Forum Selection Clauses and Non-Compete Agreements

Forum Selection Clauses and Non-Compete Agreements

The Issue: You are a California employer with out-of-state headquarters, and your executive works and lives in California.  Your employment agreement has a one-year post-termination non-compete. Can you enforce it?

The Solution: In general, no, but the answer may depend on whether you have a valid forum selection and choice of law clause that provides for resolution in a state that permits reasonable post-termination non-competes.

Analysis: In general, California employers cannot enforce post-termination non-competes and a party cannot circumvent California restrictions on non-competition with a choice of law provision designating a more non-compete friendly jurisdiction.  However, the Supreme Court’s recent decision in Atlantic Marine Construction Co.,
Inc. v. U.S. District Court for the Western District of Texas,
134 S. Ct. 568, 571 U.S. ___ (Dec. 3, 2013) held that contractual forum selection clauses should be enforced in all but the most exceptional cases, and therefore may be helpful to employers who seek to enforce non-competes against employees who work or live in states, like California, that disfavor restrictive covenants.

Indeed, some recent California federal district court cases have focused on whether the employment agreement has an out-of-state forum selection and choice of law clause.  In Meras Engineering, Inc. v CH20, Inc., the Washington-based employer was permitted to enforce its Washington forum selection and choice of law clauses against its California sales associates who left for a California competitor.  The Washington court concluded it was proper to apply Washington law as provided by the employment agreements.  The California court dismissed the California employees’ lawsuit in favor of the Washington forum selection clause.

Similarly, in two other recent California district court cases, Plaintiffs were former California employees who signed employment agreements with restrictive covenants and Pennsylvania forum selection clauses.  In both cases, the employees argued the cases should not be transferred because the more restrictive covenant friendly Pennsylvania courts would enforce the non-compete, which contravenes a strong California public policy.  Both California courts however, focused on the reasonableness of the forum selection clause, rather than on the clauses’ effect.  Both found that the possibility a Pennsylvania court might apply Pennsylvania law to the non-compete clause was not a sufficient basis to invalidate the forum selection clause.

In light of these recent cases, California employers should consider whether they have a reasonable and enforceable basis for selecting an alternative forum and choice of law for their executive agreements, and, in consultation with
counsel, draft carefully tailored restrictive covenants that comply with that state’s law.

Webinar – Church Plan Update: It’s a Changing World -What Church Plan Sponsors Need to Know

On Monday, February 24, 2014, the Drinker Biddle Employee Benefits & Executive Compensation Team will present a free one hour webinar on hot topics that church plan sponsors should be considering for 2014.  The webinar will be led by Chicago partners David L. Wolfe and Mark E. Furlane.  Some of the topics to be covered during the webinar include:

  • An update on church plan litigation, including the recent ruling against Dignity Health and what this means for your church plan;
  • How church plan sponsors can best position themselves to defend against such an attack;
  • What church plan sponsors need to know about maintaining their church plan status in 2014;
  • Pros and cons for various employee benefit plans.

To register click the RSVP button:

Date: Monday, February 24, 2014
Time: 1:30 – 2:30 pm central

David L. Wolfe
David is a partner and member of the Employee Benefits & Executive Compensation Practice Group.  He represents clients in a full spectrum of industries with an emphasis on tax-exempt organizations.  He is a co-founder and member of the Steering Committee for the development and continuing sponsorship of the HR/Hospital Advisory Board (co-sponsored by Deloitte) for senior HR executives in tax-exempt health care systems.

Mark E. Furlane
Mark is a partner in the Labor & Employment Practice Group. Before joining the firm in 1979, Mark spent nearly five years as a lawyer for the U.S. Marine Corps where he gained extensive trial experience.  In Mark’s 30 years of private practice, he has represented employers in nearly all labor and employment issues confronting today’s employer.  He focuses his practice on employment law, with an emphasis on employment, benefits and fiduciary litigation and employment counseling.

See LaborSphere’s prior coverage of recent church plan litigation here.

Special Rules Apply To Documents With Employee Protected Health Information

Editor’s Note: The following post by Heather Abrigo, Counsel in the Los Angeles office, appears in the latest issue of the California HR Newsletter.

Special Rules Apply To Documents With Employee Protected Health Information

The Issue: Must an employer safeguard documents containing employee protected health information (PHI) in any special way?

The Solution: Yes.  An employer must adopt privacy policies or procedures related to employee PHI.  These policies should include controls over who has access to the documents (physically and electronically).

Analysis: Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), employers must prevent the unauthorized disclosure of protected health information (PHI).  This will primarily affect those employers that sponsor self-insured health plans, cafeteria plans with a flexible health spending account component, offer on-site health clinics, and/or that offer significant hands-on help to employees in connection with their group health plans (e.g., handling benefit claims).

