Hunton Employment & Labor Law Perspectives : Employment Lawyers & Attorneys : Hunton & Williams Law Firm : Labor Law Legislative Updates

The class action under the Fair Labor Standards Act arguably is the employer’s most dreaded legal claim.  In April 2011, the United States Supreme Court provided a potential escape hatch for employers.  In AT&T Mobility v. Concepcion, the Supreme Court seemed to signal -- “seemed” being the operative word -- that employers need only enter into arbitration agreements in which employees disclaim their ability to file an FLSA class action (or, as it’s actually called in the FLSA, a “collective” action).

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On June 24, 2011, the Texas Supreme Court wrote the next chapter concerning the enforceability of non-compete agreements in Texas.  A company’s provision of stock options to employees was deemed satisfactory consideration for a non-compete agreement in Marsh USA Inc. and Marsh & McLennan Companies, Inc. v. Cook, --- S.W.3d ----, 2011 WL 2517019 (Tex., 2011).  The Court declared that stock options are reasonably related to the protection of a company’s goodwill, a business interest worthy of protection under the Covenants Not to Compete Act (CNCA).  Although goodwill is intangible, Texas law has long recognized that it is “a property and integral part of [a] business just as its physical assets are.” Marsh USA, Inc., 2011 WL 2517019 * 11. 

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On April 27, the U.S. Supreme Court decided that the Federal Arbitration Act (“FAA”) preempts rules created by states, such as California, that classify most class action arbitration waivers in consumer contracts as unconscionable.  The Court’s 5-4 decision in AT&T Mobility LLC v. Concepcion, 2011 WL 1561956 (U.S. Apr. 27, 2011) could signal big changes for consumer − and potentially wage and hour − class action litigation.

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Who decides whether an arbitration agreement is unconscionable when the agreement explicitly delegates that decision to the arbitrator?  According to a slim majority of the U.S. Supreme Court in Rent-A-Center v. Jackson, No. 09-497, ___ U.S. ___, slip op. (June 21, 2010), the arbitrator does, if a party challenges the enforceability of the arbitration agreement.  The district court may only intervene if a party specifically challenges the validity of the agreement to delegate that decision to the arbitrator.  The decision makes it more difficult for a current or former employee who has signed an arbitration agreement with a proper delegation provision to avoid arbitration and bring a private lawsuit.  That is a positive result for pro-arbitration employers.

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A recent Eleventh Circuit Court of Appeals decision upheld the validity of noncompetition and nonsolicitation covenants in an employment agreement governed by Georgia law.  In H&R Block Eastern Enterprises, Inc. v. Morris, the Eleventh Circuit reversed the United States District Court and ruled that provisions in H&R Block’s employment agreement with its former employee, Vicki D. Morris, were valid and enforceable restrictive covenants under Georgia law.  This decision provides additional guidance to employers attempting to draft enforceable employment agreements to protect legitimate business interests.  It also highlights why the Georgia General Assembly recently passed legislation attempting to offer clarity in this area of the law.

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In an effort to ride out the current economic storm, many businesses find themselves downsizing, conducting mass layoffs, and even declaring Chapter 11 bankruptcy in an effort to survive.  These tough decisions inevitably lead to disgruntled former employees, whose ethics tend to take a backseat when it comes to “getting even” with their employers. 

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A recent decision from the California Supreme Court has provided a rare victory for companies with employees in that state.  In Schachter v. Citigroup, Inc., the Court ruled that a forfeiture provision in an employee incentive compensation plan did not violate California wage laws.

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