Before the Honeymoon is Over: Thinking Strategically When Hiring Employees

R.S. Ghio

BEFORE THE HONEYMOON IS OVER: THINKING STRATEGICALLY WHEN HIRING EMPLOYEES

2003 Employment Law Workshop Series
November 5, 2003

R.S. “ROB” GHIO
LAW OFFICE OF R.S. GHIO
THE CURTIS BUILDING
318 WEST MAIN STREET, SUITE 100
ARLINGTON, TEXAS 76010
METRO (817) 543-2557
FACSIMILE (817) 277-2557

©2003 LAW OFFICE OF R.S. GHIO

BACKGROUND CHECKS—WHEN TO PERFORM THEM AND WHY

I. NEGLIGENCE: AN OVERVIEW

A. Elements (Mission Petroleum Carrier, Inc. v. Solomon, 106 S.W.3d 705, 710 (Tex. 2003)).

1. Employer owes a duty to plaintiff;

2. Employer breached its duty;

3. The breach proximately caused injury to the plaintiff; and

4. Damages resulted from the breach.

B. Creating a duty.

1. When considering whether to impose a “new” common law duty, the courts employ a “risk/utility” analysis.

2. Factors include “the risk, foreseeability, and likelihood of injury weighed against the social utility, and the consequences of placing the burden on the defendant.” Id.

3. The most important factor is foreseeability. A plaintiff need only show that the “general danger, not the exact sequence of events that produced the harm, be foreseeable.” Frith v. Fairview Baptist Church, 2002 Tex. App. LEXIS 5064, *7 (Tex.App.—Dallas 2002, pet denied) (unpublished).

II. DUTIES OF CARE: WHAT DO YOU OWE, AND TO WHOM?

A. “Texas courts hold an employer directly liable only when the employer places its employee in a situation that forseeably creates a peculiar risk of harm to others because of the employee’s particular duties.” Capece v. NaviSite, Inc., 2002 Tex. App. LEXIS 8775, *16 (Tex. App.—Austin 2002. no pet.) (unpublished) (emphasis in original). “Others” can include other employees as well as the general public.

C. Special duties may arise where the employee will have “potential contact with particularly vulnerable individuals.” Wise v. Complete Staffing Serv’s, 56 S.W.3d 900, 904 (Tex.App.—Texarkana 2001, no pet.). Examples:

1. Scoutmasters. Golden Spread Council of Boy Scouts v. Akins, 926 S.W.2d 287 (Tex. 1996).

2. In-home salesmen. Scott Fetzer Co. v. Read, 945 S.W.2d 854, 866 (Tex. App.—Austin 1997) aff’d 990 S.W.2d 732 (Tex. 1998).

4. Drug counselors. Porter v. Nemir, 900 S.W.2d 376 (Tex. App.—Austin 1997, no writ).

5. Educators. Doe v. Boys Clubs of Greater Dallas, Inc., 868 S.W.2d 942 (Tex. App.—Amarillo 1994) aff’d 907 S.W.2d 472 (Tex. 1995).

6. Nursing home employees. Deerings W. Nursing Ctr. v. Scott, 787 S.W. 2d 494, 495 (Tex. App.—El Paso 1990, writ denied).

D. Also concerned with the nature of the job itself, not just the vulnerability of other parties. “An employer owes a duty to its other employees and to the general public to ascertain the qualifications and competence of the employees it hires, especially when the employees are engaged in occupations that require skill or experience and that could be hazardous to the safety of others.” Wise, 56 S.W.3d at 902.

1. Examples: Heavy machinery, operation of vehicles

E. As discussed below, the law doesn’t require that the employers screen out “bad” employees generally. The duty arises only with respect to incompetence or unfitness that is job-related.

III. NEGLIGENT HIRING

A. Elements. Wal-Mart Stores, Inc. v. Aguilera-Sanchez, 2003 Tex. App. LEXIS 4846, *16 (Tex.App.—San Antonio 2003, no pet.).

1. Employer owed the plaintiff a legal duty to hire, supervise, train, or retain competent employees;

2. The employer breached that duty; and

3. The breach proximately caused the plaintiff’s injury.

B. Requires a showing of an actionable tort committed by the employee. Id. This “tort” may be a statutory violation, such as sex discrimination or sexual harassment. Centennial Ins. Co. v. Bailey, 2000 Tex.App. LEXIS 6854, *17-18 (Tex.App.—Dallas 2000, no pet.).

