Georgia Supreme Court Strikes Software Engineer’s Non-Compete

Our firm is frequently asked to evaluate non-compete and non-solicitation agreements between employers and employees, both current and former.  On November 9, 2009, the Georgia Supreme Court issued an opinion striking a non-compete that purported to restrict a software engineer from marketing his opthamology billing software to other opthamology practices.  The decision did not alter the law in Georgia and therefore is not noteworthy from that standpoint, but it does well illustrate the rules Georgia courts apply when evaluating the enforceability of restrictive covenants.

The plaintiff, Brendan Coleman, was a software engineer.  He developed a medical billing software called Clinex.  In 2000, The Retina Eye Center (TREC) hired Coleman.  Coleman developed a new version of the Clinex software, called Clinex RE, specifically for TREC.  In 2003, Coleman and TREC signed a Software Agreement under which Coleman agreed not to “distribute, vend or license to any opthamologist or optometrist the Clinex software or any computer application competitve with the Clinex-RE software without the written consent of TREC.”

Coleman left TREC to establish a competing business and TREC sued to enforce the Software Agreement.  The trial court enjoined Coleman from marketing the Clinex software in competition with TREC.  Coleman appealed to the Georgia Supreme Court and won. 

The Supreme Court held that the non-compete was overly broad.  The Court examined the reasonableness of the restraint on Coleman with reference to the “three-element test of duration, territorial coverage, and scope of activity.”  The Court found the non-compete lacking because it contained no time limitation and no limitation regarding duration.  As the Court stated, “the non-compete clause here would prohibit Coleman from marketing Clinex and other competitive software to any opthamologist or optometrist, regardless of whether or not they are or ever were customers of TREC and regardless of where they are located.  Such a restrictive covenant is overbroad and unenforcable.”

The case is Coleman, et al. v. Retina Consultants, P.C., S09A1485 (November 9, 2009).  You can view a copy of the opinion by clicking here: Coleman et al. v. Retina Consultants

Employee or Independent Contractor? Topless Dancers Declare Their Non-Independence

A recently filed class action colorfully illustrates the problems that can arise when employers exercise too much control over their independent contractors.  Or in this case, their topless dancers.

Zuri-Kinshasa Maria Terry, an exoctic dancer at Sapphire Gentlemen’s Club in Las Vegas, has slapped the club with a putative class action alleging that it improperly classified its dancers as independent contractors in order to avoid complying with state wage and hour laws.  The class action, filed in Nevada state court, and covering potentially 5,000 current and former dancers, seeks back pay and overtime wages for the class members as well as an order forcing the club to comply with state wage and hour laws.

At issue is the legal distinction distinction between independent contractors and employees.  The distinction is a significant one.  Generally, employers must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Employers generally do not  have to withhold or pay any taxes on payments to independent contractors.   (For more information on this topic, click here: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html).  Employers also must pay employees in a manner consistent with state and federal wage and hour laws.  Not so with independent contractors.

The determining factor is control.  An independent contractor must be truly independent.  If an employer closely supervises and controls the manner in which a job is performed, the employer generally cannot claim that the job was performed by an independent contractor.  Some of the factors courts examine in making the employee-versus-independent contractor determination are as follows:

• Does the business provide instructions to the worker about when, where and how he or she is to perform the work?
• Does the business provide training to the worker?
• Is there a continuing relationship between the business and the worker?
• Does the business set the work hours and schedule?
• Does the worker devote substantially full time to the work of the business?
• Is the work performed on the business’ premises?
• Is the worker required to perform the services in an order or sequence set by the business?
• Is the worker required to submit oral or written reports to the business?
• Is the worker paid by the hour, week or month?
• Does the worker provide services for more than one firm at a time?
• Does the worker make his or her services available to the general public?

The plaintiffs in the Sapphire case contend that the club exercised too much control for them to be considered truly “independent” contractiors. For example,  club rules required the dancers to work six hour minimum shifts; remain on the premises throughout their shifts; refrain from  leaving with, or socializing with, club patrons; charge minimum fixed fees for dances; promote sales of drinks and take drink orders;  wear approved costumes; and pay a portion of their tips to club DJ’s, managers, bartenders and security personnel. According to the lawsuit, “[s]uch rules and regulations and control over the means and methods of dance and conditions of employment are not the type imposed upon independent contractors”

The suit claims that the dancers should have been classified as employees and, as such, paid in a manner consistent with Nevada’s wage and hour laws.  The dancers claim that the club broke the law by stiffing them on overtime and regular wages; denying them mandatory breaks; forcing them to wear uniforms purchased at their own expense; and forcing them to participate in illegal tip sharing scheme that required them to tip out DJ’s, managers, bartenders and security personnel.

The plaintiffs are represented by Robert Starr, who maintains the website  http://www.ExoticDancerRights.com.

“Sexting,” “Textual” Harassment On the Rise

Claims of “virtual” sexual harassment—-sexual harassment by email, text message, instant messaging, Facebook, smartphones and other technologies—-are surging.  For example:

• In April 2009, Central Michigan University paid $450,000 to settle a lawsuit brought by two female soccer players who accused their coach of sexually harassing them via text message and manipulating them into secret sexual relationships;
• In July 2009, a 22-year old Oregon woman sued LA Fitness after three of her managers texted her from a bar asking her for sex and identifying X-rated acts they would like to perform on her;
• In August 2009, a Hooters waitress in Fort Lauderdale, Florida sued the restaurant over explicit text messages and photos she received from her manager;
• A former World Wrestling Entertainment employee has filed a lawsuit in Connecticut alleging that she was sexually harassed by a married senior director who pursued her via late night text messages and phone calls; and
• In West Virginia, four Famous Dave’s waitresses sued the company after they received text messages from their supervisor asking for sexual favors.

