Fox Partner Mark Tabakman dives into the details of an unusual employee misclassification case in Texas:

This is a very interesting case.  A group of nurses at a Texas hospital claimed they their employer intended to pay them an annual salary rather than an hourly rate and thus they were owed no back wages.  They won in the lower court and appellate court but, now, the Texas Supreme Court has reversed, finding that there was insufficient evidence to substantiate that allegation.  The case is entitled McAllen Hospitals LP et al. v. Lopez and issued from the Supreme Court of Texas.

The Court set aside the judgments for the four workers, which totaled more than $389,000.  The Court noted that there was nothing in their yearly performance reviews, payroll change forms, Employee Handbook or any policy of the accounting or HR departments to indicate, much less explicitly state, that the nurses were paid on an annual, as opposed to an hourly rate.  Instead, the Court found that the nurses’ employer made it plain that they would only earn the annual salary if they worked at least forty hours per week in the following year.  The Court found in those years in which they worked less than 2080 hours, they would not receive as much money.

The Court stated that “we hold there is no evidence that would have allowed reasonable, fair-minded people to find that the employer and its employees had a meeting of the minds on a fixed amount of pay.  We therefore reverse and render judgment that the employees take nothing.”

The nurses worked as supervisors and were classified as exempt employees under the Fair Labor Standards Act.  On an annual basis, they met with their bosses to go over their yearly evaluations and to set their pay for the new year.

The Takeaway

If the nurses were hourly paid, they were then, by definition, non-exempt.  Why did not they win on that basis alone?  The only explanation it seems is that the nurses did not work more than forty hours in any week, because if they did they would be entitled to overtime regardless of whether their annual salaries were supposed to be a certain figure.  The important lesson here is that misclassification, in and by itself, means nothing unless the employees at issue actually work more than forty hours, i.e. overtime, in a week(s).

That is a very important point…

On June 14, 2019, Governor Greg Abbot signed into law a bill (House Bill 3703) expanding access to medical marijuana products in the State of Texas.

Effective immediately, qualified physicians can prescribe medical marijuana products to treat epilepsy, seizure disorders, multiple sclerosis (commonly known as MS), spasticity, amyotrophic lateral sclerosis (commonly known as ALS or Lou Gherig’s disease), autism, terminal cancer, and incurable neurodegenerative diseases.  The patient must be a permanent resident of Texas.  Under the prior version of the law, medical marijuana was available only to patients with intractable epilepsy, a seizure disorder that is difficult to control with treatment. 

Texas’ medical marijuana law, known as the Texas Compassionate Use Act, is limited to low-THC products (up to 0.5%).

The passage of House Bill 3703 comes on the heels of Texas passing a law legalizing the production of industrial hemp and hemp-derived extracts, like CBD oil, which we wrote about last month.

Texas is slowly becoming more accepting of the benefits marijuana, but compared to those states that have legalized cannabis for recreational use, it continues to approach with caution.  For an overview of how expansion of the Texas Compassionate Use Act might affect your business, read this or contact Lee Szor at LSzor@FoxRothschild.com.

 

The Dallas City Council recently enacted a paid sick leave ordinance that requires private employers to provide eligible employees with paid sick leave.  It’s important for Dallas employers to understand their obligations under this new law, which we summarize below.

Before we do that, however, a big picture consideration: the ordinance seems likely to face legal challenges that may delay, if not altogether prevent, it from taking effect.  The Third Court of Appeals recently found that a similar ordinance in Austin violated the Texas Minimum Wage Act and the Texas Constitution.  That decision is currently on appeal to the Texas Supreme Court, and the Austin ordinance is enjoined from taking effect until that litigation is resolved.  It would be surprising if the Dallas ordinance does not face a similar legal challenge in the courts.

Additionally, proposed legislation was considered at the most recent Texas legislative session that would have blocked the Dallas ordinance.  The legislation initially appeared poised to pass, but ultimately the bills missed the deadline to be considered on the House floor, effectively killing them. Thus, a court challenge seems most likely.