C. Central issue in these cases is background checks.

1. Jackson v. CT Corporation Sys. d/b/a Albertson’s, 2000 Tex. App. LEXIS 4899 (Tex. App.—Austin 2000, pet. denied) (unpublished)

a. Off-duty police officer working as a security guard at Albertson’s sprayed plaintiffs with pepper spray when he thought they were shoplifting.

b. Albertson’s claimed that it was not negligent in its hiring because the employee was a DPS trooper and therefore had undergone extensive background checks and interviews with DPS. Albertson’s performed a pre-hire drug screen.

c. “One factor to be examined in determining whether the employer was negligent is whether the employer inquired into the employee’s background before hiring him.” Id. at *17 (citing King v. Associates Commercial Corp., 744 S.W. 2d 209, 213 (Tex.App.—Texarkana 1987, writ denied)).

d. If a background check is performed, then the question is whether the inquiry was sufficient to constitute due care. Id

2. Wise v. Complete Staffing Serv’s, 56 S.W.3d 900, 904 (Tex.App.—Texarkana 2001, no pet.).

a. Staffing service hired employee who was assigned to work at Mrs. Baird’s bakery. The temporary employee assaulted a regular employee, who sued the staffing service for negligent hiring in failing to sufficiently investigate the temp’s criminal background.

b. The temp service had promised Mrs. Baird’s that they had done a thorough background check on the temp, who had lived in Houston. But they only ran the check in one county, when Houston is in two, and as a result they missed some criminal history.

c. Court holds that there was no violation of the employer’s duty because “the incompetency must be job-related,” and “Turner did not injure Wise as a result of his incompetence or unfitness for the job, but by an intervening criminal act. Under this analysis, Mrs. Baird’s had no duty to check the criminal histories of its employees unless it was directly related to the duties of the job at hand.” Id. at 903.

d. The Court rejected any notion that there is a requirement that employers perform an “unlimited background check of all employees.” Id. at 905.

4. Morris v. JTM Materials, Inc., 78 S.W. 3d 28 (Tex. App.—Fort Worth 2002, no pet.).

a. Subcontracted company’s driver was intoxicated and became involved in a motor vehicle accident. Victim sued for negligent hiring.

b. Employer claimed that it had complied with statutory and industry safety guidelines by obtaining a criminal background check for the past 3 years, which showed no accidents or convictions. It is unclear from the decision whether this background check actually was performed.

c. The employer did not obtain a driver’s report from the DPS. However, the employee stated on his application that he had been involved in a fatality accident three years earlier, had received a speeding ticket earlier that year, and had had his driving privileges revoked for driving without proof of insurance.

d. DPS report likely would have shown that previous to the three year window the employee had five tickets for driving without insurance, another noninjury accident, a drunk driving conviction, three years as a guest of the state for possession of methamphetamines (12 years earlier), and had plea bargained down another drunk driving charge two years before, getting deferred adjudication.

e. “Compliance with industry and statutory standards is evidence of the use of reasonable care, but it is not dispositive of that issue.” Id. at 50

f. Failure to get criminal background check or DPS report “raises a fact issue concerning whether JTM exercised reasonable care in qualifying him as a driver.” Id. at 53.

X. PRACTICE TIPS

A. Analyze the positions held by your employees to carefully consider whether a criminal background check or driving history should be obtained, based on access to vulnerable persons and the hazardous nature of the job.

B. Err on the side of performing the checks. There is no “negligent investigation” cause of action in Texas for employees.

B. When you obtain background checks, make sure you understand how the checks will be performed and what information is going to be reported to you.

C. Adopt procedures to ensure strict compliance with the federal Fair Credit Reporting Act (FCRA).

Non-Competes, Trade Secrets, and Employee Raiding:

What Can You Do to Protect Yourself?

