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HOW TO NAVIGATE THE DALLAS AND SAN ANTONIO PAID SICK LEAVE ORDINANCES

Dallas and San Antonio recently passed city laws mandating paid sick leave. The status of these municipal ordinances remains unclear. That is because the Texas Supreme Court is currently considering whether municipal paid sick leave ordinances violate Texas law, and the Court has stayed enforcement of a similar Austin sick leave ordinance while it considers whether to strike down the ordinance. Most employers assumed the Court’s ruling would be an interesting after-thought because the expectation was that the Texas legislature would ban this type of municipal ordinance. But the legislative session ended without passing the required legislation. Therefore, the Supreme Court will decide the question without the benefit of the promised legislation. The bad news is that the Supreme Court likely will not issue a ruling until after the effective date of the Dallas and San Antonio ordinances. The good news is that a ruling likely will be issued before either city imposes penalties under the ordinance.

While the Dallas and San Antonio laws could still be challenged in court (apart from the Austin appeal), the short timeframe before the laws go into effect suggests that there may not be enough time to block the new laws before their August 1, 2019, effective date. Therefore, employers should begin planning for compliance.

When do the laws go into effect?
The ordinances will take effect for all employers with more than five employees on August 1, 2019. For employers with five or fewer employees, the law takes effect August 1, 2021.

What are the penalties for not complying, and when do they take effect?
Employers are subject to fines up to $500 for failing to comply with the ordinance, but those penalties generally will not go into effect until April 1, 2020. Penalties for violations of the retaliation provisions, however, can be assessed immediately. So, some employers may take the risk of delaying changes until after the Texas Supreme Court’s ruling.

Even where a violation is found, employers will be given the opportunity to comply voluntarily with the ordinance before a penalty is collected. Only if the employer fails to achieve compliance within 10 business days after receipt of written notice of non-compliance will the employer be liable for the penalty.

What are the basic requirements of the ordinances?
The Dallas and San Antonio ordinances are mostly identical in substance. The ordinances apply to all employers, including private employers, other than the United States, Texas, and city governments.

The Dallas and San Antonio ordinances require that employers with more than 15 employees provide employees with up to 64 hours (8 days) of paid sick leave per year, which must accrue at a rate of 1 hour per every 30 hours worked in the respective city (Dallas or San Antonio). Both ordinances provide for yearly caps of 64 hours for employers with 15 or more employees. For employers with 15 or fewer employees, the yearly cap is 48 hours.

Leave will accrue at the commencement of employment or the effective date of the ordinances, whichever is later.

Who is eligible for paid sick leave?
Employees are eligible for paid sick leave if they work 80 or more hours per year within the respective cities. This means that the ordinance applies to part-time and full-time, exempt and non-exempt employees. The ordinances also apply to employees who perform services through a temporary or employment agency, but not to individuals who are independent contractors or unpaid interns.

For what reasons can an employee use paid sick leave?
Employees in both Dallas and San Antonio can use paid sick leave for many purposes, including the employee’s own or their family member’s physical or mental illness, physical injury, preventive medical or health care, or health condition. Paid sick leave may also be used for the employee’s or their family member’s need to seek medical attention, seek relocation, obtain services of a victim services organization, or participate in legal or court-ordered action related to an incident of victimization from domestic abuse, sexual assault, or stalking involving the employee or the employee’s family member. A family member includes an employee’s spouse, child, parent, or any other individual related by blood. It also includes “any other individual whose close association to an employee is the equivalent of a family relationship.”

Employers must allow an employee to use sick leave as soon as it is accrued. One exception is that you can prohibit an employee from using paid sick leave during his or her first 60 days of employment only if that employee has a term of employment lasting at least one year. Because most employees in Texas work on an at-will basis, this exception will rarely apply.

What are the requirements for requesting leave?
Both the Dallas and San Antonio ordinances require that an employee must make a “timely” request to use earned paid sick time before his or her scheduled work time. However, employers may not prevent an employee from using earned paid sick time for an unforeseen qualified absence that meets the requirements of the laws. You cannot require employees to find replacements to cover their absences under either ordinance.

Both ordinances allow you to adopt a reasonable verification procedure for any employee requests for paid sick time longer than three consecutive days. However, even when verification is allowed, you may not adopt verification procedures that would require an employee to explain the nature of the domestic abuse, sexual assault, or stalking.

