The Texas Legislature recently repealed the Texas First Purchaser Statute (Tex. Bus. & Com. Code § 9.343) and replaced it with the Texas First Purchaser Lien Act (now Tex. Prop. Code § 67.002), effective September 1, 2021. This change is designed to give mineral interest owners in Texas assets the same kind of automatically perfected and bankruptcy-resistant first-purchaser protections that interest owners in Oklahoma assets have enjoyed for many years. The importance of this change for interest owners is highlighted by a memorandum opinion by United States Bankruptcy Judge Craig T. Goldblatt of the District of Delaware in the case of In re MTD Holdings, LLC, et al.[1]

The now-deleted Texas First Purchaser Statute granted a security interest “in favor of interest owners, as secured parties, to secure the obligations of the first purchase of oil and gas production, as debtor, to pay the purchase price.” The issue presented in MTD Holdings, LLC was whether the lessors and royalty interest holders’ claims in the bankruptcy case were secured claims. The Court, relying on Section 9.343, held that they were not. The Court interpreted the now-deleted First Purchaser Statute to provide a lien only for interest owners who are entitled to and elect to be paid their royalty “in kind” (i.e., delivery of oil and gas products, instead of cash proceeds). And none of the creditors demonstrated that they had elected to be paid their royalties in kind. Accordingly, the Court determined that none of the creditors held claims secured by a lien.

The newly-enacted Texas First Purchaser Lien Act repealed Section 9.343 in its entirety and created a new statute in the Texas Property Code that grants more expansive lien rights to interest owners. The revised language grants to each interest owner a lien to secure that interest owner’s oil and gas rights that attaches to oil and gas before severance and continues to apply to oil and gas after severance and to all proceeds from the sale of the oil and gas. See Tex. Prop. Code § 67.002. Under this new statute, whether the minerals are severed, paid in kind, or sold to a third party, the interest owner will have an automatically perfected lien to secure its rights to payment.

This revision moves Texas more in line with states like Oklahoma, which revised its own First Purchaser Statute in 2010 to similarly provide that a lien attaches to an owner’s interest in the oil and gas property in lieu of a security interest tied to production.

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[1] Case No. 19-12269, United States Bankruptcy Court for the District of Delaware.

 

The federal Fair Labor Standards Act (“FLSA”) provides for the payment of overtime at the rate of one and a half times an employee’s regular rate of pay for each hour worked in excess of 40 during a 7-day workweek.  There are a number of exemptions to the FLSA’s overtime pay requirements, the details of which are specified in regulations issued by the U.S. Department of Labor.  The most common are the so-called “white collar exemptions” that are available with respect to certain professional (4 year-degreed), executive (supervisor) and certain administrative employees (who must exercise discretion and independent judgment regarding matters of significance related to the management of the employer’s business).  To qualify for the “white collar” exemptions, the FLSA requires that the employee: (i.) satisfy the applicable duties test for the exemption; (ii.) be paid at least $684 per week; and (iii.) (in most cases) that such minimum pay be made to the employee on a guaranteed “salary basis.”  The Department of Labor regulations also provide for a relaxed “duties” test with respect to certain “highly compensated” employees who are paid total annual compensation of $107,432 or more.

The Department of Labor regulations provide that the FLSA overtime exemptions are to be narrowly applied, and that it is the employer’s burden to show that each of the elements required for the exemption are satisfied.  In the recent case of Hewitt v. Helix Energy Solutions Group, Inc. et al.  (No. 19-20023) (5th Cir.  9/9/2021), the Fifth Circuit Court of Appeals reinforced these strict construction principles and held that the FLSA executive overtime exemption will not be allowed if the salary basis payment requirements are not met, even in the case of highly compensated employees.

Michael Hewitt worked for Helix as a Tool Pusher and was responsible for supervising other employees in this position.  Hewitt worked offshore on a rotational “hitch” basis and frequently worked more than 40 hours per week.  There was no dispute that Hewitt’s primary duties were supervisory in nature, such that he met the “duties” test for the FLSA executive overtime pay exemption.  Likewise, his earnings far exceeded the $684 per week minimum earnings threshold.  However, Hewitt was not paid on a salaried basis – but was instead paid on a flat “day rate” of $963 per day worked.  Based on his high rate of pay and the number of days he worked, Hewitt earned well in excess of $200,000 per year.