I. TRUE OR FALSE?

A. Employees owe no duty of loyalty to their employer.

B. Any non-competition agreement is unenforceable if the employee is an at-will employee.

C. An employer must have a non-disclosure agreement in place in order to protect its trade secrets.

D. Information is not a trade secret if it can be obtained through independent investigation.

E. If a former employee doesn’t have a non-compete, he can work for whomever he wants.

II. DUTIES: FIDUCIARY, LOYALTY, AND ORDINARY CARE

A. What is a fiduciary duty?

B. Not generally created in an employer-employee relationship

1. Imposed by courts on some relationships because of their special nature.

2. “[G]enerally speaking, it applies to any person who occupies a position of peculiar confidence towards another. It refers to integrity and fidelity. It contemplates fair dealing and good faith, rather than legal obligation, as the basis of the transaction.” Johnson v. Brewer & Pritchard, P.C., 73 S.W.2d 193, 199 (Tex. 2002).

3. Also imposed in agency relationships.

4. “However, courts have been and should be careful in defining the scope of the fiduciary obligations an employee owes when acting as the employer’s agent in the pursuit of business opportunities.” Id. at 201.

5. Generally look to whether the employee is diverting the opportunity for his own pecuniary gain.

6. Texas courts have held that an employee “does not owe an absolute duty of loyalty to his or her employer.” Id.

a. OK to look for other employment

b. OK to keep future business plans secret

7. Contractual relationships do not necessarily lead to fiduciary duties. Id. at 203.

8. Nevertheless, there are specific obligations placed on employees. An employee “may not appropriate his employer’s trade secrets. . . .He may not solicit his employer’s customers while still working for his employer. . . .and he may not carry away certain information, such as lists of customers. . . .Of course, such a person may not act for his future interests at the expense of his employer by using the employer’s funds or employees for personal gain or by a course of conduct designed to hurt the employer.” Id. at 202.

C. What about duties owed by the employer?

1. Texas courts are very hesitant to impose non-statutory duties upon employers

2. The employer does not owe a duty of good faith and fair dealing to the employee. City of Midland v. O’Bryant, 18 S.W.3d 209, 216 (Tex. 2000).

3. No fiduciary relationship is created by the employee having a long-term employment relationship with the employer. Kardell v. Union Bankers Ins. Co., 2002 Tex. App. LEXIS 5760 at *22 (Tex.App.—Dallas, 2002) (unpublished decision).

4. In addition, there is no duty of ordinary care in investigating alleged wrongdoing by an employee. Texas Farm Bureau Mut. Ins. Co. v. Sears, 84 S.W.3d 604 (Tex. 2002).

5. “By definition, the employment-at-will doctrine does not require an employer to be reasonable, or even careful, in making its termination decisions. If the at-will doctrine allows an employer to discharge an employee for bad reasons without liability, surely an employer should not incur liability when its reasons for discharge are carelessly formed.” Id. at 609.

III. NON-COMPETITION AGREEMENTS

A. The statute: Texas Business and Commerce Code §15.50 et seq.

1. “A covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promise.”

B. “Otherwise enforceable agreement”

1. Means that the covenant is supported by “non-illusory” consideration.

2. Consideration in an at-will relationship is illusory if it is contingent upon continued employment.

C. “Ancillary to…”

1. Currently, the focal point of most non-compete litigation

2. Means that:

a. The consideration given by the employer in the otherwise enforceable agreement must give rise to the employer’s interest in restraining the employee from competing, and

b. The covenant must be designed to enforce the employee’s consideration or return promise in the otherwise enforceable agreement. Rako v. Tifco Indus., Inc. 2002 Tex. App. LEXIS 5114 at * 6-7 (Tex.App.—Houston [14th Dist.], 2002) (unpublished decision).

3. The only such consideration recognized by the courts has been an enforceable agreement to provide confidential/trade secret information or specialized training

4. One important consideration, particularly where the non-compete is entered into after employment has begun is whether any new trade secrets actually were disclosed.

5. The promise to disclose trade secrets must be enforceable at the time it is made. Anderson Chem. Co., Inc. v. Green, 66 S.W.3d 434, 438 (Tex.App.—Amarillo, 2001).

D. Suing “around” a non-compete

1. Theft/conversion of trade secrets (Common law or contractual—see below).

2. Non-solicitation agreements

a. Arguably enforceable without a non-competition agreement

b. With respect to soliciting employees, non-solicitation agreements generally are enforceable, but “no hire” clauses may be an impermissible restraint of trade.

