Panel of Global Employment Lawyers Agrees on One Thing: U.S. Noncompete Laws Create Unique Challenges

Posted on October 21, 2021 by Joe Ahmad

The state-by-state patchwork of noncompete laws is difficult enough for U.S.-based businesses, let alone employers with a cross-border presence. I had the pleasure of exploring this topic with a panel of U.S. and UK-based employment lawyers as part to the ELA/ABA 7th Transatlantic Conference: The Global Working World – Evolution, Opportunity and Challenge earlier this month. The panel included Morrison & Foerster global employment lawyer Eric Akira Tate, who co-chairs the ABA Section of Labor and Employment Law’s Subcommittee on Covenants Not to Compete with me, as well as Tarun Tawakley of London-based Lewis Silkin, and Jennifer Millins of London-based Mishcon de Reya.

We all agreed on at least one thing – the inconsistent framework for enforcing covenants not to compete here in the U.S. doesn’t make it easy on anyone. With enforcement left to each state, the results can be wildly divergent. Two states with among the largest and most powerful economies offer a great case in point. California bans most noncompetes while Texas continues to generally enforce reasonable noncompetes.  While noncompetes can be unfair for low-wage and unskilled workers, they can also result in a brain drain for the most in-demand, who move elsewhere for better career opportunities.

I’ve written previously about overreliance on these agreements and the momentum building to limit their reach. 

Our panel noted that many other countries enjoy a more unified approach. Differences between the U.S. framework and that of many other countries are apparent when looking at the Biden administration’s recent executive order to scale back enforcement of noncompetes. The reality is that the executive order is not likely to have a significant impact anytime soon because these laws are created at the state level. The Biden order simply asks federal regulators to look at the issue, but real change will require new legislation.  In today’s polarized environment, that seems unlikely at the federal level. 

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Unjust Accusations Against Doctor Highlight a Pervasive Prejudice

Posted on September 27, 2021 by Joe Ahmad

I’m proud to be able to help Dr. Hasan Gokal start down the road toward justice and begin putting his life back together. The damage he suffered to his reputation and the injustice he experienced shine a light on the pernicious way stereotypes and broad generalizations about ethnic groups play a role in institutional decisions that can inflict lasting harm. Too often, the flawed logic behind these actions goes unnoticed while lives are destroyed in their wake.

Back in December 2020, Dr. Gokal was on the front lines of the nation’s Covid-19 mobilization. Working for the Harris County Public Health department, his days were spent jabbing arms with the desperately need vaccine. The Moderna vaccine presented special challenges because – once thawed to room temperature – the clock starts ticking and the entire vial goes bad in a matter of hours.

On this particular day, Dr. Gokal had an open vial of the Moderna vaccine with 10 leftover doses and no one on the waiting list. Following protocols, he began searching for individuals in the area who could quickly show up to receive the vaccine. And that’s where his troubles began.

Dr. Gokal is a Pakistani-American who lives in the Sugarland area of Houston, a community with an enormous South Asian population. These are Americans who look like him, with similar surnames and shared religious and cultural touchstones.

Not surprisingly, those who accepted his offer to get the vaccine were South Asian immigrants. Dr. Gokal filled out the required paperwork and followed all the rules, but when his supervisors saw the list of names he presented, the knee-jerk reaction was suspicion. Dr. Gokal lost his job, had his professional reputation tarnished, and was subjected to criminal charges.

While Houston is an inspiring melting pot of cultures, it’s not surprising that most of us tend to live in bubbles – it’s just human nature. But sheltered lives create the climate for the kind of injustice that Dr. Gokal experienced.

As the majority population and holder of power, Anglos can spend entire days – lifetimes even – interacting solely with those who look like them. They can help people who look just like themselves every single day without any motive or agenda, and they don’t get fired or accused of committing a crime. Likewise, when a member of the majority community does something wrong – commits a crime, an act of terrorism or displays extreme religious or political fanaticism – the broader community and popular culture view it as an isolated incident by an individual who does not represent the entire group.