Experts say the surge in virtual sexual harassment claims is largely a by-product of the informality that modern technology invites.  An employee might think twice before making an inappropriate sexual remark at, say, a corporate meeting.  But emails, texts and instant messages give employees a false sense of intimacy that can invite trouble.

Virtual sexual harassment also presents multiple challenges for employers.  First, many employers have outdated sexual harassment policies that do not specifically address this type of harassment.  The failure to adopt specific measures prohibiting this form of harassment could become problematic when an employer attempts to invoke its sexual harassment policy to defend against a harassment charge–particularly if the employer supplied the technology that enabled the sexual harassment to occur.  Second, virtual sexual harassment, in the form of texts, emails and the like, leaves an evidentiary footprint that other forms of harassment do not.  When it comes to virtual sexual harassment, forget “he said, she said”–the texts, emails and instant messages don’t lie.  And the deletion of pertinent electronic data—-whether voluntarily, involuntarily or pursuant to a document retention policy—-gives rise to concerns over spoliation of evidence.

To minimize concerns, employers should remind employees of their sexual harassment policies, making specific mention all forms of communications, including emails, texts, instant messages and so on.  Employers should also consider amending their sexual harassment policies to specifically prohibit “virtual” sexual harassment.

 

Long Island Hooters Latest Target of FLSA Collective Action

Fried & Bonder, which represents a number of hospitality industry clients, has been chronicling the surge in FLSA lawsuits against restaurant industry employers.  The New York Times first reported on this trend all the way back in May 2007 (http://www.nytimes.com/2007/05/12/nyregion/12workers.html).  That article discussed the forces behind a cluster of FLSA lawsuits against high profile Manhattan restaurants, including Old Homestead, the Brooklyn Diner, Smith & Wollensky, Sparks Steak House, Heartland Brewery and Mr. Chow.  Since that time, more FLSA lawsuits have followed, including suits against Uncle Jack’s Steakhouse, Planet Hollyowood and Mama Mexico, to name a few.

The latest target is Hooters of Long Island.  The law firm behind the lawsuit–Berke-Weiss & Bechman LLP–is the same firm that sued Mr. Chow, Sparks and Old Homestead.  The named plaintiffs are two Hooters waitresses, Gina Rosati and Amy Frederick, both of whom still work for the restaurant according to their complaint.  The alleged class consists of Ms. Rosati, Ms. Frederick and “all persons who have worked as waitresses at Hooters of Long Island” for the past three years, a class believed to encompass at least 100 people. 
 
The allegations are similar to those made in the other cases referenced above.  The plaintiffs contend that Hooters imposed an illegal tip pooling scheme under which Hooters diverted a portion of waitresses’ tips to the kitchen staff.  If true, this practice would violate the FLSA.  Under the FLSA, an employer may pay “tipped employees” (i.e., those who typically earn more than $30.00 per month in tips) less than half the federal minimum wage, which is currently $7.25.  The FLSA refers to this as a “tip credit.”  If, however, an employer forces a tipped employee to share her tips with a non-tipped worker, like a kitchen staffer, the employer loses the ability to claim the tip credit and must pay full minimum wage.  Plaintiffs in the Hooters case claim that the restaurant’s practice of forcing waitresses to share their tips with kitchen staffers meant that it forfeited its right to claim the tip credit and became legally obligated to pay plaintiffs the full minimum wage. 
 
The complaint also alleges violations of New York’s Labor Law based on Hooters’ alleged practice of docking waitresses for uniform purchase and cleaning costs and for customer walkouts. 
 
Plaintiffs filed the lawsuit on October 29, 2009 in the Eastern District Court of New York.  Check the Fried & Bonder blog for updates on this case and other FLSA lawsuits against restaurant industry employers.

California Fortune 100 Company Pays Fried & Bonder Client

Fried & Bonder is once again pleased to have helped  clients reach an outstanding result.  Our clients are software developers who developed an innovative medical product and sold their business to a Fortune 100 company.  After taking possession of the product and selling it, but prior to making the promised final payments, the Fortune 100 company terminated the agreement and refused to pay our clients.

Fried & Bonder lawyers rapidly filed suit in California to enforce the agreement.  The Fortune 100 company alleged a lengthy counterclaim designed to delay resolution of the case and discourage our clients.  Despite facing two of the most well respected large law firms in the U.S., Fried & Bonder filed a series of aggressive motions, including service of a Rule 11 motion for sanctions.

Although the details are confidential, Fried & Bonder was able to settle this matter on terms very favorable to our clients.

Scott Bonder – Top 100 lawyers in Georgia

Atlanta Magazine, as part of its Superlawyer section, selects 100 lawyers from Georgia as its designated top 100.  We are pleased to announce that Scott Bonder was honored for the second time as one of the Top 100.

Fried & Bonder – Superlawyers!

We are pleased to announce that Atlanta Magazine again designated Scott Bonder, David Fried, and Joseph White as SuperLawyers.