Shorter is better.

Why? The slang TL;DR comes to mind.

But it turns out there’s an educational component too — at least according to the results of a new study that examined workplace contracts.

In the study, published in the Journal of Personality & Social Psychology and recapped by Insights by Stanford Business School, “the researchers found that workers whose contracts contained more general language spent more time on their tasks, generated more original ideas, and were more likely to cooperate with others. They were also more likely to return for future work with the same employer, underscoring the durable and long-lasting nature of the effect.”

In other words, contracts that contained pages upon pages of specific do’s and don’t for workers, ended up harming the employment relationship.

Instead, researchers found that “the more general contracts increased people’s sense of autonomy over their work.”

This isn’t the first time I’ve talked about the need to write employment contracts in plain English — something that is at the core of a book by Ken Adams whose work has appeared on this blog before.

It turns out that even “minimal changes”, in the words of one of the study’s authors, can have “important consequences.  Especially when it comes to behaviors that are notoriously difficult to include in contracts, such as increasing effort, task persistence, and instilling a stronger sense of autonomy, which leads to higher levels of intrinsic motivation. Reducing the specificity of contractual language can also increase creativity and cooperation.”

From a legal perspective, I’ll blame some lawyers for introducing some language in a contract that can be overkill at times.

(Don’t think lawyers are at least partly to blame for long contracts? Next time you see a “This space is intentionally blank” line in a contract, rest assured that it probably came from a lawyer.)

A few years ago, our practice group went through a standard separation agreement template to remove the “Whereas” clauses and the “Definitions”  — all in an attempt to simplify the agreement. The process took months.  Simplification does not necessarily mean increasing risk. It just takes more time.

Just ask Mark Twain (actually don’t — it’s a misattributed quote.)

Of course, you probably don’t need me to tell you that shorter is better. I just read the abstract and not the entire article.

After all: TL;DR.

My law partner, Gabe Jiran, talks today about whether it’s all that easy to change the terms of a collective bargaining agreement.  Is it just as easy as a vote? Or does it require something more? The answer has implications for all employers.  

With all of the talk about the financial difficulties faced by the government, I, and others in here, sometimes get the question of whether the State of Connecticut or other states might try to change the laws on collective bargaining or try to pass legislation to alter the terms of its existing collective bargaining agreements.

Other states have started down this road, but it is not that easy.

Recently, the Connecticut Attorney General was asked to opine on whether the General Assembly could statutorily change the contracts covering State employees to address the fiscal crisis.  A link to the opinion is here.

The short answer is that the State could do so, such as by passing a statute that wage increases be delayed or eliminated in State contracts.

However, the United States Constitution imposes a pretty heavy burden on the State to justify any such changes.

The relevant factors are:

  1. the severity of the fiscal crisis;
  2. the nature and duration of the contractual changes;
  3. the extent that the State has attempted to implement other alternatives in the past;
  4. the extent to which the State has studied and made findings about the feasibility of other alternatives;
  5. whether these alternatives would be a less dramatic option;
  6. the extent to which the fiscal crisis existed or was foreseeable when the State entered into the existing contract; and
  7. the State’s representations during negotiations for the existing contract.

Based on cases utilizing some or all of these factors, the State would face an uphill battle if it wanted to change an existing contract.

For example, a federal appeals court struck down the State of New York’s plan to delay wage increases for employees because New York had alternatives such as raising taxes or shifting money around in its budget.  In another New York case, the same court found that a $1 billion deficit was not a dire enough fiscal crisis to justify a delayed wage increase.

However, one case found that the City of Buffalo was able to impose a wage freeze when it was undeniable that Buffalo was in a fiscal emergency and that the wage freeze was a last resort after looking at other options.

In discussing the matters with others here, we expect that Connecticut and other states will continue to look for creative options to address their financial situations with employees.

However, it is doubtful that these options will involve changes to existing contracts without negotiation with the unions involved.  In addition, any State attempts to change contracts in the private sector would be almost certain to fail.

