Utah County PB&L Employment Law Seminar - August 28, 2019

1. Utah County Employment Law Seminar
Wednesday, August 28, 2019
PA R S O N S B E H L E . C O MN AT I O N A L E X P E R T I S E . R E G I O N A L L AW F I R M .
Employment Basics for
Small Businesses and Start-Ups
Sean A. Monson
801.536.6714 | smonson@parsonsbehle.com

2. 2
Common Issues – Start Up Entities/Tech Companies
 Inventions/Confidentiality/Non-Solicitation/Non-Competition
 Overtime/Break Time
 Employee Handbooks
o At-will Acknowledgment
o Drug and Alcohol Testing Policy
o Sexual Harassment Policies
o FMLA Policies
 Independent Contractor or Employee
 PTO
 Best practices – hiring
 Best practices – firing

3. 3
Confidentiality and Inventions Agreement
 The most important document for technology companies
 Confidentiality agreements protect confidential information of the
employer from being distributed to third parties or used by the
employee to compete
 Confidential information does not have to rise to the level of a
trade secret to be protectable but is more likely to be protectable
if it is
 Inventions agreements ensure that new inventions belong to the
employer

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What is a Trade Secret?
 Utah Uniform Trade Secrets Act:
 “Trade Secret” means information, including a formula,
pattern, compilation, program, device, method, technique, or
process, that:
o (a) derives independent economic value, actual or potential, from
not being generally known to, and not being readily ascertainable
by proper means by, other persons who can obtain economic value
from its disclosure or use; and
o (b) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.

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What is a Trade Secret?
 Information is more likely to be protected as a trade secret if
it is:
o Not known outside of the business
o Known only by employees involved in the business
o Protected by the business
o Has value
o Difficult to independently possess or
o Is a compilation of otherwise public information

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Common Trade Secrets
 Sales prospect information that has been compiled into a
unique form
 Unique attributes of customers
 Buying patterns
 Internal pricing strategies
 Strategic market or sales information
 Secret formulas
 Competitive information

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Red Flags & Warning Signs of Potential
Trade Secret Theft
 Your key employee resigns and says they are working in a completely new industry,
and not for a competitor
 Your key employee resigns and says they are working for a competitor
 Your key employee resigns to start their own business and the barriers to entry are
low
 Your key employee threatens to resign unless they get a significant raise
 Your key customers or sales prospects suddenly stop communicating with you and
go dark
 Your key employee is suddenly working odd hours or remotely
 Several key employees start to meet discreetly or after hours
 Several key employees quit at the same time
Key Point: Most employee theft happens BEFORE the employee quits or resigns, and is done in
anticipation of resignation

8. 8
Immediate Action Steps Upon Key
Employee Resignation
 Conduct an exit interview
o Where are they going to be employed?
o Get phones and computers back, and
preserve
 Interview friends and colleagues of
departing employee
 Review their e-mail and other
communication
 Get employee to sign in writing that
they have no trade secrets in their
possession, custody or control
 Do not turn on phones or computers
(give to forensic expert)
 Have IT investigate all hardware used
by employee
 Review all computer log-in information
for unusual activity
 Review phone call history
 Review salesforce.com history
 Review social media, including
LinkedIn, etc. . .
 Hire a data forensic expert if anything
suspicious
 Consider involving law enforcement
early if have proof because law
enforcement is slow

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Common Methods of Stealing Data
 Thumb drives
 External drives
 Smartphones, including photographs
 Cloud services such as Dropbox
 Public e-mail accounts like Yahoo
 Printing copies
 Texts
 Phone calls

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Common Methods of Stealing Data
 Encrypted communications software/e-mail like
o ProtonMail
o Hushmail
o Barracuda
 Uploading to other software or apps, i.e., LinkedIn

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Customer Lists
 Customer lists can be protected as a trade secret if the
customers’ information is:
o Not known in the trade;
o Discoverable only by extraordinary efforts.
Hammerton, Inc. v. Heisterman (D. Utah 2008).
 Contains unique information not generally known in the
industry, i.e., key contacts, purchasing patterns, historical
purchase information.

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Ways to Protect Trade Secrets
 Mark as confidential or proprietary
 Permit only authorized access and for only needed time period
 Prohibit copying
 Inform employees of the secrecy of the information and duties
regarding same
 Keep the information secret and not available beyond those who
have an immediate need to know
 Delete all data after cessation of employment remotely

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Non-Compete/Non-Solicitation
 Key issue a court is going to look at is “protectable interest”
 Is there a legitimate reason for the court to place restrictions on
an employee’s ability to make a living in his or her chosen
industry
 Think of an inverse pyramid in terms of protectable interests –
confidential information on top, non-solicitation covenants in the
middle, non-compete covenants the tip at the bottom
 Courts are likely to find that an employer has legitimate interest
in preventing its confidential information from being used by a
competitor

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Non-Compete/Non-Solicitation
 Non-Solicitation – middle of the inverted pyramid as to
protectable interest
o Customers the employee worked with
o Customers as a whole of the employer
o Potential customers

