Although some departing employees are willing to risk violating their non-competes when they leave a company, a recent court decision reinforced one of the significant dangers that those employees can face in doing so. In this decision, a federal appeals court in Ohio ruled that a former employee who violates a non-compete can be forced to pay the employer’s legal fees, even if the former employer does not prevail on all of the issues raised.

In an opinion issued on January 10, 2019 in Kelly Services Inc. v. De Steno, the U.S. Court of Appeals for the Sixth Circuit considered a case involving three employees who left Kelly Services to join a competitor. The employees had signed non-compete agreements during their employment, so Kelly Services sued them and secured a preliminary injunction. The injunction was not permanent, and was intended to remain in effect only until the court could examine the enforceability of the restrictions in the non-competes. The court maintained the injunction for the one-year period set out in the non-compete and lifted the injunction shortly after that period expired, all without ever ruling on the enforceability of the restrictions.

After the court lifted the injunction, Kelly Services asked the court to order the employees to pay for its attorneys’ fees. Kelly Services based its request on language in the agreements that allowed Kelly Services to recover the fees and costs involved “in enforcing” the agreements. The former employees objected to the request and argued that Kelly Services could not recover its fees and costs because it had not actually won on its claims. The district court found, however – and the Sixth Circuit agreed – that the former employees had to pay the fees and costs because the specific language in the agreements did not require Kelly Services to win. Rather, the agreements only required that Kelly Services incurred the fees “in enforcing” the agreements.

Although the Sixth Circuit did not have to reach the issue, its language suggested that there are limits to the circumstances in which broad fee-shifting provisions will be enforced. For example, the Sixth Circuit suggested that it would not be proper to award fees incurred in enforcing an agreement if the former employer’s efforts to enforce the agreement lacked sufficient legal basis or were simply designed to oppress or harass a former employee.

This case reinforces the importance of both including a fee-shifting provision in agreements of this nature and having the proper language in those agreements.

On November 21, 2017, the Financial Industry Regulatory Agency (“FINRA”) fined J.P. Morgan Securities, LLC, $1.25 million for HR due diligence failures from 2009 until May of this year. Pursuant to federal securities laws, broker-dealers must fingerprint certain non-registered associated persons to help determine if any of them have been convicted of a disqualifying criminal offense. According to FINRA, J.P. Morgan did not “conduct timely or adequate background checks on approximately 8,600, or 95 percent, of its non-registered associated persons.”

Over the last few years, there has been a “Ban the Box” legislative movement designed to provide greater employment opportunities to job applicants with criminal histories. As background, “Ban the Box” laws usually require employers to delay inquiries into an employee’s criminal history until later in the hiring process, and not have a “box” on the employment application. These criminal inquiries would then be made after a conditional offer of employment has already been extended based on the prospective employee’s qualifications, and then the prospective employee would be given a chance to explain any criminal history.

The “Ban the Box” movement has spread nationwide, with 27 states having some sort of policy which regulates the use of criminal history in state-employment applications, and with some localities extending such policies to government contractors and even private employers. Although the motives behind the “Ban the Box” movement may be noble, “Ban the Box” may not always be the safest policy. As is made clear by the significant fine that FINRA administered to J.P. Morgan, employers must ensure that they are aware of applicable laws in their industry with respect to the required HR due diligence. In the financial services industry particularly, employers must not delay too long in performing adequate checks, or worse yet, fail to do them at all.

While many convicted felons are rehabilitated and can be valuable employees, others do pose real risks. Employers owe it to themselves and all their employees and stakeholders to make decisions based upon the most accurate and complete information available.

More information on FINRA’s fine of J.P. Morgan can be found at: http://www.finra.org/newsroom/2017/finra-fines-jp-morgan-125-million-failing-screen-its-employees.

On March 20, 2017, the United States District Court for the Central District of California granted Defendant Domino’s Pizza LLC’s (“Domino’s”) motion to dismiss an Americans with Disabilities Act (“ADA”) claim related to the accessibility of Domino’s website and mobile application. See Robles v. Domino’s Pizza, LLC, Case 2:16-cv-06599. The District Court ruled that it would violate Domino’s due process rights to allow the claim to proceed, since the Department of Justice (“DOJ”) had failed to promulgate any accessibility regulations governing websites or mobile applications. Click here to read the full client alert.