Thanks to all who came to our Labor & Employment seminar on Thursday. Our biggest crowd yet. In it, we talked about the importance of offer letters.  Marc Herman returns today with a post updating us on a recent Connecticut Supreme Court decision that came out while I was on vacation a while back that makes that point even clearer.  

hermanPicture this: Jill works for you.  You fire her as an at-will employee.  Two weeks later, you receive a letter from Jill claiming that she is owed commission for several sales that she completed prior to her termination.

What should you do?

Let’s look at her offer letter.  That it usually a good starting place.

Blah, blah, blah. . . ah, something about commission.  Let’s see what it says:

Commission is only paid once work has been performed and invoiced to the client.  Upon termination of employment, all commissions cease, except those commissions that have been invoiced to the client.

You look again at Jill’s letter and look-up her recent sales.  You realize that the commission to which she refers relates to sales that had not yet been invoiced to the client when Jill was fired.

You excitedly draft a response to Jill  – “Sorry, Jill – you’re out of luck!” (or words to that effect — your lawyer can probably help with the wording).

Jill sues you.  She argues that you owe her money.  Moreover, she argues that the commission provision is unenforceable as a matter of public policy — “you can’t deprive me of commission that I worked hard for!”

Now what?

Well, in a recent decision, the Connecticut Supreme Court concluded that provisions like the one above may be enforceable — and that employers may not have to pay a commission because of the language used in the offer letter.

In Geysen v. Securitas Security Services USA, Inc. (bearing facts very similar to Jill’s), a former employee argued that such compensation provisions are unenforceable as a matter of public policy and therefore his former employer had violated the law by not paying him commission.

The trial court agreed.

On appeal, the CT Supreme Court issued a thoughtful decision.  It made two main points:

Point One: Parties should have the freedom to make contracts with unfavorable terms.

Point Two:  You cannot draft a contract that simply tries to work-around the law.  They violate public policy — A big no-no.

So what about provisions like the one above?

The easiest answer is that such provisions should pass legal muster.  Sure, it may contain terms that favor the employer, but that’s ok because the parties bargained for it.  Nor is it a work-around the law; the law simply requires that employers pay employees in accordance with any agreement.

After concluding that the provision was enforceable, the Court read it literally: no commission due.  The Plaintiff’s hard work aside, he had previously agreed that no commission would be “due” prior to the client being invoiced.

The Court also agreed with the defendant-employer that the employee’s claim of wrongful discharge (as a matter of public policy) was also without merit.  No violation of public policy and therefore no wrongful discharge.

Note, however: the Court left open the possibility that such practices could amount to a breach of the implied covenant of good faith and fair dealing.  This really concerns the employer’s motive.

For example, an employer’s motive for firing an employee was simply to avoid paying commission, that would be a breach of the implied covenant of good faith.

What’s the lesson here? Agreements with employees are not unenforceable simply because they may seem unfair to the employee.  However, apply caution in drafting agreements that seek to work-around the law.

Freedom of contract is alive and well. . . for now.

By now, it’s really not a big surprise when the NLRB reverse course on a prior decision. This week, the NLRB did it again.  My colleague, Jarad Lucan, provides this quick update on temporary/contract employees being allowed to join unions.  Read on.

Lucan_J_WebIn 2004 the National Labor Relations Board in its Oakwood Care Center case said that temporary and permanent workers must bargain separately unless the employer gives consent.

Yesterday, however, the NLRB overturned that precedent stating, “[b]y requiring employer consent, Oakwood has . . . allowed employers to shape their ideal bargaining unit, which is precisely the opposite of what Congress intended.”

Now, after a ruling in Miller & Anderson, temporary workers provided by staffing agencies do not need an employer’s permission to join unions that include its full-time employees as long as they share a “community of interest” with full-time workers.

In dissent, board member Philip Miscimarra said that along with the NLRB’s 2015 joint employer decision in Browning-Ferris Industries Inc, the NLRB’s latest ruling would create issues for  companies that use contract labor and force many staffing firms to bargain with unions that represent the full-time workers of other companies.