Assuming the ordinance takes effect, Dallas employers will need to understand the new paid sick leave obligations and make changes to their policies and practices in order to comply.  Some of the key provisions of the Dallas ordinance are as follows:

  • Effective Date. For employers with more than five employees, the ordinance is effective August 1, 2019.  For employers with five or fewer employees (at any time in the preceding 12 months), the ordinance is effective August 1, 2021.
  • Eligible Employees. Employees eligible for paid sick leave under the ordinance are those who perform at least 80 hours of work for pay in a year within the City of Dallas (including through the services of a temporary of employment agency).  The ordinance does not apply to independent contractors.
  • Accrual. Eligible employees accrue one hour of paid sick time for every 30 hours worked for the employer in the City of Dallas, starting at the commencement of employment or the effective date of the ordinance, whichever is later.  Paid sick time accrues in one hour increments, unless the employer has a written policy establishing accrual in fraction of an hour increments.  Sick leave that is requested in excess of the employee’s available accrued paid sick time need not be paid.
  • Accrual Cap. For medium or large employers—defined as an employer with more than 15 employees at any time in the preceding 12 months (excluding the employer’s family members)—there is a yearly accrual cap of 64 hours of paid sick leave, unless the employer chooses a higher limit.  For small employers—an employer that is not a medium or large employer—the yearly accrual cap is 48 hours of paid sick leave, unless the employer chooses a higher limit.
  • Carry Over. All accrued, unused paid sick time is carried over to the following year, subject to the accrual cap.  Alternatively, to avoid the administrative burden of accrual and carry over, employers can simply provide employees with at least the yearly cap of paid sick time at the beginning of the year.
  • Eligible Uses. Eligible employees can request and use paid sick time for a work absence caused by: (1) the employee’s physical or mental illness, physical injury, preventative medical or health care or health condition; (2) the employee’s need to care for the employee’s family member’s physical or mental illness, physical injury, preventative medical or health care or health condition; or (3) the employee’s or the employee’s family member’s need to seek medical attention, seek relocation, obtain services of a victim services organization, or participate in legal or court ordered action related to an incident of victimization from domestic abuse, sexual assault, or stalking involving the employee or the employee’s family member.
    • Family Member. “Family member” includes an employee’s spouse, child, parent, any other individual related by blood, or any other individual whose close association to an employee is the equivalent of a family relationship.
  • Probationary Period. Generally, paid sick time is available for an employee to use as soon as it is accrued.  However, employers may restrict an employee from using accrued paid sick time during the first 60 days of employment if the term of the employee’s employment is at least one year.
  • Verification. Employers may adopt reasonable verification procedures to establish that an employee’s request to use accrued paid sick time is in accordance with the ordinance, if an employee requests to use accrued paid sick time for more than three consecutive work days.  However, the verification procedures cannot require the employee to disclose or explain the nature of the illness, injury, health condition, domestic abuse, sexual assault, stalking, or other health need.
  • Pay Rate. Paid sick time must be paid in an amount equal to what the employee would have earned if the employee had worked the scheduled work time, exclusive of any overtime premium, tips, or commissions, but no less than the state minimum wage.
  • Notice to Employees. At least monthly, employers must provide electronically or in writing to each employee a statement showing the amount of the employee’s accrued paid sick time.  Further, any employee handbook provided to employees must include a section informing them or their rights and remedies under the ordinance, and employers must conspicuously display in the workplace a sign describing the requirements of the ordinance.
  • Termination of Employment. The ordinance is silent on whether accrued, unused paid sick leave must be paid out to the employee upon separation of employment.

Next Steps: Dallas employers can respond to the new ordinance in a couple of ways, depending on their appetite for risk.  Since a legal challenge seems likely, employers can take a more “passive” approach that involves monitoring the status of the ordinance and leaving ample time before the effective date to implement necessary policy changes.  Alternatively, because the bill goes into effect on August 1, 2019 for employers with more than 5 employees, these employers may opt for an “active” approach that involves making (or at least planning) policy changes now in anticipation of the ordinance taking effect in less than two months.  If you need advice on the new law, please contact Lee Szor (LSzor@FoxRothschild.com) or John Gessner (JGessner@FoxRothschild.com) in our Dallas office.