Despite his high rate of pay, Hewitt filed suit on behalf of himself and other similarly situated employees contending that overtime premium pay was owed by the employer under the FLSA. The federal district granted Helix’s motion for summary judgment and dismissed Hewitt’s claim on the basis that he was a “highly compensated” employee.  Hewitt appealed.  In a contentious 2 to 1 decision (in which the majority and the dissent exchanged barbed quotes from Shakespeare’s Macbeth and Talladega Nights: the Ballad of Ricky Bobby), a three-judge panel of the Fifth Circuit reversed and found that the executive overtime pay exemption did not apply because Hewitt (although highly compensated) did not receive a guaranteed weekly salary.  Helix requested en banc review of the panel decision, which the Fifth Circuit granted.  On September 9, 2021, the Fifth Circuit (by a vote of 12 to 6) issued an en banc decision reversing the district court’s ruling for the employer and held that the FLSA executive overtime pay exemption could not be applied to Hewitt.  The case was remanded to the district court for further proceedings.

In reaching this result, the Fifth Circuit majority relied on a textual application of the FLSA (and relevant Department of Labor regulations).  The Court found that payment of Hewitt on a day rate basis did not satisfy the FLSA salary basis payment requirement because he was not guaranteed the required minimum salary without regard to the number of days or hours he worked.  The majority acknowledged that a Department of Labor regulation (29 C.F.R. 541.604(b)) allows an employer to compensate its exempt employees on a day rate basis (as an alternative to a weekly salary), but only if the pay arrangement also included a minimum weekly pay guarantee without regard to the days and hours worked and the guarantee bears a “reasonable relationship” to the employee’s usual weekly earnings.  The Court explained that an employer cannot meet this alternative requirement by guaranteeing a weekly payment substantially lower than the employee’s regular earnings because that would render the salary “illusory” (the majority reasoned that Helix could have met this requirement on these facts by guaranteeing Hewitt $4,000 per week).  In this case, no weekly wage guarantee was provided by the employer.  Therefore, the majority concluded that this Department of Labor regulation did not apply, and the day rate compensation method used by the employer did not satisfy the executive employee exemption.  Accordingly, Hewitt could not be treated as an overtime exempt employee.

Notwithstanding the harsh results for the employer on the facts of this case, the Court rejected the employer’s arguments that a highly compensated employee like Hewitt should not be entitled to overtime pay – without regard to the salary basis requirement:

“Our job is to follow the text—not to bend the text to avoid perceived negative consequences for the business community. That is not because industry concerns are unimportant. It is because those concerns belong in the political branches, not the courts. ‘We will not alter the text in order to satisfy the policy preferences’ of any person or industry. Barnhart v. Sigmon Coal Co., 534 U.S. 438, 462 (2002). ‘These are battles that should be fought among the political branches and the industry.’ Id.”

The Court also explained that its literal application of the FLSA to highly compensated energy industry workers is consistent with the approach taken by the Sixth and Eighth Circuit Court of Appeals, as well as a growing number of federal district courts considering these issues.  The fact that 8 of the 12 Fifth Circuit Judges who voted in Hewitt’s favor were Republican appointees, including the author of the majority opinion, Judge Ho (a 2018 Trump appointee), makes clear that this decision is not an anomaly in what is considered one of the most conservative, employer friendly Circuit Courts in the country, and that employers cannot rely on a high level of employee compensation as a substitute for technical FLSA compliance.  An amicus brief filed in support of Helix’s position estimated that Hewitt might be owed at least $52,000 per year in unpaid overtime.

Under the FLSA, an employee can recover the amount of overtime pay owed (for a period of up to 3 years), an equal amount of “liquidated damages” and attorney’s fees.  FLSA claims are often pursued on a collective action basis (a form of opt in class action – in which current and former employees can join).  The exposure presented by FLSA claims is significant, and underscores the importance of employers carefully reviewing their pay practices for FLSA compliance – and to strongly consider whether highly compensated employees who they intend to treat as overtime exempt should be paid on a salaried basis.

On August 23, 2021, the FDA announced the Pfizer COVID-19 vaccine is now fully approved.  With this news, more and more employers are adopting, or considering whether to adopt, vaccine mandates for their workforces.  One issue that a vaccine mandate raises is whether employers can lawfully ask job applicants about their COVID-19 vaccination status after they have adopted a vaccine requirement.  The short answer is that yes, you can, but it is advisable to wait to ask about an applicant’s vaccination status until after extending a conditional job offer.