As we have discussed previously, in Browning-Ferris, the NLRB said companies may be deemed joint employers of contract workers if they have the potential to control working conditions.  Previously, the board required proof of actual, direct control.

With its latest decision, it could now be easier for workers found to be joint employees under the Browning-Ferris standard to unionize.   Of course, the actual impact of both decisions still remains to be seen.

My former colleagues who write the Management Memo blog also shared this tip for employers as a result of the decision:

At a minimum, a detailed risk assessment of an employer’s workforce and its reliance upon its own employees and temporaries, leased and contract labor employed and controlled, in whole or in part, by so-called supplier employers is in order. “User” employers should determine the goals and risks associated with a relationship and determine whether it is possible and/or desirable to attempt avoid a joint employer relationship or embrace it but attempt to control liability. Both “supplier” and “user” employers should look for contractual provisions regarding defining the relationship, including who controls and does not control certain aspects, indemnification provisions, provisions related to responses and responsibilities related to union organizing and collective bargaining and similar concerns. Experienced labor counsel should be consulted to assist in these issues.

Just a quick followup today on a post from last month.

As I reported then, a District Court judge dismissed a closely-watched EEOC lawsuit against CVS challenging a pretty standard severance agreement.  But the grounds for the dismissal were unknown back then.

The wait is over; the written decision was released yesterday.  For those that were hoping that the court might shut this issue down, you will be disappointed because the court decided the case largely on procedural grounds.  The Court found that the EEOC had not exhausted its conciliatory efforts required by law.

Yawn.

And so, we’re back to where we were at the start of the year.  The EEOC is likely to continue to push this issue.

Still, I remain unconvinced by the merits of the EEOC’s arguments.  Courts have, for example, routinely upheld enforcement of severance agreements — albeit in different contexts.  But the arguments raised by the EEOC appear to be a stretch to me.

So, for now, employers should continue to stay alert on this issue but until we hear otherwise, it also seems that many will find it best to continue to use these agreements without further modification.

My colleague Chris Engler reports today on a new Connecticut Appellate Court case that focuses on a often misunderstood concept in employment contracts — the need for “consideration”.  What was it that Dire Straits’ sang about in the 1980s? Getting “Money for Nothing”?

We’ve all been told that you can’t get something for nothing.  That lesson was reiterated in a new case by the Appellate Court due to be officially released next week. 

The Facts

As told by the Court, the facts of the case,  Thoma v. Oxford Performance Materials, Inc., revolve around the employer’s attempts to attract investors. 

One investment company told the employer, Oxford, that it wanted assurances that key personnel would not leave.  Oxford dutifully entered into employment contracts with various employees, including Lynne Thoma.

The details of the contracts are important.  This first employment contract gave Ms. Thoma a higher salary, job security (termination could only be with 60 days’ notice), and a severance package.  In return, Ms. Thoma promised not to leave during the contract period and not to work for a competitor for six months after leaving.  Ms. Thoma signed this contract.

 At this point, both parties had gotten a benefit, and all seemed well.

But then a second investment company informed Oxford of its dissatisfaction because the employment contract was “too strong.”  So Oxford went back to the drawing board and crafted new contracts.

 Ms. Thoma’s second contract was quite different.  It removed all of the monetary elements, including the salary increase.  The new contract also allowed Oxford to fire Ms. Thoma without notice or cause.  Finally, it prohibited Ms. Thoma from working for a competitor.  (The length of this prohibition was unclear.  If you’re a contract jargon junkie, I recommend reading the court’s analysis in full.) 

Nevertheless, Ms. Thoma went ahead and signed this contract as well.

A year later, Oxford fired Ms. Thoma.  She demanded the benefits from the first contract.  Thus commenceth this case.

Is the Second Contract Enforceable?

Ultimately, both the trial court and the appellate court sided with Ms. Thoma, concluding that she didn’t receive any consideration in exchange for the sacrifices she made in the second contract.  In other words, she gave up some perks without getting anything in return.

