the game, Lily decided to purchase a gigantic, 70” Sony plasma TV to watch the big game with her friends.  Unfortunately for Lily, the day after she purchased the TV, her team had a heart-breaking loss keeping them from the Super Bowl.  Now Lily wants to return the TV.  When she calls ShortCircuit City, her previously over-friendly salesperson is not so friendly.  In fact, he says there is nothing he can do and the TV is hers.  Lily says she knows her legal rights and that she has 3 days to cancel a consumer purchase.  Is she right?

No.  Many consumers have the mistaken belief that under Texas law they have 3 days to change their mind and cancel all consumer contracts.  The 3 day “cooling off” period applies only to very specific situations involving sales made at facilities other than the seller’s place of business (e.g. door-to-door, convention center, etc.).  The salesperson must orally inform the consumer of their right to cancel at the time of the sale and provide the consumer with a dated cancellation form which shows the name and address of the seller.  To cancel the contract and obtain a full refund, the consumer must sign, date and return the cancellation form back to the seller before midnight of the third business day after the sale.  The seller then has 10 business days to refund the money and either retrieve or abandon the goods purchased by the consumer.

As usual, there are several exceptions to the 3 day rule.  These include, but are not limited to, goods or services purchased for less than $25.00, the purchase of insurance or farm equipment, sales involving an attorney or broker, or sales made pursuant to prior negotiations which occurred at the seller’s business establishment.  Moreover, the law does not apply to sales conducted entirely by telephone or mail, where there is no other contract between the buyer and seller.

See Texas Business And Commerce Code § 39.001.