On Fox’s Immigration View blog, partner Alka Bahal provides a detailed exploration of the I-9 inspection process, in the wake of a recent surge in I-9 audits carried out by the U.S. Immigration and Customs Enforcement (ICE) agency. All employers in the United States are required to have a Form I-9 on file for all employees to verify their identity and authorization to work in the United States.

We invite you to read Alka’s information-packed post addressing concerns facing employers:

Employers Beware: ICE Is Ramping Up I-9 Audits to Record Levels

It happens to family lawyers all the time.  A new client comes in to meet with us for an initial consultation and tells us that his or her spouse controlled all of the money and assets.  The new client is panicked, because he or she has no idea what the parties own, what the parties’ liabilities are, or even where the majority of the parties’ accounts are held.

In the normal case, most Texas family lawyers know what to do – we ask the opposing party to fill out a sworn inventory and appraisement of all of the parties’ assets and liabilities.  We serve written discovery requests and, if necessary, we subpoena financial institutions to obtain account statements.

But Texas is consistently one of the fastest growing states in the nation with approximately 140,000 new domestic migrants and 82,000 international migrants moving here each year.[1]  Obtaining financial records is relatively straightforward when you are serving a subpoena on the local bank that holds your client’s accounts, but what happens when you learn that assets are held abroad?  From bank and brokerage accounts to business entities, it is increasingly likely that the family law practitioner will need to obtain discovery internationally.  So what do we do when we learn there are assets held in Mexico or the United Kingdom and the opposing party says they do not have documents regarding those assets in their possession, custody, or control?French bulldog with magnifying glass

The United States and sixty other nations are signatories to the 1970 Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, more commonly referred to as the Hague Evidence Convention.[2]  The Convention’s stated purpose is to “improve mutual judicial cooperation in civil or commercial matters”[3] and to “enlarge the devices for the taking of evidence.”[4]  The Convention sets forth a process for obtaining pre-trial discovery from contracting nations – litigants can:  1) request the US Court submit a Letter of Request to obtain evidence located in a contracting state; and 2) use US diplomatic or consular agents located in the contracting state to take depositions (but not obtain documents) in the contracting state.

In the family law context, litigants are most likely to use Letters of Request to secure the production or inspection of documents or to obtain access to real or personal property so the property can be inspected.  In short, a litigant will ask the Court in the US to submit a Letter of Request setting forth the nature of the pending proceeding and describing the evidence requested.  The Letter of Request will then be transmitted to the designated central authority of the contracting state, who will execute the request in accordance with the laws of the contracting state.

The Hague Evidence Convention is not perfect – many signatories to the Convention signed with reservations that limit the types of pre-trial discovery that may be conducted – practitioners should be sure to determine whether the country where evidence is located entered into the Convention with reservations.  Obtaining evidence under the Convention can also be time consuming, and litigants will want to explore all avenues for obtaining the evidence to determine whether it may be secured using the liberal discovery rules of the US judicial system.  However, the Convention provides Texas lawyers with an additional and important tool for conducting discovery in an increasingly international and diverse state.


[1] https://www.census.gov/library/stories/2017/08/texas-population-trends.html.

[2] https://www.hcch.net/en/instruments/conventions/full-text/?cid=82.

[3] https://www.hcch.net/en/instruments/conventions/full-text/?cid=82.

[4] Ph. W. Amram, Explanatory Report on the Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters, https://assets.hcch.net/upload/expl20e.pdf.

There is much confusion in the public about the difference between a trade secret and a patent. Both are associated with innovation, and each constitute a business asset that should be vigorously protected. But why do some companies choose to patent their innovation while others choose to cloak it as a trade secret? The Uniform Trade Secrets Act defines a trade secret as information that: (1) derives economic value from not being generally known or readily ascertainable by proper means; and (2) is the subject of “reasonable efforts” under the circumstances to maintain its secrecy. A properly-guarded trade secret could potentially last forever, since it derives its legal protection from its inherent secret nature. On the other hand, patent protection only lasts for 20 years, and patents can only be protected through public disclosure. Specifically, patent protection is acquired through a public application process with the United States Patent and Trademark Office. On the surface, it would appear that trade secret protection is the preferred route due to the potential for perpetual protection. However, there is a risk with considering such an approach. Unlike with patents, it is perfectly legal to reverse engineer and copy a trade secret.  Once someone is able to successfully determine the components of a trade secret, the owner is without recourse and could instantly lose the peace of mind and protection that was enjoyed up to that point. However, with a patent an owner in effect has a “monopoly” for the duration of the patent, and it can exploit this powerful position by excluding all others who dare to manufacture a similar product. This is the case even if someone else independently came up with the same idea. Of course, a patent owner pays a price for this 20 year window of exclusivity. Once the patent expires, the once-protected idea enters the public domain and can then be manufactured and sold by anyone. Therefore, the patent owner’s goal will be to maximize the profits of their invention during this 20 year period.