Continue Reading “Consider” This Important: Employment Contracts Are a Two-Way Street

Back in June, I talked about the standard that courts will follow in deciding whether or not to enforce a non-compete agreement between an employer and an employee.  (Go read it here first.)

But many employers want to know something more straightforward: How long can I make the restrictive covenant in my agreement; in other words, how long can the non-compete provision be?

The answer, of course, is “it depends” — in general, the higher-ranked the employee, the broader the scope of the non-compete.  And it also depends on other factors, such as the type of businesses the employee would be prevented from working for, and the geographic nature of the restrictions.

Of course, that’s not a satisfying answer either because again, the central questions is, what’s the maximum amount of time that a court will enforce a non-compete agreement?

In Connecticut, two years is seen by some as the typical time period for enforcing a non-compete agreement, as one case ruled back in 1988.

But where the time restriction is accompanied by a narrow geographic or industry restriction, courts have granted non-competes of five years.  Here are some examples:

Can you do something longer? Perhaps. In one reported instance in another state, a ten year non-compete agreement was ruled enforceable! But that’s definitely the exception, rather than the rule.

Indeed, a five-year non-compete isn’t going to work in some (many?) employment agreements.  So before you rewrite all of your agreements to have a broad restrictive covenant, you should check with experienced employment law counsel and figure out if your agreement really is narrowly tailored to meet you needs.  And experienced counsel can also add in certain contract provisions to help in those instances where the courts may have concerns with a broader non-compete.

But if you’ve been wondering if you courts enforce five-year non-compete agreements, the above cases show that it happens — perhaps even with more regularity than you might first think.

Back from a long holiday weekend, my colleague Chris Parkin this morning takes a look at a new Connecticut Appellate Court case about employee compensation.  

A new case that will be officially released tomorrow reminds employers to take care with their words and promises when it comes to employee compensation.

The facts of the case are fairly straightforward:

A 20-year employee for a major financial firm had been rewarded handsomely with generous six-figure bonuses that typically exceeded his annual base pay.  The financial crisis hit the employer hard.  Bonuses paid in early 2008 were down appreciably compared to prior years.  By 2009, the employer had been infused with cash from the United Kingdom government to maintain stability.

The tenuous financial position caused the employer to alter its bonus system.  In January 2009, bonus eligible employees were advised that they would be subject to a “deferral program.”  This program called for the bonuses to be paid as bonds with vesting dates over a three year period.  The full amount of the bond would only be owed if the employee was still employed by the employer at the end of the three year term.

The employee resigned before the first vesting date and the employer determined that he forfeited his right to payment on the bonus bond. The employee sued, alleging that he was entitled to his bonus as a matter of contract.

Who wins?

The lower court said that there was no contractual obligation to pay a bonus because the employee was never guaranteed a bonus but rather was simply eligible for one in the discretion of his employer.

On appeal, the Appellate Court agreed, noting that while, “all employer-employee relationships not governed by express contracts involve some type of implied contract of employment,” there was no contractual obligation to pay a bonus here.

The Court’s analysis in Burns v. RBS Securities, Inc. (download here).  hinged on the fact that no evidence was introduced to suggest that the employee was ever guaranteed a bonus.  His supervisor testified that the employee had only been told he was “eligible” for a bonus and the employee handbook clearly conditioned the payment of any bonus on discretionary factors including the health of the company.  There was also undisputed evidence that the financial health of the employer was “abysmal” at the time.

The one argument available to the employee was that he was entitled to the bonus because an implied obligation arose over the course of years of generous annual bonus payments.  The court flatly rejected this argument noting that “the mere practice or custom of an employer does not, by itself, create a contractual obligation.”

This decision is, of course, good news for employers who are careful not to make promises about bonus payments.  Managers should be trained not to make any promises about bonuses unless there is absolute certainty that the company will make such payments.  Handbooks should similarly be drafted to prevent the creation of an implied contract to pay a bonus.