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Non-Competition/Non-Solicitation
 Non-Competition – bottom tip of the inverted pyramid as to
protectable interest
 In Utah, unless the employee is a television broadcaster or
unless the covenant not to compete is negotiated as part of
the sale of a business – cannot be longer than one year
 What is the line between non-solicitation and non-
competition
 Social media posts, general advertising, what if the
customer reaches out first

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Non-Competition – Hiring
 Ask candidate if subject to non-compete
 Written verification they are not
 Indemnification if verification is wrong
 Be wary of hiring employees of competitors

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Overtime – Basic Rules
 Overtime is a federal issue – the Fair Labor Standards Act
(FLSA)
 No state rule/requirement
 Basic rule – paid one and one-half wage rate for every hour
worked past 40 hours in a week
o Don’t combine weeks (i.e. 60 in one week, 20 in one week)
o Week by week basis
o Compare California which requires overtime for time over 8 hours
in one day and for the first 8 hours on the seventh consecutive day
of work – so in California, subject to both federal and state rules

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Overtime – Exemptions
 Certain categories of employees are “exempt” under the FLSA – don’t
have to pay overtime
 Multiple exemptions – ones most common in start up industries –
Executive, Administrative, Outside Sales, Computer
 Executive, Administrative -- must be paid on a salary basis of not less
than $455 per week (3/17/2019 proposal to move this to $679 per
week)
 Computer – must be paid on a salary or fee basis of $455 per week
(3/17/2019 proposal to move to $679 per week) or, if paid hourly, at
least $27.63 per hour.
 Outside Sales – no salary threshold

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Overtime Exemptions – Computer Employees
The employee must be employed as a computer systems analyst,
computer programmer, software engineer or other similarly skilled
worker in the computer field performing the duties described below
o The employee’s primary duty must consist of:
1) The application of systems analysis techniques and procedures, including
consulting with users, to determine hardware, software or system functional
specifications;
2) The design, development, documentation, analysis, creation, testing or
modification of computer systems or programs, including prototypes, based
on and related to user or system design specifications;
3) The design, documentation, testing, creation or modification of computer
programs related to machine operating systems; or
4) A combination of the aforementioned duties, the performance of which
requires the same level of skills.

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Computer Exemption – Primary Duty
 “Primary duty” means the principal, main, major or most
important duty that the employee performs. Determination of
an employee’s primary duty must be based on all the facts
in a particular case, with the major emphasis on the
character of the employee’s job as a whole.

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Overtime Exemptions – Executive Employees
 Must meet salary thresholds
 The employee’s primary duty must be managing the enterprise, or
managing a customarily recognized department or subdivision of
the enterprise;
 The employee must customarily and regularly direct the work of at
least two or more other full-time employees or their equivalent; and
 The employee must have the authority to hire or fire other
employees, or the employee’s suggestions and recommendations
as to the hiring, firing, advancement, promotion or any other
change of status of other employees must be given particular
weight

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Overtime Exemption – Administrative Employees
 Must meet the salary threshold
 The employee’s primary duty must be the performance of
office or non-manual work directly related to the
management or general business operations of the
employer or the employer’s customers; and
 The employee’s primary duty includes the exercise of
discretion and independent judgment with respect to
matters of significance

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Overtime Exemptions – Outside Sales
 No salary threshold requirement for exemption to apply
 The employee’s primary duty must be making sales (as
defined in the FLSA), or obtaining orders or contracts for
services or for the use of facilities for which a consideration
will be paid by the client or customer; and
 The employee must be customarily and regularly engaged
away from the employer’s place or places of business

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Breaks
 No federal requirement to provide breaks
 No state requirement to provide breaks (unless employee is
under the age of eighteen – 10 minutes for every 3 hours;
30 minutes after 5 hours from start of shift)
 But . . . If you do provide a break to those over 18
o 20 minutes or under – must be paid
o 30 minutes or over – need not be paid (if employee is given
freedom to do what he or she wants during that time period)
o 20-30 minutes, gray area but most likely not compensable

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Lactation Breaks
 The FLSA requires covered employers to provide
reasonable break time for employees who are nursing or
breastfeeding mothers to express breast milk.
o Employers with fewer than 50 employees are not subject to the
FLSA break time requirement if the employer can demonstrate that
compliance with the provision would impose an undue hardship
 Utah Law requires that public employers provide
“reasonable breaks and private room.”
o See Utah Code 34-49-202

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Employee Handbooks
There is no federal or state law requiring private employers to
provide handbooks to their employees
Reasons to provide a handbook include:
 A handbook provides an opportunity to formally welcome
new employees, introduce the organization and explain
expectations

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Key Reasons to Create a Handbook
 Grouping various employment policies together in a handbook
makes it easier for an employer to ensure that each employee
receives copies of all relevant policies – the most important of
which are drug and alcohol testing and unlawful
discrimination/harassment
 If subject to FMLA, must have FMLA leave policy in the
handbook
 A handbook is a centralized place for employees to look for
answers to common questions such as how often employees are
paid
 Confirm the at-will nature of the employee’s employment