Although trade secret owners can potentially enjoy profits indefinitely, they can be knocked off their perch at any moment if it is determined by a court of law that the idea does not qualify for trade secret protection (either because the information is readily ascertainable by other means, or because sufficient measures were not put in place to protect the idea). The trade secret owner can also lose the benefits of protection due to events beyond their control. For example, although most conscientious business owners will procure the requisite non-disclosure and confidentiality agreements from their employees, there is no accounting for a rogue or disgruntled employee beaming out these secrets to competitors. Even if an owner files a lawsuit to protect its trade secrets, there is an inherent tug-of-war between the secretive nature of the information at stake and the policy of open courts to the public. Although courts typically allow sealed filings and protective orders to be implemented in lawsuits, suing another party may require disclosure of trade secrets due to the burden of proof placed on plaintiffs.

Determining whether to seek patent protection or trade secret protection requires a realistic analysis based on the nature of the company as well as the type of invention at stake. Budget constraints should factor into this analysis, as well as a clear protocol on how the intellectual property of the business will be protected and enforced in the future. The following are some questions to consider when making this decision:

  • Is it possible for someone to reverse engineer the idea?
  • Is it possible for the invention to be independently discovered in the future?
  • Will the idea still be useful and profitable more than 20 years down the road?
  • Does the company have the monetary and legal resources to pursue patent protection?
  • Does the company have a revolving door of employees whereby adequate protection of the idea cannot be ensured?

Not everyone can be a Fortune 100 company, with their secrets locked in expensive vaults and with costly measures in place to ensure secrecy. The answer is not always clear, and the ultimate decision will be based on a sliding scale of risk that will be commensurate with the vision and goals of the company.

The Tax Cuts and Jobs Act of 2017 changes the income tax planning for all businesses, including for small business owners. It is now more important than ever for business owners to consult with their tax advisors before setting up new business entities, and to consider restructuring their existing business entities to take advantage of potentially significant tax benefits under the new law.

Prior tax laws favored structuring businesses as pass-through entities, such as limited liability companies and S corporations, to avoid the double layer of taxation faced by a traditional C corporation. Under a pass-through structure, taxes on business profits are not paid directly by the business entity, instead, they are passed through and paid by the business owner based on his or her individual tax rate. In contrast, taxes on business profits of a C corporation are paid both at the business entity level and then again when profits are paid to the business owner as dividends.

WHAT HAS CHANGED?

Two of the biggest changes affecting businesses under the new tax act are:

  • the significant reduction in tax rates for C corporations – – from 35% to 21%, and
  • a new 20% business income deduction for certain qualified business income from pass-through entities.

Many professional service businesses (such as doctors, lawyers, accountants, and financial advisors) are excluded from receiving the deduction unless the business owner(s) earns less than specific threshold amounts ($157,500 for a single taxpayer, and $315,000 for a joint return). The deduction is also subject to additional wage-based limitations. To further complicate matters, the tax rate reduction for C corporations is a permanent change, whereas the pass-through business deduction is set to expire after 2025 (unless extended). For additional discussion of the deduction, including more details on specifically excluded service businesses, how the deduction is calculated and the wage limitations, see a recent post by my Fox colleagues.

WHO SHOULD CONSIDER USING A C CORPORATION?

Under the new tax act, there are a couple of situations that would likely warrant using or converting to a C corporation:

  • businesses that retain significant profits for reinvestment, rather than distributing profits out to its owners; and
  • professional service businesses who do not qualify for the 20% pass-through business income deduction and whose owners make more than the income thresholds (at least to assess the possibility of restructuring into separate businesses).