3. “Inevitable disclosure” doctrine. Courts may presume that if a person leaves one employer to go to work in virtually the same capacity for a competitor, it is inevitable that the person will disclose his first employer’s trade secrets. Some employers now incorporate an “admission” of inevitable disclosure in their employment agreements.

IV. TRADE SECRETS

A. What are they?

1. Includes “compilations of information that have a substantial element of secrecy and provide the employer with an opportunity for advantage over competitors.Anderson, 66 S.W.3d at 442 (emphasis added).

2. Examples:

a. Pricing information

b. Customer lists

c. Client information

d. Customer preferences

e. Buyer contacts

f. Market strategies

3. Does not have to be a document. Protectable even if it is only recorded in the employee’s head.

4. There should be some evidence that the employer took steps to keep the information secret (limited access to lists; password protection on computers; entering into nondisclosure agreements).

B. What if a person can get the same information out of the yellow pages?

1. A common misunderstanding about trade secrets law. A trade secret gains its protection both because of the nature of the information and the manner in which it was obtained.

2. “Business information can be confidential, even if it can be obtained by observation, experimentation, inspection, analysis or general inquiry…if the competitor gains it through a breach of confidence without the efforts of observation, experimentation, inspection, analysis or general inquiry.” Flake v. EGL Eagle Global Logistics, 2002 Tex. App. LEXIS 6593 at *10 (Tex.App.—Houston [14th Dist.], 2002) (unpublished decision).

C. What if the non-disclosure agreement does not have reasonable restrictions as to time, geography, or scope of activity?

1. Non-disclosure agreements are not subject to the Business and Commerce Code.

D. What if the employee did not sign a non-disclosure agreement?

1. There is a common-law duty of an employee not to use confidential or proprietary information obtained during the employment relationship in a manner that adversely affects the employer, and that duty survives termination of employment.

V. PRACTICE TIPS

A. Evaluate the job the employee will perform to determine if the employee will pose a risk to you when he or she leaves. Consider:

1. Access to confidential/proprietary information

2. Personal relationships with customers/vendors

3. Costs associated with establishing a competing business

4. Role in hiring staff and nature of relationship with staff.

B. Enter into restrictive covenants with appropriate employees at the time of hire.

C. Make sure that restrictive covenants are supported by actual consideration, not just boilerplate recitations.

D. Take appropriate and demonstrable steps to protect your confidential information.

1. Limited distribution

2. Password protection

3. Hard copies under lock and key

E. Implement, post, and distribute policies regarding confidential information.


Physical and Religious Accommodations

and the Hiring Process

I. Disabled Applicants

A. Providing accommodations in the hiring process.

1. The duty to accommodate disabled individuals begins the moment you begin accepting applicants for employment.

2. According to current enforcement guidance from the EEOC, you can inform applicants of what the hiring process involves (for example, interviews, testing, job demonstrations, etc.) and may ask whether the applicant will require any accommodation for that process.

3. The EEOC provides conflicting guidance on whether the request for accommodation may indicate an inability to perform the essential functions of the job.

a. If the individual does not meet the initial requirements for the job, that person may be excluded from the application process.

b. However, you cannot speculate, based upon a request for reasonable accommodation for the application process, that the applicant will be unable to provide the individual with reasonable accommodation to perform the job.

c. Therefore, the EEOC recommends that employers assess separately the need for accommodation in the application process and the need for accommodation in performing the essential functions of the job.

B. What can you ask or not ask during the interview and hiring process?

1. You are not permitted to ask disability-related questions prior to giving the employee a conditional job offer.

2. However, you may ask the applicant if he or she can perform the essential functions of the job with or without reasonable accommodation.

3. You can only ask about specific accommodations if:

a. The applicant voluntarily discloses the existence of a disability that may require an accommodation; or

b. Such a disability is obvious to the employer.

4. Your task as an employer is to facilitate early, open dialogue without violating the Americans with Disabilities Act.

a. Generic questions on job applications are nearly useless. Little if any useful information is obtained. The applicant may not know what all of the job requirements are.

b. Consider providing job descriptions to applicants, listing the essential functions of the job (reserving, of course, the right to modify the job at a later date). When you have provided specific duties for the applicant to consider, the applicant is more likely to volunteer information regarding his limitations or to raise the issue of accommodation.