Dr. Gokal’s case is a reminder that other groups don’t have the same experience. Too often, we’re painted with a broad brush based on an accumulation of isolated incidents. Popular culture and the news media don’t help in this regard, and the entire group ends up being treated with suspicion.

Nine months later, few noticed when the criminal charges and professional allegations were unceremoniously dropped. Dr. Gokal is now working to restore his good name. Our lawsuit seeking damages from Harris County Public Health is part of that process.

National and international media have been following this important story – including CNN “Texas doctor fired for using leftover Covid-19 vaccine doses sues county for discrimination”; KPRC-TV NBC-2 “Former doctor accused of stealing COVID vaccines now suing Harris County”;  the Houston Chronicle  “Dr. Hasan Gokal, cleared of vaccine theft charge, sues Harris County for racial discrimination” ; Houston Public Media – NPR “Doctor Accused Of Stealing COVID Vaccines Sues Harris County For More Than $1 Million” ; USA Today  “Doctor fired for giving leftover COVID-19 vaccines to people with ‘Indian’ names sues for discrimination” ; Winnipeg Free Press  “A roundup of COVID-19 developments for Tuesday Sept. 21, 2021”; and News Indian Express  “US doctor cleared of COVID-19 vaccine theft sues Harris County.”  We hope they stick with this important story to the end.

Joe Ahmad is co-founder of Houston-based Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing, or AZA, where his practice focuses on legal issues surrounding executive employment. He is an active member of the South Asian Bar Association.

 

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There’s More to Learn from Jeopardy! than Trivia

Posted on August 30, 2021 by Joe Ahmad

Q: This household-name company allowed an insider to lead a high-profile executive search only to end up hiring himself for the job. It then failed to perform basic vetting that might have uncovered the new guy’s embarrassing history of insensitive and derogatory public statements.

A: What is Sony’s botched search to replace iconic Jeopardy! host Alex Trebek?

The saga continues for legions of intensely loyal Jeopardy! fans who’ve lived the ups and downs of the gameshow’s search to replace iconic host Alex Trebek. Debate rages over who should take the helm, but this much they can agree on: Sony Pictures’ handling of the effort has been a resounding failure.

The mistakes and mishandling began soon after Trebek succumbed to pancreatic cancer. Sony quietly appointed the show’s executive producer, Mike Richards, to lead the search for a replacement. The show rolled out a handful of guest hosts trying out for the job. LeVar Burton developed a passionate following, and others like champion contestant Ken Jennings and sitcom star Mayim Bialik drew strong reviews.

Few realized that Richards was leading the search and had also thrown his hat in the ring, and most were shocked to learn that he had been selected. Richards didn’t have time to prove his doubters wrong. Within days, a journalist for The Ringer began uncovering insensitive statements that Richards had made on a podcast. Richards’ halfhearted “that’s not who I am” apology could not prevent the inevitable. The seat held by Trebek for 37 seasons is now open again.

There’s so much wrong here from an executive employment standpoint. Executive searches that are not well-defined, objective and professional do not do anyone any favors. In addition, a thorough vetting process is critical for executive hires today. When someone like Richards – who was an integral part of the search – ends up with the job, that should raise red flags and prompt extra vetting, not less.

This happens a lot with internal candidates. Since they already have a position with the company, there is a sense that some vetting, background checks, etc. have already occurred. But in reality, assuming a more prominent role should bring more scrutiny. Think about this way: How many times have we seen damning information come out about a politician who had an existing political position when they run for president? 

If the insensitive comments made by Richards were uncovered so easily, it makes you wonder whether Sony had done any vetting at all.

Writes Variety:

What should have been a triumphant period of “Jeopardy” now appears to be the beginning of a long, chaotic crisis for a show that, until recently, was the model of consistency. From the moment of his announcement, Richards was a deflating choice. His status as the show’s executive producer lent the sense that the months of host auditions had been rigged in his favor from the start.

There’s always been a lot to learn from watching Jeopardy! Executive employment law can now be added to the list.