Under the Americans with Disabilities Act (“ADA”), employers may not ask job applicants questions that are likely to reveal the existence of a disability before making a job offer.  The administrative agency charged with enforcement of the ADA, the federal Equal Employment Opportunity Commission (“EEOC”), issued guidance on a number of COVID-related legal issues earlier this year, and among the questions addressed was whether its legal to ask employees whether they are vaccinated.  The EEOC clarified that inquiring about vaccination status alone is not asking a question that is likely to reveal the existence of a disability, because there are many reasons why an employee may not be vaccinated besides having a disability.

While asking the vaccination question alone is not a disability-related inquiry, any follow-up questions could reveal the applicant has not been vaccinated due to a disability or religious objection.  Or, the applicant may simply volunteer this information as an explanation for why they are not vaccinated.  Interviewers need to avoid these types of inquiries or voluntary disclosures because they raise a risk of an unselected applicant suing for disability discrimination under the ADA or for religious discrimination under Title VII of the Civil Rights Act.

To eliminate these risks, employers could instead avoid asking about vaccination status until after extending a job offer that is conditional upon showing proof of vaccination, absent a need for reasonable accommodation for a disability or sincerely-held religious beliefs against vaccination.

So, what about Texas’s ban on “vaccine passports”?  Does this impact the analysis?  The short answer is, no, not for private employers.  On June 7, 2021, Texas Governor Greg Abbott signed into law new legislation that prohibits government entities from requiring proof of vaccination from individuals and strongly discourages private business from requiring that customers be vaccinated.  The Texas law simply does not apply to a private employer’s ability to require or encourage COVID-19 vaccinations for employees.

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com

On August 13, 2021, the Occupational Safety and Health Administration (OSHA) updated its COVID-19 guidance for non-healthcare employers.  The updates to OSHA’s “Protecting Workers: Guidance on Mitigating and Preventing the Spread of COVID-19 in the Workplace” publication follow the CDC’s July 27, 2021 updated mask and testing recommendations for fully vaccinated people.

Some key takeaways:

  • OSHA now recommends masks in indoor spaces in areas of substantial or high COVID-19 infection – even for fully-vaccinated employees and including customers and other visitors.
    • Of note, the CDC has currently designated about 94% of the country as areas of substantial or high COVID-19 infection.
    • OSHA recommends employers provide masks to employees who request them free of charge.
  • OSHA recommends that employers help facilitate employees to get vaccinated, including, for example, giving paid time off to get vaccinated and to recover from any side effects.
  • OSHA “suggests that employers consider adopting policies that require workers to get vaccinated or to undergo regular COVID-19 testing – in addition to mask wearing and physical distancing – if they remain unvaccinated.”
    • Note that employers issuing vaccination mandates must keep in mind their duties of reasonable accommodation for employees who have a medical condition or sincerely held religious belief that would preclude vaccination.
  • If a fully vaccinated employee has a known exposure to COVID-19, OSHA recommends the employee (a) get tested 3-5 days after the exposure, and (b) wear a mask in indoor spaces for 14 days or until they receive a negative test result.
  • And for employees who are not fully vaccinated with a known exposure to COVID-19, OSHA recommends (a) the employee quarantine at home, (b) be tested immediately, and (c) if negative, tested again in 5-7 days after last exposure or immediately if symptoms develop during quarantine.

OSHA guidance is not a regulation; rather, it is advisory in nature and does not have the full force of law.  Nevertheless, because employers have a general duty to protect the health and safety of their workers, following OSHA’s guidance is generally advisable.

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com

“Long COVID” or “long-haul COVID” are terms coined to describe a range of new or ongoing systems that can last weeks or months after first being infected with the COVID-19 virus.  The CDC’s website lists many commonly reported symptoms among “long haulers,” which list includes:

  • Difficulty breathing or shortness of breath
  • Tiredness or fatigue
  • Symptoms that get worse after physical or mental activities
  • Difficulty thinking or concentrating (i.e., “brain fog”)
  • Cough
  • Chest or stomach pain
  • Headaches
  • Heart palpitations (fast-beat or pounding heart)
  • Joint or muscle pain
  • Pins-and-needles feeling
  • Diarrhea
  • Sleep problems
  • Fever
  • Dizziness/lightheadedness
  • Rash
  • Mood changes
  • Changes in smell or taste
  • Changes in menstrual cycles

Employers must now consider whether employees reporting ongoing physical and/or mental impairments following a COVID-19 diagnosis will qualify as “disabled” under the Americans with Disabilities Act (“ADA”).  On July 28, 2021, the U.S. Department of Health and Human Services (“DHHS”) and U.S. Department of Justice (“DOJ”) jointly issued guidance explaining that long COVID may be a disability under provisions of the ADA applicable to state and local government and public accommodations (respectively, Titles II and III), among other federal statutes.