Does paid sick leave carry over from one year to the next?
Generally, yes. Both ordinances require you to allow all available earned but unused paid sick time to be carried over to the following year, subject to the yearly caps. However, employers are given the option to avoid this requirement by “front-loading” paid sick time. If you make all 64 hours (8 days) of paid sick leave available to your employees at the beginning of the year (rather than accruing 1 hour per 30 hours worked), then you do not need to allow employees to carry any unused leave over into the next year.

What if an employer already provides paid time off benefits?
The Dallas and San Antonio ordinances both state that they do not require an employer who already makes paid time off available to an employer under conditions that meet the purpose, accrual, yearly cap, and usage requirements of the laws to provide additional earned paid sick time. In other words, if your company’s policy already provides at least 64 hours (8 days) of paid time off (or 48 hours if you have less than 15 employees) that employees can use for medical purposes, you do not have to give them additional time under the sick leave laws.

How should employers notify their employees of the new paid sick leave requirements?
If you have an employee handbook, the ordinances require you to include an explanation of the paid sick leave ordinance in that document. Since the ordinances are going into effect in the middle of the year when you may not be updating handbooks, you may want to consider issuing a handbook addendum to distribute to your employees.

Additionally, you are required to provide employees with a monthly statement showing the amount of available earned paid sick time. You are also required to post a sign in a conspicuous place (such as a break room bulletin board) explaining the requirements of the new ordinances.

What else should employers know?
You are prohibited from retaliating against employees who request or use earned paid sick time, report a violation of the ordinances, or participate in any investigation or proceeding relating to the ordinances.

Both the Dallas and San Antonio ordinances allow leave for mental illness. However, unlike San Antonio, the Dallas ordinance does not specifically allow leave for mental injuries. This means that where an employee or family member suffers a mental injury without suffering a mental illness (such as a concussion), that leave may be covered in San Antonio but not in Dallas.

If you have additional questions about the new ordinances, please contact Carrington Coleman Employment attorneys Mike Birrer, mbirrer@ccsb.com, 214.855.3113 or Maria Garrett, mgarrett@ccsb.com, 214.855.3020.

PAUSE BEFORE YOU SAY “GOOD RIDDANCE TO THAT REJECTED CONTRACT”

The Supreme Court’s Decision in Mission Product Holdings, Inc. v. Tempnology

Many Chapter 11 debtors have reorganization plans that reject contracts in droves and they never look back.  Why?  Rejection is part of the debtor’s “fresh start”.  A debtor “monetizes” its old contracts into prepetition claims, often paying only cents on the dollar in damages.  But where does that leave counterparties?  If that contract was a trademark license, the licensee might be in the catbird seat.

This week, the United States Supreme Court issued an opinion with potentially far-reaching implications in the field of bankruptcy and trademark licenses.  The Supreme Court’s decision in Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. ____ (2019) (Kagan, J.) resolves a circuit split between the First and Seventh Circuits.  In Mission Product, the Supreme Court found that a debtor’s rejection breaches a contract but does not rescind it.  All rights that would survive a breach of contract outside of bankruptcy remain in place.

The Debtor, Tempnology, LLC, manufactured apparel designed to stay cool when used in exercise and marketed those products under the trademarked brand name “Coolcore”.  Tempnology entered into a license agreement with Mission Product Holdings, Inc., wherein Tempnology gave Mission a license to use Coolcore trademarks worldwide.  Thereafter, Tempnology filed for Chapter 11 bankruptcy and sought to reject the Mission licensing agreement pursuant to Section 365 of the Bankruptcy Code.

Section 365 of the Bankruptcy Code is a powerful tool for debtors, which allows a debtor, subject to court approval, to “cherry pick” which executory contracts it will seek to assume and which it will seek to reject.  A contract is “executory” if there is material performance due and owing by parties on each side of the contract.  Essentially, Section 365 allows the debtor to make a value determination with respect to each of its contracts, and decide which to assume (and accept all the rights and burdens of the contract) and which to reject (and monetize the damages into a general unsecured claim that is unlikely to be paid in full in most Chapter 11 bankruptcies).