Employers subject to the HIPAA privacy rules should have written privacy procedures in effect that safeguard all documents with PHI.  This includes the administration of the PHI (e.g., who needs access to such information to administer the health plan, entering into business associate agreements with any third-parties who might handle, and training employees who may handle, PHI as part of their duties).  The written privacy procedures should also address other safeguards of PHI (whether in paper or electronic form) including physical safeguards (e.g., workstation use/security) as well as technical safeguards (e.g., person authentication and transmission security).

If you are unsure whether these rules apply and you sponsor any of the aforementioned plans, please contact your benefits lawyer.

The Scoop on Revenue Sharing

Editor’s Note: The following post by Los Angeles Of Counsel Joe Faucher appears in the latest issue of the California HR Newsletter.

The Scoop on Revenue Sharing

The Issue: What do plan fiduciaries need to know about revenue sharing?

The Solution: Fiduciaries need to understand that revenue sharing is a common practice in the investment industry.  They must be aware if revenue sharing payments are being made and the amount of those payments, determine how those payments are used, and evaluate whether the overall compensation of the party that receives them is reasonable.

Analysis: “Revenue sharing” occurs when an investment company, like a mutual fund company, issues compensation to another service provider – a recordkeeper or a third party administrator.  The payments are typically made in exchange for services that the mutual fund company might otherwise have to provide itself.  Service providers who expect to receive them are obligated to disclose the anticipated payments and how they are calculated to the responsible plan fiduciary.  Fiduciaries need to understand what the service providers who receive revenue sharing do with the money they receive.  In some cases, service providers “offset” or reduce their fees by these payments, or credit the payments back to the accounts of the participants.  Others simply retain the payments.  Since fiduciaries are obligated to know how much compensation their service providers receive, and to determine whether that compensation is reasonable, it is imperative that they understand who is paying revenue sharing, who is receiving it, how much it is being paid and how it is being used.

Cheryl Orr Quoted on Illinois Medical Marijuana Law Story in Chicago Tribune

San Francisco Partner Cheryl Orr was quoted in a recent story in the Chicago Tribune on Illinois medical marijuana law and the legal implications for Illinois employers whose policies are at odds with the law.  Some of the issues Illinois employers will need to confront include reconciling their drug-free work place policies with patients’ rights, what they can ask job applicants, how to deal with an impaired employee and whether or not an employer can punish an employee for engaging in what is now deemed to be a legal activity.

Cheryl submitted that the Illinois statute may offer civil employment protections for workers.  One provision of the Illinois law appears to narrowly tie the ability to discipline a medical marijuana patient for failing a drug test to those employers who are specifically connected to federal work or funding.  This framework, Cheryl wrote, “creates a plausible argument that the statute does provide protections” for medical marijuana users in the private sector.

LaborSphere previously looked at employer liability under the Illinois law, and other states who have laws providing for some form of legalized medical marijuana, and will continue to follow this ever evolving area of law.

Firing Employees Who Don’t Get Flu Shots: What Risks Do Hospitals Face?

As hospitals continue to see an onslaught of flu patients, they also face challenges to flu vaccination policies designed to reduce the spread of flu to patients and fellow employees.  Hospitals are understandably concerned with protecting patients, visitors and employees from contracting the flu and the potentially serious consequences to the health of elderly and infant patients.  However, protecting patients against flu can create legal liability when employees are disciplined, discharged or suffer other adverse action because they do not get a flu shot.

Employment Considerations for Flu Vaccination Policies—The National Labor Relations Act

What limitations exist on a hospital’s ability to create and implement a flu/other vaccination policy?  Under the National Labor Relations Act, a flu vaccination policy is a mandatory subject of bargaining.  This means that unionized hospitals cannot unilaterally implement such a policy without first giving the union notice of the intended policy and bargain over the policy if the union requests to do so.

A hospital does not have to bargain if the union has “clearly and unmistakably” waived its right to bargain over the issue.  A waiver is typically found in the “Management Rights” clause, which was the case in a recent National Labor Relations Board (NLRB; the Board) decision, Virginia Mason Medical Center, 358 NLRB No. 64 (2012), where the Board found a clear and unmistakable waiver in the Management Rights clause.  That clause stated, in relevant part, that the Medical Center has the right to “operate and manage the Hospital, including but not limited to the right to require standards of performance and…to direct the nurses…to determine the materials and equipment to be used; to implement improved operational methods and procedures…to discipline, demote or discharge nurses for just cause…and to promulgate rules, regulations and personnel policies….”

The Union representing the Medical Center’s registered nurses filed an unfair labor practice charge with the Board and a hearing was held before an NLRB Administrative Law Judge (ALJ).  The ALJ ruled, and the Board agreed, that the Management Rights clause did not specifically mention wearing facemasks (which the flu policy required in certain areas for non-immunized nurses), but it did “specifically allow the Hospital to unilaterally ‘direct the nurses’ and ‘determine the materials and equipment to be used’ [as well as] implement improved operational methods and procedure.’”  The ALJ noted that the Hospital had several infection control policies that required nurses to wear masks under various circumstances, and found that requiring non-immunized nurses to wear masks was within the Hospital’s authority to “determine the materials and equipment to be used [and] implement improved operational methods and procedures.”