There are also legal and accounting costs to consider and weigh against the potential tax savings. If a current business is structured as an LLC, converting to a C corporation may be as simple as making a new tax election and amending the current organizational documents, or may involve a more complicated process of filing a conversion and creating a new set of corporate organizational documents.

Finally, as with all new tax legislation, there are still a lot of unanswered questions requiring further guidance, particularly as to the calculation and application of the seemingly simple but complex limitations applicable to the 20% pass-through business deduction. Nevertheless, business owners should be consulting with their tax advisors on the best structure or restructure of their business entities.

Much like the actual “bike share” bikes themselves, the topic of bike share programs seems to pop up around every corner in Dallas. Let me start by going on record as being pro-bike share.

But not everyone is a fan. Complaints about the bikes seemingly ring from every neighborhood from Oak Cliff to Preston Hollow. Perhaps we have all forgotten how impossible it used to be to bike around Dallas just 10 years ago. Maybe we need to realize this is not our daddy’s Dallas.

Take a drive through Downtown or Uptown on a weekend or, better yet, take a ride on a bike share bike. Look around. There are people biking everywhere. It’s all so beautiful.

Well, except for the bike share bikes themselves.

There are supposedly more than 20,000 bike share bikes currently located in Dallas, more than twice as much as New York City. They are scattered along the sidewalks, often laying on their side and inching over the curb into the street. Head to White Rock Lake and find some drowning in the shallow water near the shore. Make your way to Klyde Warren Park and find them strewn about, turning into a makeshift obstacle course for visitors. Or head to Highland Park and find a dozen parked in the front yard of a luxury home, the hip new alternative to toilet papering houses.

Many argue the bikes have become a nuisance and every Dallasite’s favorite gripe. The residents are declaring war on the two-wheeled invaders clogging their streets and sidewalks. They want laws protecting their city, but no one really knows what those laws should be.

In January, Dallas City Manager T.C. Broadnax issued a letter to LimeBike, Ofo, VBikes, Spin, and Mobike giving a February deadline to clean up their messes. Broadnax threatened the city “may be left with no choice but to begin removing the bicycles in its rights of way, sidewalks, trails and/or trailheads that are identified as obstructions or hazards.” February came and went, and no laws were passed by the City of Dallas to rectify the problem. Instead, during a February 26, 2018 City Hall Meeting, attendees were informed regulations are coming, likely in the fall. So what is the holdup?

Perhaps the City is gauging the success of another major city that is attempting to solve their own bike share headaches.

After Seattle determined public bike share programs with required docking stations failed to encourage potential riders, it shut down its city-owned “Pronto” bike share system and opened its doors to privately owned dockless bike share programs like those in Dallas. Unlike Dallas, before allowing the companies to roll out their bikes, Seattle enacted regulations to govern how they could operate. The regulations require bikes be parked upright in areas of sidewalks with trees, poles, and other fixtures, or on a designated bicycle rack. On blocks without sidewalks, the bikes must be parked in a way that does not impede pedestrian or vehicle traffic. In addition, the bike share companies must provide a contact to the Seattle Department of Transportation (SDOT) to call for staff to relocate or rebalance bikes within the specified time limits (two hours on weekdays, ten hours on weekends and holidays). The city can assess penalties for their crews having to relocate or remove bikes from any prohibited locations.

Seattle’s regulations were introduced in 2017, and the city is currently reviewing data obtained through the bike share companies and analyzing the success of its current permitting requirements. However, the city has already conceded the parking issues remained the most obvious problem. SDOT spokesperson Mafara Hobson identified problems with holding riders responsible for parking the bikes in improper spots when it could not be proven whether the rider actually parked incorrectly or someone came along later and moved the bike. As of the publishing of this post, SDOT was reviewing its options, and hopeful to have its final parking and storage requirements in place by Summer 2018, coincidentally just before Dallas plans to unveil its plan.

Thus, it appears Dallasites will have to embrace the beauty of bikes scattered among their streets for the foreseeable future while they await their own set of rules and regulations. Perhaps if they squint hard enough, they can imagine the neon bikes as the bright lights of New York City or Las Vegas… both of which actually have bike share regulations.