Although the guidance did not expressly apply to Title I of the ADA, which applies to private employers, the guidance is nevertheless useful to private employers in assessing whether long COVID sufferers qualify as disabled – because the definition of “disability” is the same under every title of the Act.

The July 28 joint guidance explains that long COVID is not necessarily a disability – but it may be.  The guidance instructs that an individualized assessment is necessary to determine whether a person’s symptoms “substantially limit” one or more “major life activities,” as those terms are defined in the ADA, which would deem a person disabled within the meaning of the Act.  The guidance then gives some examples of when long COVID could qualify as a disability, including aggregations of symptoms that substantially limit individuals in the major life activities of respiratory function, gastrointestinal function, and brain function.  The guidance further notes that “[e]ven if the impairment comes and goes, it is considered a disability if it would substantially limit a major life activity when the impairment is active.”

The U.S. Equal Employment Opportunity Commission (“EEOC”) is the administrative agency responsible for enforcing the employment provisions of the ADA under Title I.  To date, the EEOC has not addressed long COVID in its COVID-related resources.  However, the DHHS and DOJ’s July 28 joint guidance is still instructive and private employers should be mindful that those employees complaining of long COVID symptoms may qualify as “disabled” under the ADA and require reasonable accommodation.

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com

With many employees shifting to work remotely long-term in the wake of the COVID-19 pandemic, employers must be mindful of how to comply with their employment-law posting requirements vis-à-vis their remote workers.  The commonly used laminated collage of posters hanging on an employee bulletin board back at the office will not suffice for these workers.  So how does one comply?  The U.S. Department of Labor’s Wage and Hour Division has issued a Field Assistance Bulletin (“FAB”) [https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/fab_2020_7.pdf] that provides guidance on how to comply electronically, and the answer is not as easy as simply emailing remote workers a single copy of the required posters.

By its own terms, the FAB applies to the poster obligations of four federal statutes, including the Fair Labor Standards Act (“FLSA”), Family and Medical Leave Act (“FMLA”), Employee Polygraph Protection Act (“EPPA”) and the Service Contract Act (“SCA”), but its guidance should prove helpful for compliance with other federal, state and local employee poster requirements.

Because several employment statutes require continuous posting (using language such as “post and keep posted” or provide notice “at all times”), the FAB explains that a single mailing of the requisite poster to employees is insufficient.

Where employers have both remote and on-site workers, hard-copy posting in company offices/facilities should continue, with electronic posting supplementing the hard-copy posting for those employees who work remotely.  Additionally, electronic substitution for the continuous posting requirement will be acceptable only where (a) employees customarily receive information from the employer via electronic means, and (b) employees have ready access to the electronic posting.

Whether posting on an intranet site, internet website, shared network drive, or other electronic file system will suffice will depend on the particular facts involved with each employer – with the key determination being whether affected employees can readily access the posting.  Key factual issues to keep in mind, include:

(1) access should be available without having to specifically request permission to view a file or access a computer;

(2) affected workers should be notified where and how to access the notices electronically; and

(3) affected workers should be able to easily determine which postings are applicable to them.

As the FAB explicitly warns, “[p]osting on an unknown or little-known electronic location has the effect of hiding the notice, similar to posting a hard-copy notice in an inconspicuous place, such as a custodial closet or little-visited basement.”

Because some statutes, such as the FMLA and EPPA, require notice to applicants as well, employers who interview and hire remotely will need to be sure to make such notices readily available electronically to applicants, in addition to employees.

Both the U.S. Department of Labor’s and the Texas Workforce Commission’s websites include additional helpful guidance on employer poster and recordkeeping duties, with links to the requisite posters for free downloading and printing (with many posters available in multiple languages):

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com

The Texas Pandemic Liability Protection Act (PLPA) took effect on June 14, 2021 and provides retroactive protections to businesses against lawsuits alleging damages due to an exposure to COVID-19.  The general provisions of the Act are now codified at Section 148.003 of the Texas Civil Practice and Remedies Code.

It is important to note that the protection from liability for causing an exposure to COVID-19 (including liability for the death of the exposed person) is, however, not absolute.  Liability may still attach if the plaintiff can establish:

  1. The business knowingly failed to implement or comply with applicable government-promulgated standards, guidance, or protocols intended to lower the likelihood of exposure to the disease.