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Creating a Handbook: Drafting Guidelines
 Avoid overly rigid disciplinary rules and any other language that
could be interpreted as creating a contractual obligation requiring
just cause for termination
o TIP: Simply state discretion to discipline and terminate the
employment relationship
 Include enough information so that the policies can be
understood, but avoid providing too much detail
 Language relating to the employee’s conduct should generally
be mandatory “shall” or “will.” Language relating to the
employer’s conduct should generally be discretionary “may” or
“at its discretion”

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At-Will Disclaimer
 At-Will Disclaimer
o The policies in the handbook are guidelines only
o Company has the right to modify or delete policies in the handbook
without notice
o The employment relationship is at-will – at-will disclaimer must be
CONSPICUOUS
o Employee can be fired for any or no reason, at any time, without
warning, without process
o Consider having employees re-sign every year to eliminate
implied-in-fact contracts that may have cropped up

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Anti-Harassment Policy
 Not required by federal law – but strongly encourage
 Should also have EEO statement and non-discrimination
policy in addition to anti-harassment policy
 It helps to demonstrate reasonable care to prevent and
promptly correct harassing behavior
o This is a necessary element of the Faragher-Ellerth defense.
 Clearly delineate two people to whom an alleged victim can
report claims

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Anti-Retaliation Policy
 This is the partner policy to EEO and anti-harassment
policies
 Not required by federal or state law
 A stand-alone retaliation policy is best because retaliation
can occur in contexts other than discrimination or
harassment
o i.e., workers' compensation laws, laws governing health and safety
and employment leave statutes

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FMLA Leave
 Family and Medical Leave (FMLA) Policy
o Eligible employees entitled to 12 twelve weeks unpaid leave for own illness,
illness of family member, birth of child etc.
o Employer can require to run currently with any PTO
o Employers covered (generally 50 or more employees) must include a general
notice explaining the FMLA's provisions in their employee handbook
• See 29 C.F.R. § 825.300
o Employers should ensure that the policy accurately provides which category of
employees are eligible for leave and the requirements that need to be met for
such eligibility
o An employer who misrepresents information about an employee's eligibility in
FMLA leave in its employee manual may be liable for FMLA interference under
an estoppel theory

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Drug and Alcohol Testing
 Must have a written policy or can’t use as a basis for
discipline
 Must follow state statute in testing protocol
 Usually can test:
o Reasonable suspicion
o Random
 Cannot test before offer of employment made
 Should apply uniform pre-offer testing requirements to all
similarly situated employees

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Independent Contract v. Employee – Beware the
Sirens
 Paying people as independent contractors is very tempting
o Tax savings (they pay the employer’s portion of FICA)
o No overtime
o No workers compensation
o No unemployment insurance
 But doing so is very dangerous
 Multiple contexts – taxes, FLSA, Workers Compensation,
Unemployment
 Different tests in each context, even in same state

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Independent Contract v. Employee – Beware the
Sirens
 Right to control the work is a key element in most tests
o Timing
o Methods
o Means of production/tools
 Work for someone else besides you – trend of cases and statutes focus on this issue
 California – Dynamex decision – ABC Test – Presumed to be an employee unless
employer can show:
o Free from control and direction of employer in performing work – both under contract and
in fact
o Worker performs tasks outside usual course of hiring entity’s business
o Worker is customarily engaged in an independent trade or business of the same nature
as the work performed for the hiring entity
 Penalties for misclassification can be extreme . . . a lose the business type of
proposition

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PTO
 Can implement use it or lose it rule, including at termination
 But the rule must be express
 Trend is for no/unlimited PTO
 Take the time you need, get the job done
 Ripe for abuse, have to be vigilant in imposing
accountability to “get the job done”

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Hiring – Proper and Improper Questions
 Proper: Current and previously used names
 Improper: Origin of applicant’s name which could suggest
lineage or national origin
 Proper: Current address
 Improper: Prior or current foreign address (which could
constitute an inquiry into national origin)
 Improper: Inquiry into birthplace of applicant, parents,
spouse or relatives

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Hiring – Proper and Improper Questions
 Improper: Inquiry into age prior to employment (unless there
is a minimum age requirement for performance of job)
 Proper: Ability to perform job-related tasks; describe or
demonstrate, with or without reasonable accommodation,
ability to perform job
 Improper: Inquiry about whether disabled or nature or
severity of disability

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Hiring – Proper and Improper Inquiries
 Improper: Inquiries into gender, pregnancy or plans to have
children
 Improper: Inquiries into applicant’s religion, spiritual leader,
religious beliefs (or lack thereof)
 Improper: Inquiries into arrest records
 Improper: Inquiries into height or weight (unless necessary
for job)

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Discipline and Termination
 File becomes the key to any employment defense
 Written discipline 100x the value of an oral reprimand
 If get a complaint, follow this process:
o Get complaining party’s story – have them sign or record
• Who, what, where, when
o Talk to all witnesses
• Who, what, where, when
o Make a decision that explains why took steps you took
o Give the complained about party a chance to respond
 Document misconduct – if not documented, it did not happen
 CONSISTENCY, CONSISTENCY, CONSISTENCY

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Thank You
 Sean A. Monson
801.536.6714
smonson@parsonsbehle.com