The bankruptcy court approved Tempnology’s rejection of the Mission agreement.  The parties agreed that the rejection of the contract allowed Tempnology to stop performing and for Mission to file a claim.  However, Tempnology also sought to terminate Mission’s right to use the Coolcore trademark.  Tempnology argued that that are several provisions in Section 365 that allow a counterparty to specific kinds of agreements to continue exercising contractual rights after rejection. See, e.g., §365(h) (real property leases) and §365(n) (intellectual property licenses).  Given there is no specific provision in the Bankruptcy Code covering trademarks, Tempnology argued that the debtor’s rejection must extinguish the rights that the agreement had conferred on the trademark licensee. The Bankruptcy Court agreed with Tempnology.

The Bankruptcy Appellate Panel (BAP) reversed, relying heavily on a decision from the Seventh Circuit about the effects of rejection on trademark licensing agreements. See Sunbeam Products, Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372 (7th Cir. 2012).  Rather than focus on what Section 365 did not say, the BAP focused on Section 365(g) of the Bankruptcy Code, which plainly states that rejection of a contract constitutes a “breach”.  Given that a breach does not equate to a termination of a contract outside of bankruptcy, the BAP found that Mission could continue to use the Coolcore trademark.

However, the First Circuit reversed the BAP and reinstated the Bankruptcy Court decision terminating Mission’s license. See In re Tempnology, LLC, 879 F. 3d 389 (2018).  While adopting the Bankruptcy Court’s inference that there was no specific provision in Section 365 maintaining the counterparty’s rights, the First Circuit also looked more closely at trademark law.  The First Circuit recognized that a trademark owner’s failure to monitor and exercise quality control over goods associated with its trademark could jeopardize the continued validity of its trademark rights.  Thus, if a licensee can keep using a trademark after an agreement is rejected, the debtor-licensor will need to carry on its monitoring activities, which would frustrate Congress’s principal aim in providing for rejection: to release the debtor’s estate from burdensome obligations.

This decision left the First and Seventh Circuit in direct conflict.  The Supreme Court sided with the Seventh Circuit.  The Court held that both Section 365’s text and fundamental principles of bankruptcy law command that “a rejection has the same consequence as a contract breach outside bankruptcy: It gives the counterparty a claim for damages, while leaving intact the rights the counterparty has received under the contract.”  The Court relied not only on Section 365(g)’s plain language that rejection constitutes a breach, but on the over-arching general bankruptcy rule that the bankruptcy estate cannot possess any more rights than the debtor did outside of bankruptcy.

The Court also rejected Tempnology’s argument based on “negative inference” that there was no specific section of the Bankruptcy Code saving a trademark licensee’s rights upon rejection as there are with respect to real property leases, timeshare interests, and intellectual property agreements, for example.  In fact, the Court pointed out that these specific provisions in the Code resulted from discrete problems, but all reflected Congress’ view that contractual rights survive rejection.

The Court also rejected Tempnology’s trademark-specific argument that allowing Mission’s rights to survive rejection would impede a debtor’s ability to reorganize.  While recognizing that trademark-specific concerns exist, the Court pointed out that nothing in the Bankruptcy Code protected these contracts from the general rules of rejection and that to treat them differently “would allow the tail to wag the Doberman”.  Rejection gives the debtor an ability to escape its future contract obligations, without having to pay much of anything in return.  However, it does relieve a debtor of the need to make “economic decisions” concerning its preservation of estate value.

In sum, Mission Products underscored the previously settled rule of bankruptcy law that rejection does not equal termination.  However, it also puts bankruptcy debtors on relatively uneven footing as to what can and should be done with “rejected” contracts post-rejection, which only serves to heighten the importance of a debtor’s initial “valuation” decision as to whether to reject the agreement.

Article written by Michelle Larson. Michelle is a partner with Carrington Coleman in the Bankruptcy, Receivership & Insolvency practice group.

CARRINGTON COLEMAN ANNOUNCES MONICA LATIN TO LEAD FIRM IN 2020

Carrington Coleman is pleased to announce that Monica Latin has been chosen as the firm’s Managing Partner-elect. Elected unanimously by the firm’s partners, she will succeed Bruce Collins as the firm’s fifth Managing Partner on May 1, 2020, becoming the first woman to lead the firm in its 49-year history.

“One of the most important responsibilities of this job is to plan for the future, and that means making sure the right people are at the helm,” said Mr. Collins. “Monica is committed to this firm and is most certainly the right person to lead Carrington Coleman into its next phase of growth.”

