Labor and Employment. 

In business, there may be no greater asset than your human capital. But, your most common risk for liability is also your employees.

Foreign business coming to the United States must comply with US law when hiring employees that will be working in the US. US laws distinguish between “employees” and “independent contractors.” Employees are subject to tax withholding requirements and protected by federal labor laws. Independent contractors, on the other hand, are not subject to tax withholding requirements and are not covered by many labor laws. A true independent contractor exercises a greater degree of behavioral and financial autonomy than an employee. Companies doing business in the US need to be aware of these distinctions and accurately classify workers. If a government agency or court determines a worker is actually an employee rather than an independent contractor, the employer can be liable for back taxes and civil claims under labor laws.

Intellectual Property and Inventor Agreements. Under US law, discoveries and inventions made by an employee during their employment generally belong to the employer. Nevertheless, it is common for employment contracts to contain language expressly granting such rights to the employer and requiring that the employee cooperate to secure federal registration of the intellectual property at issue. Employment contracts can also be used to broaden the scope of an employer’s rights to include any and all discoveries and inventions related to the business or made using company equipment during the employment term. Employment contracts can further be used to limit employees’ ability to derive inventions from their knowledge of proprietary systems or information.

Non-Disclosure Agreements. Many US employers require employees to sign broad non-disclosure agreements to prevent employees from sharing proprietary information with competitors or any other valuable, unflattering, or otherwise sensitive information. Non-disclosure agreements are also common before negotiating deals that involve exchanging sensitive information.

Non-Compete Agreements. Non-compete agreements that limit a former employee’s ability to work for a competing company can be tricky under US law. Such agreements are flatly unenforceable in some states and are construed narrowly by courts. Nonetheless, they are often favored by employers and can be effective in some instances. Where allowed, non-compete agreements must be reasonable in scope, time, and geography and may not make it impossible for the former employee to earn a living in their field.

Texas is more likely than other states like California to enforce a non-compete. But, even in Texas, the non-compete must relate to a legitimate business reason because a non-competition agreement is inherently a restraint on trade.

Written by : Doug McCullough, Partner at McCullough Sudan PLLCdoug@canada-texas.com

Last modified: April 21, 2022