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When it Comes to Lawyers and Allegiances, Execs Should Look Out for No. 1

Posted on June 15, 2021 by Joe Ahmad

Embattled former Theranos CEO Elizabeth Holmes learned an inconvenient truth when it comes to allegiances between outside law firms, their corporate clients and individuals on the executive team.

In pretrial wrangling before the August 31 start of her federal criminal fraud trial, Holmes found herself without attorney-client privilege related to years of discussions she had with what she considered to be her legal team. U.S. Magistrate Judge Nathanael M. Cousins had a different opinion about the relationship.

Writes Law360:

Holmes argued in her briefs that the law firm began jointly representing her and Theranos in 2011 in an intellectual property dispute. She said that over time their relationship “grew organically,” with Boies and his firm jointly advising Holmes and the company on a variety of topics through 2016, including in her interactions with the media and the U.S. Centers for Medicare & Medicaid Services.

But U.S. Magistrate Judge Nathanael M. Cousins ruled last week that the communications are subject only to corporate privilege and that the former CEO had not shown that she made it clear to Boies Schiller attorneys that she was seeking legal advice in her personal capacity and not just as a company executive.

This is an important lesson that execs should take to heart – your company’s lawyers do not represent you, even when your interests are aligned. It can be confusing when the executive is friends with the lawyer, whether it’s outside counsel or an in-house counsel. The personal relationship has the effect of blurring the lines between company and executive in the executive’s mind. Oftentimes, the executive feels like the lawyer is their personal lawyer.

I often get a phone call when an executive has an ah-ha moment like this or when the company’s lawyer advises them to obtain their own counsel. It can be a difficult concept to grasp when you think that your interests are aligned, but at the end of the day, a personal lawyer has a duty to look after your interests and only your interests.

In Holmes’ case, there was some confusion about the scope of the law firm’s role because the relationship grew as the startup expanded. There was no engagement letter spelling out the scope of the law firm’s role. While lawyers should always make their representation crystal clear, it’s never too soon for an executive to understand that lawyers paid by the company typically represent the company. That means you don’t have personal privilege. And if there is no engagement agreement, you should assume that the lawyer represents the company and not you.

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Former MLB Pitcher Claims Astros Stole More than Hand Signals in Runup to 2017 World Series

Posted on May 20, 2021 by Joe Ahmad

Former MLB pitcher Mike Bolsinger has come up with a novel legal strategy as he (literally) relitigates his shoddy third-of-an-inning performance against the Astros in their runup to the 2017 World Series.

The journeyman pitcher gave up four runs and four walks in his ill-fated appearance in a series marred by revelations that the Astros employed an elaborate sign-stealing operation in an attempt to give their offense an upper hand.

Writes the Houston Chronicle:

Continuing to maintain that the Astros’ 2017 sign stealing cost him a job in the major leagues, former Toronto Blue Jays pitcher Mike Bolsinger refiled his lawsuit against the team in Harris County District Court on Thursday afternoon.

Bolsinger, who hasn’t pitched in the majors since allowing four runs and four walks in a third of an inning against the Astros on Aug. 4, 2017, contends his signs were trade secrets under Texas’ Uniform Trade Secrets Act. He is seeking more than $1 million in damages.

The details of the Astros’ scheme are well-known by now. Spies in the outfield used a high-powered camera to intercept hand signals to the opposing team’s pitchers. Astros batters were then alerted about the likely pitch that was on the way by banging on a metal trash can.

“The owners of these trade secrets had taken the reasonable measures customary in the baseball industry to keep the signs secret,” Bolsinger’s suit reads. “Moreover, the signs derived independent economic value, actual or potential, from not generally being known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”  But this seems to gloss over the question of whose “trade secret” it is – and that is assuming it meets the legal definition of trade secret under the law.  

I touched on some of the lawsuit’s weaknesses in a recent Law360 article:

While TUTSA broadly defines who qualifies as a trade secret owner, Joe Ahmad of Ahmad Zavitsanos Anaipakos Alavi & Mensing PC, told Law360 on Friday that he believes there’s a “real issue as to whether he has any ownership interest at all in the signs.”