Ms. Latin joined Carrington Coleman in 1994 and has served on the Executive Committee since 2013. She currently chairs the firm’s Business Litigation Practice. A legal triple threat, she is a litigator and appellate lawyer who serves as an arbitrator for the American Arbitration Association. She was recently named among the Dallas 500 by D CEO magazine.

“I look to the previous leaders, such as Jim Coleman, who built this into one of the most respected firms in Texas and I am honored to continue this tradition. I have been fortunate to spend my entire career at Carrington Coleman, and I’m excited by what the future holds,” said Ms. Latin.

“I am honored by the trust and confidence my partners have placed in me by electing me to this important position,” she added.

“I have greatly enjoyed serving as Managing Partner of Carrington Coleman and look forward to working with Monica over the next year to ensure a smooth transition,” Mr. Collins said. “We are all excited to see Monica take on this new role and look forward to continued growth and success under her leadership.”

Firm partners have also elected Mike Birrer to join the firm’s Executive Committee, effective May 1, 2019. A respected labor and employment attorney, Mr. Birrer’s practice focuses on ERISA, benefits, compensation, discrimination, trade secrets, regulatory, immigration, and policy matters. He has been honored on the 2019 Best Lawyers in America listing and D Magazine’s Best Lawyers in Dallas list in 2012, 2017 and 2018.

CARRINGTON COLEMAN WINS FEDERAL DEFAMATION LAWSUIT FOR REALITY TV STAR CAMILLE GRAMMER

Attorneys from Carrington, Coleman, Sloman & Blumenthal, L.L.P. have won a complete victory for reality television star Camille Grammer in a defamation and malicious prosecution lawsuit filed by her ex-boyfriend after she reported that he assaulted her in 2013.

A jury of five women and three men issued the unanimous verdict on April 24 in the U.S. District Court for the Northern District of Texas before the Hon. Karen Gren Scholer.

Best known for her role in the popular television series “The Real Housewives of Beverly Hills,” Ms. Grammer was represented by a team of attorneys from Dallas-based Carrington Coleman, including partner Richard A. Rohan and associate Thomas S. Conner, with assistance from partner Kelli M. Hinson, as well as Ashley R. Yeargan of Russ August & Kabat in Los Angeles.

Ms. Grammer was sued in 2014 by her ex-boyfriend, Dimitri Charalambopoulos, after she reported that he assaulted her in her hotel room on the morning of October 16, 2013. She counterclaimed for his assault of her, and for defamation after Mr. Charalambopoulos claimed in a TV interview that she made up the story about his attacking her.

Ms. Grammer’s attorneys did not ask for any specific amount of money damages, but jurors nevertheless awarded her $1,000 in actual damages arising from the assault and $25 in nominal damages based on their finding that she was defamed by her ex in the earlier TV interview. Jurors also awarded Ms. Grammer an additional $35,000 after determining that Mr. Charalambopoulos had acted with malice and gross negligence. The jury completely rejected his request for more than $25 million in damages against Ms. Grammer.

“We are grateful to the jury for their diligence and careful attention before reaching the right result that completely vindicates our client,” says Mr. Rohan. “Camille has been steadfast in her assertions, and I’m proud our firm was able to help her finally find justice.”

EIGHT CARRINGTON COLEMAN PARTNERS NAMED AMONG 2019 BEST LAWYERS IN DALLAS

Eight Carrington Coleman attorneys, across seven practice groups, have been selected among D Magazine’s Best Lawyers in Dallas.

Led by Managing Partner Bruce W. Collins, who was selected based upon his Securities Litigation & Enforcement work, the firm partners earning 2019 recognition include:

Cathy Altman, Construction Litigation
Lance Currie, Construction Litigation
Kelli M. Hinson, Professional Nonmedical Liability Litigation
Mark C. Howland, Intellectual Property
Michelle V. Larson, Bankruptcy & Workout
Monica W. Latin, Business/Commercial Litigation
J. Michael Sutherland, Bankruptcy & Workout

 

Carrington Coleman 2019 D Magazine Best Lawyers in Dallas

Best Lawyers in Dallas is a peer-nominated honor, with selection based upon responses to the question “Which Dallas lawyers, of those whose work you have witnessed firsthand, would you rank among the current best?” Final selection is determined by a blue-ribbon panel of attorneys, working with D Magazine’s editors.