With properly crafted language in a Management Rights clause or elsewhere in a collective bargaining agreement, a unionized hospital has the right to unilaterally implement a new flu vaccination policy or modify an existing policy.

Employment Considerations for Flu Vaccination Policies—Disability and Religious Discrimination

Hospitals, of course, have reached different decisions on how to balance the interests of patients and employees. As such, policies vary in the flexibility given to employees regarding non-vaccination and the resulting consequences:

    • Vaccination encouraged but not mandated
    • Vaccination mandated with exemptions for medical contraindication, religious beliefs (discipline/other adverse consequences for non-exempted employees)
    • Vaccination mandated and masking required for medical contraindication, religious beliefs (discipline/other adverse consequences for failure to be vaccinated or wear mask, as applicable)
    • Vaccination required (discipline/other adverse consequences for non-compliance)

Flu vaccination policies also differ regarding applicability.  Some policies apply only to employees who come into direct contact with patients.  At the other end of the continuum, the policy applies to all employees, independent contractors, students, interns, vendors and others who provide services inside the hospital.

Union and non-union hospitals should consider the potential for discrimination claims based on a flu vaccination policy that requires any group of employees to get a flu shot or face adverse consequences (such as discharge) if they fail to do so for any reason.  The Equal Employment Opportunity Commission (EEOC) would likely find such a policy to be unlawful.  The EEOC has taken the position in its “Pandemic Preparedness in the Workplace and the Americans with Disabilities Act” guidance that

“[a]n employee may be entitled to an exemption from a mandatory vaccination requirement based on an ADA disability that prevents him from taking the influenza vaccine. This would be a reasonable accommodation barring undue hardship (significant difficulty or expense). Similarly, under Title VII of the Civil Rights Act of 1964, once an employer receives notice that an employee’s sincerely held religious belief, practice, or observance prevents him from taking the influenza vaccine, the employer must provide a reasonable accommodation unless it would pose an undue hardship as defined by Title VII (“more than de minimis cost” to the operation of the employer’s business, which is a lower standard than under the ADA).”

http://www.eeoc.gov/facts/pandemic_flu.html– 48k – 2009-10-21

A federal district court in Ohio refused to dismiss a complaint by a registered nurse alleging religious discrimination because she was fired for refusing to comply with the hospital’s mandatory flu vaccination policy.  Chenzira v. Cincinnati Children’s Medical Center, S.D. Ohio, No. 1:11-cv-00917 (12/27/12).   The employee’s refusal was based on her “religious beliefs” in veganism. The court rejected the hospital’s argument that her veganism was merely a “social philosophy or dietary preference.”  According to the court, it was plausible the employee could show that she held her belief in veganism with the same sincerity as traditional religious beliefs.  However, this case is far from over.  The court noted that its ruling on the motion to dismiss “in no way addresses what it anticipates as the hospital’s justification for its termination of the employee — the safety of patients at Children’s Hospital.”

Not all refusals to get a flu shot are based on medical or religious reasons.  A hospital in northern Indiana fired seven employees who refused to get flu shots.  One oncology nurse who was fired said it was “a personal thing.”  The nurse said she gets other vaccinations but it should be her choice whether she gets the flu vaccine.  She said she opposes “the injustice of being forced to put something in [her] body.”  Absent a violation of applicable state law, it is doubtful this employee would have a claim against the hospital for her termination.

Considerations in Creating a Flu Vaccination Policy

Current CDC guidelines do not require hospitals to mandate flu vaccination in any form; the CDC recommends active encouragement of employees to get a flu shot.  However, some hospitals believe it is appropriate to do more to try to protect vulnerable patients from catching the flu in the hospital and then suffering severe health consequences.  These hospitals mandate that at least some groups of employees must be vaccinated.  ”

Terminating or taking other adverse action against an employee who cannot get the vaccine because of a disability (as defined in the Americans with Disabilities Act and/or applicable state law) exposes a hospital to meaningful risk of a discrimination lawsuit.  The same is true for employees who raise a “religious objection.”

Hospitals should evaluate such refusals on a case-by-case basis and explore possible reasonable accommodations of the employees’ refusal to get vaccinated, and the policy should so inform employees. Possible reasonable accommodations could be exempting the employee from the policy entirely, transferring the employee to another position temporarily (until the flu threat ends as determined by local health officials) or permitting the employee to wear a mask when in proximity to patients and coworkers.  From my perspective as a former hospital board chairman, this approach presents a balancing of the hospital’s interest in protecting patients from flu exposure while protecting the legal rights of certain employees who decline to get vaccinated.  In the final analysis, many hospitals believe that risk of harm to patients may trump an individual’s right to refuse when flu epidemics are declared.

Editor’s Note: See our coverage on this topic for non-health care employers here.

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