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Company Contract and Employee Agreement Legal Situations

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Company A enters into an employment agreement with Sales Manager. The employment agreement provides that, upon termination of the agreement, Sales Manager is prohibited from working for any competitor of Company A in any capacity for ten years. The agreement also provides that, in the event of a breach of this covenant, Sales Manager will be liable for $5,000,000 in liquidated damages.
- Is the covenant an enforceable agreement in restraint of trade? Why or why not?
- If you believe that the covenant is unenforceable, what changes would you recommend to make it enforceable?
- Sales Manager leaves Company A and goes to work for Company B, a competitor of Company A. Company A sues and demands payment of $5,000,000 in liquidated damages. Assuming the agreement in partial restraint of trade is otherwise enforceable, will Company A be entitled to a judgment in the amount of $5,000,000 against Sales Manager? Why or why not?

Company A enters into an agreement with Company B to purchase widgets from Company B for a two-year period. The contract sets forth quality standards that require at least 95% of the widgets to be suitable for Company A's purposes. From the first month of the arrangement, only 90% of the widgets met the quality standards. At first, Company A does not advise Company B of the problem because Company A needs to keep its production line moving and it hopes that Acme will improve its performance. However, after six months, Company A wants to terminate the contract.
- What contract clause or clauses should Company A review before terminating the agreement?
- Assume the same facts except Company A's Production Manager orally tells Company B that it can live with the 90% quality level but Company B needs to improve its performance. Does this modify the contract? What contract clause or clauses would you review to determine your answer to this question and why? Would your answer be different if the Production Manager sent a letter? Why or why not?
- What defenses could Company B assert against Company A?
- Assume that Company B sues Company A. Since Company B is a small company with few resources, Company B wants to recover its attorneys' fees. Is this possible? What contract clauses should be reviewed and why?

Company A enters into a contract with Company B that requires Company B to use its best efforts to create a positive public image for Company A in consideration for payment in the amount of $10,000 per month. After three months, Company B has placed only one newspaper article about Company A, and Company A stops making the $10,000 per month payments.
- What contract clause or clauses should Company A review before stopping payments?
- What claims are Company A likely to make against Company B?
- What defenses are Company B likely to assert against Company A?
- Would it make any difference if the contract required "commercially reasonable best efforts"? Why or why not?

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When Can a Former Employee Challenge a Restrictive Covenant? By: Miles, Michael J., Employment & Labor Relations Law, 19373406, Winter2012, Vol. 10, Issue

Company A enters into an employment agreement with Sales Manager. The employment agreement provides that, upon termination of the agreement, Sales Manager is prohibited from working for any competitor of Company A in any capacity for ten years. The agreement also provides that, in the event of a breach of this covenant, Sales Manager will be liable for $5,000,000 in liquidated damages.

- Is the covenant an enforceable agreement in restraint of trade? Why or why not?

Employment law enables former employees such as the sales manager to question the validity of a restrictive covenant such as a noncompetition or non-solicitation agreement with his or her former employer, when it has been breached. The law gives the former employee to argue that the restrictive covenant was invalid. When deciding if a covenant is enforceable YOU must pay attention to the Uniform Declaratory Judgment Act in the state that you reside as different states have different paradigms for determining when a case or controversy or actual controversy exists in regard to the validity of restrictive covenants such as the one for this scenario.

In this scenario the enforceability of the covenant will be predicated upon the judgment of whether the stipulations included are overbroad, which I believe that they are because it restricts the employee from seeking another form of employment for 10 years and assesses a 5 million dollar fine. I would say that this is unenforceable, but as I stated in the beginning of this summary, the employee does have legal recourse because he or she has breached the covenant by being hired by a rival company. Whether a legitimate controversy exists is difficult and challenging to answer without all the facts in your state's law, but I cannot fathom this being a enforceable covenant.

- If you believe that the covenant is unenforceable, what changes would you recommend to make it enforceable?

There are changes that could be made that would figuratively enable the covenant to be enforceable including not restricting the former employee from obtaining gainful employment for 10 years nor assessing an asinine fine if he or she does. The assessing of a 5 million dollar penalty is ridiculous and any court would see this as an overbroad attempt that places undue burden on the former employee's ability to remain financially solvent once they have parted ways with their previous employer. Any company that sought to hire this former employee and compete with the former employer will be subject to this fine if the covenant was enforceable making the former employee virtually unable to be ...

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Four Employment Situations - References and Due Diligence Worksheet

You are a mid-level manager at Pacific-Oregon University (POU), a large private university, and have been asked to provide your boss, department director Pat Grey, with advice on several situations currently facing the department. Pat knows that you have recently completed a course in employment law, and asks that you identify what legal questions are present in each situation, what legal principles are relevant to the situation, and what course of action you recommend the boss take.

Please prepare your response to Pat in a memo that addresses all situations presented below. Be sure that your response references relevant legal principles, applies them correctly, and provides a recommendation that is consistent with the legal principles. Finally, be sure that your response is precise, concise, simple and clear in content, and that it employs proper grammar, spelling, sentence construction and other principles of good writing.

Additionally, complete a Due Diligence Worksheet for this week's assignment.