Note: Where state and local government authorities have issued conflicting standards, the protection from liability will remain intact so long as the business complied with one of the applicable, but conflicting, standards.

  1. Or, the business knowingly failed to warn the plaintiff of or remediate a condition within the business that it knew was likely to result in exposing plaintiff to the disease, provided that (a) the business had control over the threatening condition; (b) the business knew the plaintiff was more likely than not to come into contact with that condition; and (c) the business had a reasonable opportunity to remediate the condition or warn the individual of the condition before the individual came into contact with that condition.

If either circumstance (1) or circumstance (2) exists (potentially opening the business to liability), then the plaintiff still must also show by “reliable scientific evidence” that “the failure to warn the individual of the condition, remediate the condition, or implement or comply with the government-promulgated standards, guidance, or protocols was the cause in fact of the individual contracting the disease.”

The statute provides a specific deadline (120 days after the defendant files an answer to the lawsuit) for the plaintiff to provide an expert witness report(s) attesting to the factual and scientific grounds for the assertion that the defendant’s failure to act caused the plaintiff to contract the disease.  The statute further limits the discovery that can occur (specifically, no more than two depositions) before such expert analysis is provided by the plaintiff.  The defendant may object to the sufficiency of the expert report, with the court allowing the plaintiff an additional 30 days to cure any deficiencies.  If a sufficient expert report is not timely served, the court may then dismiss the plaintiff’s claims and the business “shall” be awarded its reasonable attorneys’ fees and costs incurred defending the action.

As noted above, the PLPA is retroactive and applies to all claims commenced on or after March 13, 2020 for which a judgment had not already been entered and become final as of June 21, 2021.

The protections provided by the PLPA will last so long as the COVID-19 “pandemic emergency” lasts, which term is defined to mean a state of disaster as declared by the governor in response to a pandemic disease.

Those businesses with COVID-related litigation now pending should consult with legal counsel concerning the application of this defense.  On a go forward basis, businesses should remain mindful of their duties to warn of and remediate threats, and to comply with government-promulgated safety measures, in order to take full advantage of the liability shields offered by the PLPA.

In addition to the more general protections from exposure-related liabilities, the PLPA provides various other statutory protections to businesses from liabilities arising out of COVID-19 and other future pandemics, including special protections for first responders, physicians, and other health care providers (codified at Section 74.155 of the Texas Civil Practice and Remedies Code), protections from products liability actions related to pandemic emergencies (codified at Section 148.002 of the same Code), and protections for educational institutions for certain actions during a pandemic (codified at Section 148.004 of the same Code).  The following is a link to the entire enrolled statute:  Bill Text: TX SB6 | 2021-2022 | 87th Legislature | Enrolled | LegiScan.

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com

A significant amendment to the Texas statute that allows for recovery of attorneys’ fees by a prevailing plaintiff in an action for breach of contract will take effect on September 1, 2021.  Previously, Texas courts have interpreted Texas Civil Practice and Remedies Code section 38.001 to award attorney fees against only individuals and corporations, not limited liability companies, partnerships or other types of entities.

In three prior legislative sessions, unsuccessful attempts have been made to amend the statute to broaden its reach to other entity forms.  In May 2021, the Texas Legislature adopted House Bill 1578 (Bill Text: TX HB1578 | 2021-2022 | 87th Legislature | Enrolled | LegiScan), which finally amends section 38.001 to address other entities besides a corporation.

More specifically, the amendment adds a new subsection to section 38.001 defining an “organization” to mean the same as defined in section 1.002(62) of the Texas Business Organizations Code, which includes:  “a corporation, limited or general partnership, limited liability company, business trust, real estate investment trust, joint venture, joint stock company, cooperative, association, bank, insurance company, credit union, savings and loan association, or other organization, regardless of whether the organization is for-profit, nonprofit, domestic, or foreign.”

The amended statute does, however, specifically exclude quasi-governmental entities authorized to perform a function by state law, religious organizations, charitable organizations, and charitable trusts.

Because the amendments explicitly apply only to new cases filed on or after September 1, 2021, a plaintiff who is about to file a claim for breach of contract should consider holding off until September 1 to file (barring any statute of limitations or other considerations that make immediate suit warranted).

Notably, section 38.001 does not allow for an award of attorneys’ fees to a defendant who successfully defends against a breach of contract claim, and the recent amendments do not change this.  Contracting parties should keep the parameters of section 38.001 in mind (especially in view of these recent amendments) when drafting or amending their contracts.  Under Texas law, a contract may provide that the prevailing party, whether the plaintiff or defendant, will recover its attorneys’ fees against the other party, or that the statutory right for a prevailing plaintiff to recover its fees under section 38.001 is waived leaving no party able to recover its fees.