In the age of social media, new platforms struggle to dethrone the reigning kings of Twitter, Facebook, and Instagram.  But one application, Vero, has gained traction in its attempt to replace Instagram.  Launched in 2015, Vero touts itself as a “true social” experience where users can share photos, links, music, movies, books, and location check-ins.  Although Vero launched in 2015, it shot to the top of Apple’s App Store (from #566 to #1) and Google Play seemingly overnight and currently boasts nearly three million users.  Its sudden surge in popularity is attributed to a change in Instagram’s algorithm regarding chronological order of posts and Vero’s initial promise that only the first million users would avoid paying a subscription fee (although, at the time of this publication, the application is still free until further notice).

With millions of users joining Vero in one short week, controversy quickly followed.  One of the largest complaints against Vero is its terms and conditions, which many argue as too broad and sweeping.  Specifically, many users refused to join or deleted their accounts after realizing they granted Vero “a limited, royalty-free, sublicensable, transferable, perpetual, irrevocable, non-exclusive, worldwide license to use, reproduce, modify, publish, list information regarding, translate, distribute, syndicate, publicly perform, publicly display, make derivative works of, or otherwise use your User Content.”  Royalty-free?  Irrevocable?  Sounds scary to the average user.

But if those terms are a concern, we caution you to inspect the terms and conditions of all your social media platforms; they each use similar language.

Every tweet grants Twitter “a worldwide, non-exclusive, royalty-free license (with the right to sublicense) to use, copy, reproduce, process, adapt, modify, publish, transmit, display and distribute such Content […]. This license authorizes us to make your Content available to the rest of the world and to let others do the same.”  Don’t be surprised if Facebook itself “likes” the video you posted of your adorable niece, because you granted them “a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use any IP content that you post on or in connection with Facebook.”  Posted a perfectly filtered photo of your brunch to Instagram?  In addition to giving them envy over your eggs Benedict, you also gave Instagram a “non-exclusive, fully paid and royalty-free, transferable, sub-licensable, worldwide license to use the Content.”

The use of these platforms themselves are an acceptance of their respective contractual terms, and like any contract, it is imperative to understand exactly to what you have agreed.  Ultimately, Vero’s terms and conditions are no broader or narrower than most platforms’ terms and conditions.  There are arguments for and against all social media platforms that go beyond their respective terms and conditions, but if your use is conditional on those terms, consider reevaluating your involvement with any social media platform.

 

 

Each day more and more women come forward to share their stories of abuse within the workplace and without. And people are actually listening.

In the not-so-distant past, the primary concern for some employers may have been the legal consequence of firing a worker after she internally reported sexual harassment. Now, as women become more emboldened to speak up and as the public becomes more receptive to listening, employers have more to worry about than just the legal repercussions. In the year 2018, merely an accusation could end a career, or even a business. Thus, it is more important now than ever for employers to implement workplace procedures for preventing harassment and properly handling accusations.

Addressing sexual harassment requires first understanding what it looks like. It might surprise you to know that harassment is likely much broader than you think. In general there are two types of sexual harassment—quid pro quo and hostile work environment. The hostile work environment cases are typically more difficult to prove because the question arises of just how hostile the environment must be.

Sexual harassment falls under the category of sex discrimination, which is impermissible under Title VII of the Civil Rights Act of 1964. To be actionable under Title VII, the conduct must be “sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment.” Meritor Sav. Bank v. Vinson, 477 U.S. 57, 67 (1986) (internal quotations omitted). A worker need not suffer an adverse economic effect to meet this standard. And, the inquiry does not center on whether the sex-related (not sexual-related) conduct was voluntary, but rather focuses on the unwelcome nature of the behavior.

Thus, even conduct that appears to be tolerated by a subordinate or coworker may constitute sexual harassment if the advances are unwelcome. Considering that the courts struggle with the concept of unwelcome versus welcome conduct, employers and their supervisors should hesitate to assume that seemingly innocent behavior is ok with a female (or even a male) colleague.

When employers receive a complaint of sexual harassment, they must act. In the current climate, the public will not accept a company’s claim of ignorance. Sticking your head in the sand is no longer a viable option when a woman comes to you to say “me too.”