“They belong to his team, and I don’t know that he can claim an interest in them,” he said.

But Bolsinger’s problems don’t stop there. He will have a difficult time proving that his pitching would have been more effective without the Astros’ sneaky measures. While courts have emphasized “a flexible and imaginative approach to the problem of damages,” to quote an often-cited passage from University Computing v. Lykes-Youngstown Corp., 504 F.2d 518, 538 (5th Cir. 1974), Bolsinger will still have to prove a connection between the harm he is claiming – damage to his MLB career – and the taking of the trade secrets.  A judge or jurors might be skeptical that his MLB career was derailed by that one brief outing. Bolsinger has reportedly performed well in the minor leagues and in Japan. Professional baseball is a sophisticated free market for talent. If just one team thinks he has the stuff, he will be called back.  And if he is right, it would seem that at least one team would recognize this and overlook that outing. 

Supreme Court Justice John Roberts famously claimed that a judge’s role is focused on calling balls and strikes. Bolsinger may want to think twice about his chances with this one.

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As Gov. Cuomo Keeps Grip on Power, His Baggage Would be a C-Suites Career-Ender

Posted on March 24, 2021 by Joe Ahmad

New York Gov. Andrew Cuomo is hanging on as accusations of sexual harassment, inappropriate relationships and workplace hostilities pile up. The revelations are coming so fast that they’re hard to keep straight. Multiple women, including current and former aides, have detailed a list of inappropriate behavior. A broader narrative has also emerged about the sharp elbows, bullying and ruthless political tactics he has employed in his rise to power. Finally, he’s under FBI scrutiny over the way his administration reported Covid-19 deaths in nursing homes.

He’s lost key support from New York lawmakers, as well as senators like Chuck Schumer Kirsten Gillibrand and Jerry Nadler. But with his reelection some time away, many observers say he’ll likely stick it out.

Uncomfortable relationships with subordinates. Leadership marked by bullying and hostility. The accusations have a familiar ring in the halls of corporate America, but there’s a striking difference lately in the way they’re handled. A generation ago, executives and politicians alike usually skated when claims of sexual harassment and worse surfaced. That has changed in board rooms, at least.

Corporate boards today show very little tolerance for such behavior. Perhaps the most recent example is that of former McDonald’s CEO Steve Easterbrook, who was unceremoniously cut loose shortly after he was hired over allegations that he covered up inappropriate relationships with three subordinates. He is now in a legal tangle with McDonald’s over his $57 million severance compensation. The Wall Street Journal reports that corporations are increasingly withholding executive pay longer, hoping to avoid the hassle of recouping money if execs are later found responsible for misconduct.

But Cuomo doesn’t have to answer to a board, and it doesn’t matter that most of his fellow politicians – even those among his party – don’t really like him. Ultimately, he only has to answer to voters.

A business, meanwhile, has to be concerned with goodwill.  Behavior like this by leaders – combined with a leadership style described by The Nation as “petty, controlling and grandiose” – is very harmful to business. 

Governments generally are not concerned about goodwill, so paradoxically politicians are not accountable, except for elections. But elections only go so far. If you have 51 percent support of voters, but the remaining 49 percent strongly disapprove, that is usually good enough. That doesn’t fly in the business world. A business – especially those that are publicly traded – simply can’t tolerate a 49 percent loss in business or impairment to its goodwill. Realistically, if this were a public company CEO, he would have already been shown the door. 

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Tracking the Impact of the Defend Trade Secrets Act After Five Years 

Posted on March 16, 2021 by Joe Ahmad

The now five-year-old Defend Trade Secrets Act has had a big impact, I reported in a Texas Lawyer commentary “Tracking the Impact of the Defend Trade Secrets Act After Five Years.” 

 

“Trade secret filings were on the rise even before the DTSA and have only increased since. Texas is no exception: three judicial districts in Texas—the Eastern, Northern and Southern Districts—were among the top five in the United States for trade secret litigation filings, according to an analysis by the global advisory firm Stout. Meanwhile, workplace trends affected by the pandemic shutdown are expected to keep trade secret litigation dockets busy going forward,” I wrote. 