C. What to do if an accommodation is requested.

1. How do you know an accommodation has been requested?

a. No magic words need to be used by the employee.

b. Do not have to be in writing, but you should confirm the request in writing.

2. What is your duty to accommodate?

a. You only need to provide reasonable accommodations that do not create an undue hardship. In the case of the ADA, that means a “significant disability or expense.”

b. Consideration of accommodations should be an interactive process between you, the employee, and (where appropriate) the employee’s physician.

i. You may request reasonable documentation of the employee’s limitations.

ii. If you request documentation, provide a job description to the doctor, identifying the essential functions of the job.

iii. Be imaginative in considering your options.

3. Do you have to accept the accommodation proposed by the employee?

a. The EEOC and the courts have acknowledged that disabled employees are not entitled to dictate the nature of the accommodation.

b. So long as the accommodation you offer is reasonable and provides the employee the opportunity to perform the job, it is acceptable.

II. Religious accommodation

A. Religious accommodation/discrimination claims are on the rise

1. 24% increase in such claims over the last five years.

2. According to a national survey by the Tannenbaum Center, 66% of workers report either experiencing or witnessing some form of religious discrimination.

3. CAIR (Council on American-Islamic Relations) reports that 37% of the religious bias claims reported to them by Muslim Americans is the failure to offer accommodation.

B. What types of religious accommodations are commonly requested?

1. Decorating office space for religious holidays (55%)

2. Flexible scheduling for religious observances (36%)

3. Consideration of religious needs when providing food for employees (28%)

C. What types of religious accommodations are commonly provided?

1. Decoration of office space for religious holidays (95%)

2. Display of religious materials in the workplace (75%)

3. Ensuring that decorations accommodate the interests of a diverse workforce (68%)

4. Flexible scheduling for religious observances (67%)

D. What can and can’t you ask in the hiring process?

1. Rules are similar to those under the ADA. Your only inquiry should be whether the person can perform the essential functions of the job.

2. However, as is true with the ADA, some ways of asking the question are better than others.

3. Inform applicants of the job schedule up front, and inquire whether there is any reason that the person cannot work the assigned schedule.

4. Questions about other accommodations—food, displays in workplace—typically are not related to the ability to perform the job, and therefore should not be asked in the hiring process.

5. After making an offer of employment, be sure to review the Company’s policies regarding dress codes, scheduling of vacations, exchange of holidays, displays of personal items, etc., so that the new employee has the opportunity to raise potential problems or issues.

E. What is your duty to accommodate?

1. Where a person has a bona fide religious belief that conflicts with an employment requirement, an employer may be required to perform one of two types of accommodation:

a. Accommodating in the current position by changing work conditions; or

b. Offering transfer to a reasonably comparable position where conflicts are less likely to arise.

D. In cases of religious accommodation, what is an “undue hardship?”

1. Different standard than under the ADA.

2. Undue hardship arises when there is anything more than a de minimus cost to reasonably accommodating the employee’s religious belief.

3. “Cost” can include inconvenience to other employees.

a. Keep in mind that voluntary swaps with other employees are a reasonable accommodation

b. Forcing other employees to swap schedules is not.

E. Considerations in accommodating religious beliefs or practices.

1. Do not get carried away with an examination of the sincerity of the person’s beliefs.

2. Distinguish between voluntary and coercive requirements of other employees.

3. Remember to consider job transfers.

4. Explore reasonable alternatives. In religious discrimination cases in particular, the courts usually decide on the side of the employer who appears to have made a genuine effort.

5. Remember that the law does not require a religion-free workplace. The trick is to identify when religious expression impinges the rights of other employees.

III. Practice tips

A. Ask the questions the law allows and nothing more (or less).

B. Provide applicants with job descriptions and anticipated work schedules, so that when you ask if they can perform the essential functions of the job, they can answer knowledgably.

C. Explicitly state on the application that misrepresentations or material omissions will result in the job not being offered or termination of employment.

D. Be proactive in discussing alternative accommodations.

E. In the case of physical accommodations, involve the health care professional in the discussion, and provide the doctor with an accurate job description.

F. Advise all employees in writing that if, because of a change in duties or schedule or for any other reason, they require an accommodation of their work assignments, duties, or methods, they should advise HR immediately.

Menu Title
×