Thus, besides effecting litigation after September 1, the recent amendments to section 38.001 may also weigh into decisions made when drafting and amending contracts to potentially provide for either mutual or no fee entitlement at all.

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com

Several significant expansions of Texas sexual harassment law will take effect on September 1, 2021 (see Senate Bill 45 – TX SB45 | 2021-2022 | 87th Legislature | LegiScan).  These expansions make it critical for virtually all Texas businesses to adopt formal written policies and train workers on the prohibitions against sexual harassment.

First, any employer that employs only “one or more employees” will now be subject to sexual harassment claims under Texas law.  This new law is a substantial change from current law, which holds only those employers with fifteen or more employees can be held liable for such claims.

Second, as of September 1, Texas law will define a potentially liable “employer” to include any person who “acts directly in the interests of an employer in relation to an employee” – signaling the possibility for individual liability against members of company management and owners in addition to entity liability.

Third, Texas Labor Code section 21.141 will include an arguably heightened standard for an employer’s response to complaints of sexual harassment, requiring employers to take “immediate and appropriate corrective action” when the employer knows or should know about the harassment.  The legislature’s use of the word “immediate” differs from the widely accepted interpretations of federal and state equal employment opportunity statutes requiring “prompt” remedial action, and thus, it will remain to be seen whether the courts interpret this new language to impose a requirement for quicker action by employers upon their discovery of sexual harassment in their workplaces.

Fourth, the Texas legislature has also expanded the deadline for a claimant to file an administrative Charge of Discrimination from 180-days to 300-days from the alleged conduct (see House Bill 21 – TX HB21 | 2021-2022 | 87th Legislature | LegiScan).

Notably, these provisions for (1) small-employer liability, (2) potential individual liability, (3) a possible heightened standard for an employer’s response and (4) a longer statute of limitations have not been expanded to claims for other types of unlawful discrimination, such as, for example, racial harassment or retaliation claims, and instead are limited to claims for sexual harassment.

Now is a great time to adopt new or review and fortify existing corporate policies against sexual harassment and remind all employees of their duties to avoid and report this type of misconduct.

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com

On July 9, 2021, President Biden signed the Executive Order on Promoting Competition in the American Economy While the Order is aspirational and a policy road map, it does not operate to ban, or otherwise restrict in any way, the enforcement of employee noncompete agreements.

In the week that followed, many news outlets published articles heralding a national demise of employee noncompete agreements.  But President Biden’s Order did not effectuate any change to the laws regarding the enforceability of covenants not to compete. The Order is, rather, a wide-sweeping directive to various federal agencies advising of the policy-making goals of the Biden Administration.

As the White House’s Fact Sheet describing the Order explained the July 9 Order “includes 72 initiatives by more than a dozen federal agencies” intended to promote competition and constrain big corporations from consolidating power in a broad array of business sectors ranging from airlines to chicken farmers. The topic of noncompete agreements is but one of myriads of topics addressed in the Order, and the Order is devoid of details on how or to what extent noncompete laws should be reformed.  In the Order, President Biden simply encourages the Federal Trade Commission (one of the federal agencies responsible for enforcing anti-trust laws) to “curtail” the “unfair use” of noncompete agreements, stating:  “To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to curtail the unfair use of non-compete clauses or other clauses or agreements that may unfairly limit worker mobility.”

It remains to be seen what, if any, action the FTC takes in response to the Order.  If the FTC does take up the invitation to act in this area, the agency’s rulemaking process is typically slow, with any rules it passes to bar or constrain noncompete agreements likely facing numerous legal challenges – especially since there is no body of federal noncompete law because this area has been the province of state law.

So, have noncompetes been banned in any material way? In short, the answer is, No. The President has not implemented any ban on employer use of noncompete agreements, or their close cousin, non-solicitation agreements that prohibit former employees from soliciting or doing business with a company’s customers or other employees.  Well-crafted noncompete and non-solicitation agreements can help protect a company’s trade secrets and other confidential information, investment in employee training, and business goodwill.  Texas has codified the enforceability of covenants not to compete at Texas Business and Commerce Code section 15.50, which generally allows for the enforcement of noncompete agreements to the extent they contain reasonable limitations as to time, geographical area, and scope of activity to be restrained.  The July 9 Executive Order does not alter the Texas legal landscape in this area.

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com.