 

Because the notion lifetime employment is now a thing of the past, and workers increasingly view themselves as free agents with loyalty first and foremost to themselves, an increase in these kinds of cases was coming even before the new law. The COVID-19 shutdown magnified this trend.  

 

President Joe Biden favors limiting the use of covenants not to compete by businesses that use these agreements as a blunt tool for protecting proprietary confidential information and several states have limited the ability to enforce noncompete agreements. If this happens on a national level too, I expect businesses will turn to trade secret theft litigation even more to protect confidential information.  

 

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Former Astros GM Demands Trial Over his Sign-Stealing Termination, but Quiet Arbitration Settlement May be Unavoidable

Posted on November 17, 2020 by Joe Ahmad

Former Astros general manager Jeff Luhnow is not fading quietly into the footnotes of baseball’s hall of shame. Still unemployed after his termination by the Astros following Major League Baseball’s investigation of the dark arts employed during the team’s World Series-winning season, Luhnow is seeking to air out the circumstances of his termination in a lawsuit filed earlier this week.

The lawsuit charges that the Astros violated the terms of Luhnow’s employment contract and unfairly made him a scapegoat in an attempt to close the books on the sign-stealing scandal and limit lasting damage to the team. Among other things, Luhnow argues he was fired without cause following a “deeply flawed” MLB investigation. Luhnow claims he had no knowledge of the sign-stealing operation, and none of his actions amount to a firing offense as outlined in his contract. The lawsuit seeks the $22 million balance of $31 million in compensation described in the contract he signed in May 2018, along with performance bonuses, profit-sharing interests, legal fees and court costs.

If the facts as alleged are true, Luhnow makes a compelling argument, but his chances for success hinge on the wording of his contract and how the contract language defines firing offenses. So far, the contract has been referenced in the complaint but has not been included in its entirety in the court file.

We’re able to see Luhnow’s allegations thanks to the lawsuit filed in Harris County district court, but the dispute is not likely to stay in the public venue for long. Like most executive employment contracts – especially those involving athletes and entertainers – Luhnow’s contract includes an arbitration clause. In this case, the contract allows MLB Commissioner Rob Manfred to select an arbitrator of his choice to resolve any any dispute behind closed doors.

It’s very difficult to get out of such arbitration provisions, but his legal team has done a good job of alleging potential bias. The lawsuit charges that Luhnow’s unfair punishment and termination were worked out between the team and MLB, so allowing Manfred to select the arbitrator would not result in a fair proceeding. 

“The commissioner vetted potential penalties with [Astros owner Jim Crane], and the two exchanged a series of proposals,” the suit reads. “Those negotiations proved beneficial to Crane and the Astros.

“The commissioner allowed the Astros to keep their 2017 World Series championship, imposed a $5 million fine (a fraction of the revenues Crane had reaped as part of the team’s recent success), and took away four draft picks. He also issued a blanket vindication of Crane, absolving him of any responsibility for failing to supervise his club.

Perhaps Luhlow sees value in the opportunity to rehabilitate his reputation by stating his case in a public filing for all to see, even if those claims are destined for arbitration. At best, it seems that a neutral arbitrator will be chosen, and the case will proceed through arbitration out of the public eye. The likely outcome is a quiet settlement.

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Winning in Litigation Starts with Recognizing what Success Looks Like

Posted on August 24, 2020 by Joe Ahmad

I’ve learned over time that sometimes clients have a different version “winning” in litigation than their lawyer. Trial lawyers tend to be consumed with keeping score on issues that don’t matter much to clients. Legal disputes and conflict have a way of sucking up all the oxygen in someone’s life, and it’s not uncommon for those who endure bitter and drawn out litigation to feel unsatisfied when it’s over – even when they have “won.”

I was reminded of that by a thoughtful essay published by my client Ned Scherer reflecting on the conclusion of a drawn-out dispute he’d had with his longtime friend and business partner. The conflict churned through the courts for many, many years and ended recently with the two former friends-turned-adversaries each working to bury the hatchet.

