TADC Employment Law Newsletter — Fall 2007



R. Edward Perkins, Editor

William Whitaker, Assistant Editor

Sheehy Serpe & Ware, P.C. — Houston, Texas


A. FORUM SELECTION CLAUSES – Generally Honored in
Employment Contracts.

In the case of In re AutoNation, Inc., 228 S.W.3d 663 (Tex. 2007), Garrick Hatfield signed a “Confidentiality, No-Solicitation/No-Hire and Non-Compete Agreement” with his employer, AutoNation, Inc. (“AutoNation”) in 2003. Included in the agreement were choice-of-law and forum selection clauses, which provided that the agreement would be construed under Florida law and that all suits arising out of the agreement were to be filed in Florida.

In January of 2005, Hatfield left AutoNation to accept a position with A-Rod OC, L.P. (“A-Rod”), a competing Mercedes-Benz dealership. AutoNation sought to enforce its non-compete agreement with Hatfield and filed suit for injunctive relief and damages in a Florida state court. However, before learning of the Florida action, Hatfield and A-Rod filed suit against AutoNation in Texas, seeking a declaratory judgment that the non-compete obligation was governed by Texas law and unenforceable. After learning of the Florida action, Hatfield and A-Rod filed an application for a temporary restraining order and a motion for temporary injunction. AutoNation appeared in the Texas action and requested that the action be stayed or dismissed because of the previously filed Florida action and the contractual agreement to litigate such disputes in Florida. The district court enjoined AutoNation from taking any further action in connection with its Florida action and AutoNation filed a notice of accelerated appeal and a writ of mandamus with the Texas 14th Court of Appeals. Ultimately, the 14th Court of Appeals affirmed the trial court and AutoNation sought mandamus relief from the Texas Supreme Court.

The Texas Supreme Court conditionally granted the petition and ordered the district court to dismiss the Texas suit in favor of the first-filed Florida action. In reaching its conclusion, the Court distinguished its 1990 decision in DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex. 1990) by noting that it was decided before the current version of the Covenants Not to Compete Act was applicable and before the Court’s 2006 decision in Alex Sheshunoff Management Services L.P. v. Johnson, 209 S.W3d 644 (Tex. 2006) (wherein it construed the Covenants Not to Compete Act).

The Supreme Court went on to hold that forum selection clauses generally “should be given full effect” and “should control absent a strong showing that [they] should be set aside.” Because Hatfield did not demonstrate fraud, overreaching or undue hardship, the forum selection clause was honored.

B. WORKERS’ COMPENSATION -Hospital Liens on Tort Case

Settlement Proceeds Violated the Prohibition of Private Claims

Against Workers’ Compensation Patients.

In Daughters of Charity Health Services of Waco v. Linnstaedter, 226 S.W.3d 409 (Tex. 2007), the Texas Supreme Court considered the application of Texas Labor Code § 413.011 (prohibiting liens against workers’ compensation patients) and Texas Property Code §§ 55.001-.008 (granting hospitals a lien to secure their fees).

The facts of the case revealed that two workers’ compensation employees were injured in an auto collision while riding together in the course of their employment. Following the collision, both employees were treated at a hospital owned by the Daughters of Charity Health Services in Waco. Although the reasonable and necessary hospital charges totaled $22,704.25, the workers’ compensation carrier paid only $9,737.54 (i.e. the amount due under the reimbursement guidelines mandated by Texas Labor Code § 413.01). The hospital filed a lien for the remainder of its charges with the county clerk pursuant to Texas Property Code § 55.001-.008. The lien later attached to a cause of action brought by the employees against the other driver.

The employees’ claims against the other driver eventually settled for $175,000, of which $12,966.71 were used to discharge the hospital lien. The employees then sued the hospital for the $12,966.71, claiming the lien was invalid under § 413.011 of the Texas Labor Code. The Texas Supreme Court agreed and reasoned that while §§ 55.001-.008 of the Texas Property Code grants hospitals with a lien to secure their fees, § 413.011 prohibits liens against workers’ compensation patients—and, giving effect to both laws, requires limiting hospital liens involving workers’ compensation patients to the amounts due under the workers’ compensation system. The Court also reasoned that to allow hospitals to seek liens in excess of the established guidelines for fair and reasonable rates would frustrate the Legislature’s effort to achieve effective medical cost control through the Texas Labor Code.

Interestingly, the Court commented that the most salient point raised by the hospital was that in the underlying motor vehicle action, the patients sought as damages the full medical charges billed by the hospital, rather than the reduced amount paid by the compensation carrier. While the Court agreed that such a recovery would result in a windfall to the employees/patients, the Court presumed that the medical expenses actually paid to the Hospital were known by the motor vehicle defendant during the settlement negotiation process. The Court also determined that there was no evidence that the settlement was intended to provide compensation for injuries other than lost earnings, pain and mental anguish, or physical impairment.