The Appellate Court underscored this advice by distinguishing another matter, Ziotas v. Reardon Law Firm, P.C. (which was covered here back in 2010).  In Ziotas, the court said the employer was obligated to pay a bonus because it made a verbal promise that “this has been a very successful year for the firm, and for you, and… you’re going to get a bonus that fairly reflects that.”

It may not sound like much, but the difference between, “you’re getting a bonus” and “you’re eligible for a bonus” could be costly.

So, remember back in February where I noted that employers ought to “consider having an attorney review some of your [employment] agreements … [because sometimes,] poor drafting can sometimes be avoided by having an attorney involved”?

We have another appellate court case that emphasizes that point quiet well in Stratford v. Winterbottom.

The case involves a town and one of its employees.  The town gave the employee an employment agreement that stated:

Based upon the annual performance evaluation, and at the [m]ayor’s sole discretion and recommendation, the base salary may be increased on July 1 of each fiscal year, subject to the approval of the [council], which by Charter fixes the salaries of all mayoral appointees.

The issue? The town reduced the employee’s salary.  The question for the Appellate Court was whether the town had permission to do so.

No way, says the Appellate Court.  By including increases but not mentioning decreases, the employer is reading too much into the agreement; it simply does not have the power to do so.

Yes, the court acknowledged, the employee was at-will but that at-will clause was never used by the employer and the employee never consented to the change in salary.

Ken Adams of Adams on Contract Drafting, did a quick post about this from a contract drafting perspective last night after I mentioned it on Twitter.  I recommend the whole post, but here’s the key point:

A grant of discretion to do one thing doesn’t necessarily equal a prohibition against doing other things. If a mother tells her son that he may play video games, it wouldn’t necessarily follow that she’s thereby forbidding him from engaging in any alternative activity.

But the presumption that a grant of discretion doesn’t also entail prohibition comes up against what this manual refers to as “the expectation of relevance.” (Relevance is a principle of linguistics. According to The Cambridge Grammar of the English Language, at 38, “A central principle in pragmatics . . . is that the addressee of an utterance will expect it to be relevant, and will normally interpret it on that basis.”) The more specific a grant of discretion is, the more likely it is that the reader would conclude that the discretion is limited—otherwise there would be no point in being so specific. And the more likely a court would be to invoke the arbitrary principle of interpretation expressio unius est exclusio alterius—the expression of one thing implies the exclusion of others.

So, what’s an employer to do? Well, a salary clause can be written in a variety of ways. Consider that the employer may “revise” the salary at any time or “change” it. Or perhaps the employer can be more direct that it may “increase or decrease” the salary based on a variety of factors.  Some employers may choose to avoid discussing it altogether which would be an interesting question of contract interpretation then.

Whatever you choose, make sure the agreement accurately reflects what you intend.  Otherwise, you may not have the discretion to change something that thought was implied.

I’ll first acknowledge the obvious: UConn’s national championships in both men’s and women’s basketball is a weak excuse for a post on employment law topics.

And yet, that hasn’t stopped me before. (See 2009, 2011, etc.)

For Kevin Ollie, the victory provides a nice financial bonus to him.  How do I know this? Because Ollie had an employment law contract.

In fact, back in December 2012, his contract was extended in a letter agreement (which you can find here).  A more formal contract followed.

Geno Auriemma’s contract (and let’s face it, he’s just Geno in Connecticut) is far more lucrative and is also available online.

When I show people these contracts, I’ve often heard people express surprise. “They look….exactly like other employment law contracts.”

Exactly.

There are, after all, only so many ways that you can say certain things and an employment law contract has certain elements that are consistent from document to document.

Want other examples? There are plenty of sites that have actual contracts pulled from various SEC filings available for free.  I’ve long referred people to the Onecle site, which has some examples here.  

Looking at other employment law contracts is great to give you and your company ideas on how a contract (for some high level executives) can be structured.  You won’t want to copy them — each of these contracts should be tailored to the particular employee and particular industry that you’re in — but a review of them will show you that contracts are rocket science.

And remember what Coach Ollie has preached: No escalators. No short cuts. If you want to do your employment law contracts the right way, take the stairs.