Situation #6-1: Union organizational activity and negotiations

Some faculty members in the department have considered forming a union, and Pat Grey is thinking about what to do if a union organizing campaign actually starts. One school of thought advocated by some managers is to quietly let the union form and thereafter negotiate a contract. Then, when the "new" has worn off the union process after a couple of months, Pat believes that it would be possible to initiate a de-certification election that would show the majority of faculty member don't really want a union. Pat believes that the union could form, and then be decertified, all within less than a year. Pat asks you if this strategy is legal and if it makes sense, given current U.S. statutory and case law, and how that law has trended over the last century.

As you prepare a response to Pat, you consider the key labor law principles that you need to address in your reply. Your memo to Pat should consider (but not necessarily be limited to):
a. An explanation of how the labor movement and labor laws have brought us to the situation we are in today;
b. An analysis of the legal implications of union organizing and other protected activities; and
c. An explanation of the concept of "bargaining in good faith" and how it applies to this situation.

Situation #6-2: Faculty selection procedures

The department also faces a situation regarding how faculty members are selected. The situation is illustrated succinctly by Lucy, an applicant for a faculty position. Lucy was one of a group of 50 who went through the selection process. The 40 men who went through it were happy when the selection process ended and talked about careers, but the 10 women seemed unsure and were much quieter. Only 30 applicants successfully completed the process, including 4 women.

Lucy has threatened to bring legal action claiming gender discrimination on the theory of disparate impact of the process. Pat believes that because the selection process utilizes objective measurement criteria (e.g., undergraduate GPA, graduate GPA and these test scores), Lucy cannot prevail in a claim of gender discrimination. Other mid-level managers have been concerned, however, that even though the measurement criteria are objective, the lower success rate of females leaves the University open to successful claim of disparate impact on the female applicants. Other managers argue that applicants can not even bring a claim, because they are not "employees" yet within the meaning of EEO statutes, and can't file legal action. Pat asks that you identify relevant legal principles, and apply them to the facts presented here.

As you think about Pat's request, you make mental notes about what you need to include in this part of your reply memo:
a. An analysis of techniques for investigating and resolving employee grievances and complaints, and how these techniques would be specifically applied in investigations requiring contact with job applicants as compared and contrasted to investigations involving current employees.

Situation #6-3: Unionizing

The faculty of POU did, in fact, form a union and are preparing to negotiate a contract with the University. The union finds that it has no active member who has experience negotiating labor-management contracts, and hires retired professor Ima Meeny as a negotiations consultant. Dr. Meeny was a long-time union activist at the nearby state university, and will bring her expertise to the bargaining table. Thinking that there may be a weakness in selecting Dr. Meeny, who has experience only in the public sector, to negotiate with POU in the private sector, Pat Grey asks you if there are differences in the way that labor law and labor relations is applied in the public versus private sector.

Pat Grey also asks that you quietly conduct research regarding (a) the issues that Dr. Meeny was most focused on during her negotiations with the state university; (b) what restrictions the Union might successfully enforce to limit POU's current employment practices that permit the conduct of polygraph, drug and AIDS testing for new employees; and (c) if POU can legally refuse to negotiate because Dr. Meeny is not an employee of POU and therefore might not be allowed to participate because she is an outsider.

As you read this, you make mental notes about what you need to cover in your reply. This part of your memo should consider the following topics:
a. How you would compare and contrast labor relations in the public sector vs. the private sector and how that applies to this case;
b. An analysis of the legal implications of union organizing and other protected activities; and
c. Your evaluation of potential legal pitfalls of polygraph, drug, AIDS and genetic testing

Situation # 6-4: Termination Agreements and Covenants not to Compete

Pat Grey has brought to your attention the matter of one member of the faculty who has informed POU that she intends to resign from the faculty and relocate to another part of the nation. This faculty member, Dr. Claudia Peppah, explains that she is relocating because her primary employer has offered her a promotion to another job in her employer's company, and she is not interested in simply transferring to another POU campus elsewhere in the U.S. She doesn't plan to continue teaching on a part-time basis, at least for now.

However, Dr. Peppah says that she will not agree to sign an agreement that prohibits her from teaching in any other higher education institution at her new work location, and POU is not willing to release her company-held stock to her until she does sign such an agreement. Dr. Peppah has indicated that she is prepared to sue POU for breach of contract for not releasing her company-held stock, which was credited to her account as part of her compensation when she served as a faculty member. Pat Grey, ever mindful of your coursework in employment law, has asked you to provide her with a recommendation about how the law will view the termination agreement and covenant not to compete, and whether POU will likely prevail if the case goes to court. Pat is also concerned about the hostility that is building in the situation, and wants you to explain what Pat may and may not say to any prospective employer of Dr. Peppah who may contact Pat asking for information on Dr. Peppah's skills and history while at POU. Finally, Pat is worried that Dr. Peppah has specific knowledge of current POU research efforts, and wants to know how POU can restrict Dr. Peppah from utilizing the proprietary knowledge that has been gained during tenure with POU. You make a mental note never to tell Pat Grey what courses you are taking ever again, but agree to provide the information requested.

As you prepare your memo to Pat, you make mental notes about how to incorporate the relevant legal principles into your response:
a. What criteria do you use to evaluate discipline processes and grievance procedures in situations like this?
b. What are the elements of effective termination agreements and covenants not to compete, and what are the most effective attributes of each element?
c. Explore possible employment actions that may lead to claims of defamation or invasion of privacy (Employment references, pending criminal claims) and relate those actions to the instant case; and
d. Analyze methods employers may use for the protection of proprietary information and intellectual property (common law duty of loyalty).

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