He writes: 

You learn a lot as you get older. Perhaps the saying “youth is wasted on the young” is true. The most important thing I’ve learned is forgiveness. I sometimes fall short of my expectations but have found that holding on to negative thoughts is the ultimate albatross. 
  
I had a serious falling out with my lifelong best friend and business partner about nine years ago. To this day the loss of his friendship and that of his family is a constant reminder of how hubris can destroy the things we treasure most. I wish the Ned Scherer of 2011 had the wisdom and perspective of the Ned Scherer today. The animus we displayed towards each other could easily have been avoided. 
  
I am grateful we have reconciled, at least on a professional level. After a protracted “stalemate” he wrote the attached recommendation. It took courage on his part. When you identify so closely with your career and in an instant it is over, you begin to question everything. The loss for me was overwhelming. 
  
I share this in the hope others in a similar position don’t act as capriciously as I did. At the end of the day life is about family and friends. I lost sight of that. 
  
I don’t know what the future holds for our relationship but I guaranty you, litigation isn’t always the answer. #forgiveness #friendship

Indeed. And that’s why being a truly great trial lawyer is so difficult and rare. There’s a time and place for the civil justice system in resolving intractable disputes, but as trial lawyers it’s important for us to remember that our toolbox contains more than a hammer because not all problems look like nails, and we have to have the vision to see the whole range of these problems and be able to think creatively to solve them in a way that is truly a win from the client’s perspective. 

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Executives Cash in as Companies March Toward Bankruptcy 

Posted on August 6, 2020 by Joe Ahmad

Neiman Marcus is the latest company to raise eyebrows with a generous performance- and retention-based compensation plan for a group of executives at a time when the company itself is fighting for survival. 

 

In July, investors, furloughed employees and bankruptcy trustee Henry Hobbs howled at the prospect of a $10 million compensation package for the high-end retailer’s CEO and a group of executives while stores are shuttered and the company’s future is uncertain. Hobbs argued that the proposed performance goals should represent “challenging incentive-based benchmarks,” while retention pay should be reserved only for employees that have documented job offers in hand. 

 

There’s an opportunity for debate when these packages are filed during bankruptcy proceedings, which is more than can be said for many other companies that are choosing instead to fudge their way around post-Enron era reforms meant to provide more transparency in executive compensation. 

 

The collapse of Enron shined a light on questionable executive compensation practices. In its wake, laws were changed to provide for court scrutiny of bonuses awarded during bankruptcy and limit a business’s ability to rubber stamp executive compensation. So-called retention pay – which is sometimes quite necessary to keep key employees during difficult times – now requires that companies show evidence that an employee has a bona fide job offer in hand before receiving retention pay.  

 

But of course, the law has loopholes that allow some to game the system. First, companies may claim the compensation is being rewarded for performance rather than for retention while setting performance goals that are easy to achieve. This effectively takes an end run around the requirement of showing another job offer.   

 

Some companies avoid court accountability altogether by making these payments before filing bankruptcy. The recent hall of shame in this area includes Whiting Petroleum, which awarded $14.6 million in cash bonuses to its executives days before filing for bankruptcy. The board claimed that cash bonuses were appropriate because the fall in the price of oil following the pandemic shutdown made it “virtually impossible” to meet pre-pandemic performance goals. Chesapeake Energy and Hertz also paid such bonuses to execs before entering bankruptcy court.  

 

The problem with performance pay is that it’s only fair if it cuts both ways. Executives are happy to reap enormous windfalls via stock-based compensation when a company’s stock is doing well – even if their leadership played no role in the stock’s rise. But when companies are teetering toward bankruptcy, executives see their equity-based compensation rendered worthless. If executives are rewarded for performance even when a company is going down the tubes, it creates a heads–I–win, tails–you–lose impression for the rest of us. Parties sometimes sue in an attempt to claw back the executive pay, but that’s rarely a satisfactory remedy. By effectively asking for forgiveness rather than permission, there’s few repercussions for a company beyond the negative hit in the court of public opinion. 

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