A. WORKERS’ COMPENSATION – Trial Judge May Not Provide a

Jury Instruction that Decisions of the Workers’ Compensation

Commission are to be given “no special weight.”

In Liberty Mutual Insurance Co. v. Camacho, 228 S.W.3d 453 (Tex. App.—Beaumont 2007, no pet.) a Workers’ Compensation claimant, who was injured when a horse reared up and struck him in the face, filed suit to seek review of a Workers’ Compensation Commission decision holding that the claimant did not suffer injury to his “skull” and was not entitled to lifetime income benefits. Importantly, the trail judge provided the following instruction:

“You are instructed that the Texas Workers’ Compensation Appeals found that the Plaintiff did not sustain an injury to the skull that resulted in incurable imbecility. The party dissatisfied with the decision of the Appeals Panel may file suit in District Court for Judicial Review. The decisions of the Texas Workers’ Compensation Commission are to be given no special weight. You, as jurors, decide the weight and credibility of the evidence submitted before you.”

The Court of Appeals held that (1) a closed head injury did constitute an “injury to the skull” within the meaning of the former statute; and (2) the Trial Judge’s instruction was incorrect, requiring reversal.

The Court of Appeals found that it was impermissible for the trial court to single out one piece of evidence and imply that the jury should treat it differently that other evidence admitted at trial. Because the trial judge affirmatively instructed the jury to give the decision of the Appeals Panel “no special weight,” the Court of Appeals reasoned that the trial judge effectively and impermissibly instructed the jurors to all but disregard the decision of the Appeals Panel. Accordingly, the Court of Appeals found that the impermissible instruction probably caused the rendition of an improper verdict.



Employees need not show that their performance met the

employer’s expectations when establishing that they were

“qualified” for purposes of a prima facie discrimination case.

In Berquist v. Washington Mutual Bank, 2007 WL 2460350 (5th Cir. 2007) a fifty-four year old bank employee was terminated from his position in the bank’s corporate credit review department. The employee was originally employed by a predecessor bank that merged with Washington Mutual in 2000. Following the merger, the employee was retained by Washington Mutual for an additional nine months in order to assist in consolidating the risk rating grids used by the two banks. After the nine month period ended, the employee was offered a position with Washington Mutual which largely related to “operational and administrative” duties. However, those job functions were later transferred from Houston to Seattle and the employee was offered a different position with Washington Mutual’s credit review department. The employee accepted the position which required skills relating to credit “review and approval.” After moving into this new role, the employee received a performance improvement review which cited, among other things, that the employee’s “[t]echnical skills and proficiencies are ‘operational’ in nature and not commensurate with [the new job function.].” Ultimately, the employee was told that his skills and proficiencies were no longer needed in the credit review function. A separation proposal was made and then rejected by the employee. Thereafter, a business decision was made to eliminate his job function in Houston and to transfer the group to the West Coast. The employee was terminated without receiving forty-five days to secure another position. He subsequently filed suit under the ADEA.

The Federal District Court for the Southern District of Texas granted Washington Mutual’s motion for summary judgment on the basis that the employee failed to establish that he was “qualified” for the position—and, therefore, did not show a prima facie case of discrimination. In reaching its conclusion, the district court reasoned that “the fact that [the employee] was given the position of Credit Review Officer in the first place [does not] constitute evidence that he was qualified. To hold otherwise would be to eliminate the qualification element in every case involving termination.”

On appeal, the Fifth Circuit determined that the District Court’s conclusion was in error and that “the employee need not show that his performance met Washington Mutual’s expectations to establish a prima facie case.” The Court held that because the employee possessed the same job qualifications when Washington Mutual terminated him as when his manager assigned him to the credit review position, the employee did not need to show that his performance met Washington Mutual’s expectations at the prima facie stage.

The Court also considered whether or not a comment made by the employee’s manager regarding her desire to “build leaders internally and attract younger talent” was evidence of age-based discrimination. The Court reasoned that the manager’s comment, which was made six months before the employee was terminated, was “a broad statement not directed to any particular employee about her management goals” and too remote in time from the termination to evidence age discrimination.

Lastly, the Court held that the employee was not “similarly situated” to younger employees who performed credit review work for a “specialty” finance group and, even if the employee had established a prima facie case of discrimination, the bank had articulated a legitimate, non-discriminatory reason for its action. Therefore, despite their being some error by the district court with respect to its conclusion that the prima facie element of “qualified” had not been met, its summary judgment ruling was ultimately affirmed.