Use Of Criminal Convictions In Hiring: What’s All The Confusion?

A Trip Through Time: Since its first pronouncement on the topic in 1972, the EEOC has taken the position that policies prohibiting hiring persons with a criminal record may disparately impact certain minorities in violation of Title VII. To defend against disparate impact claims, an employer must demonstrate that the use of conviction records is job-related and consistent with business necessity. According to the EEOC, to make this showing, an employer must consider: (i) the nature and gravity of the offense(s), (ii) the time since conviction or sentence completion, and (iii) the nature of the job, before refusing to hire the applicant. Following a 1975 court decision, the EEOC has consistently analyzed these factors using a “common sense” approach.

A Wrinkle In Time: The EEOC announced its E-RACE Initiative in February 2007, incorporating its position on the use of criminal convictions in the hiring process. Two weeks later, the Third Circuit Court of Appeals in El v. Southeastern Pennsylvania Transportation Authority (SEPTA) threw employers and the EEOC a curve ball. Among other things, the court rejected the EEOC’s long-standing common sense approach, requiring instead that employers provide “some level of empirical proof” demonstrating that the use of criminal convictions accurately predicts job performance. The court, however, refused to go so far as to prohibit all bright-line policies like SEPTA’s (which excluded hiring drivers with any record of a felony conviction for violence against a person) if the policy actually distinguishes between applicants who pose an unacceptable risk and those who do not. The translation — employers should be prepared to present expert testimony if the plaintiff makes an initial showing of disparate impact. SEPTA presented several experts, including a leading criminologist in defense of its policy.

Full Speed Ahead: The SEPTA decision has generated new interest in the topic at the EEOC (despite the agency’s recent loss in EEOC v. Peoplemark in which it was ordered to pay over $750,000.00 in attorney’s fees because it was unable to secure the necessary expert testimony). It is unclear whether the EEOC will revise its policy guidance to incorporate SEPTA (or other changes), but in recent opinion letters and public meetings, the EEOC has demonstrated an increasing level of distrust of anything but the most narrowly tailored policies, indicating changes to current guidance may not be too far away. At a recent public meeting in July 2011, the Commissioners heard a wide range of testimony on the topic. For example, one witness advocated for adoption of a presumption that any criminal conviction policy has a disparate impact and another questioned the quality of the data employers are relying upon in light of the explosion of on-line background check services. These are just some of the issues the EEOC is grappling with in addition to SEPTA.

The Bottom Line For Employers:

A pre-employment question asking about criminal history does not in and of itself violate Title VII, but be very careful how such information is used and be very wary of broad-based or blanket exclusion policies. It is uncertain whether the EEOC and other courts will adopt the SEPTA holding, however, employers should do some end of year housekeeping and consider conducting a privileged review of their existing policies and procedures concerning criminal convictions, paying special attention to the scope and impact of such policies and reviewing for compliance with state laws on criminal background and credit reporting.

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OSHA’s Planned Injury and Illness Prevention Program: Still Major Unknowns

When OSHA held its Regulatory Agenda Chat in July, many questions centered on OSHA’s planned Injury and Illness Prevention Program, dubbed I2P2, and called “OSHA’s highest regulatory priority.”  But, there were few answers.  Here is what we learned:

When:  Shortly.  OSHA had said that the Small Business Regulatory Enforcement Fairness Act process for I2P2 would begin in June, but that didn’t happen. In the Chat on July 11, OSHA said that it expected that process to begin “shortly,” and at that time a draft of the I2P2 would be available to the public.

What:  Unknown.  The Chat did not provide any clues on what we can expect I2P2 to look like.  The most we learned was that I2P2 would be an “improved, more systematic approach to managing workplace health and safety.”  In the past, we have been told that I2P2 would contain the following elements:

  • Management duties
    • Establish a policy
    • Set goals
    • Plan and allocate resources
    • Assign and communicate roles and responsibilities
  • Employee participation
    • Involve employees in establishing, maintaining and evaluating the program
    • Employee access to safety and health information
    • Employee role in incident investigations
  • Hazard identification and assessment
  • Hazard prevention and control
  • Education and training
  • Program evaluation and improvement

The Bottom Line for Employers:

OSHA has engaged Eastern Research Group to prepare a Safety and Health Practices Survey to determine how safety is managed in various workplaces.  In the meantime, we will need to pay close attention to this rulemaking and further developments, and will keep you posted.

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Did You Know About These Workplace Laws?

What is “at-will” employment really?  In a sentence, an employer can discharge or discipline an employee for any reason, whether it is a “good” reason or a “bad” one, so long as it is not an unlawful reason.  Most Texas employers (and employees) are familiar with the usual list of “unlawful reasons” like race, gender, national origin, disability, age, and religion.  But there are a handful of lesser known state and federal laws which often catch employers unaware.  Did you know that . . .

  1. Section 525 of the United States Bankruptcy Code prohibits private employers from discharging or discriminating against an individual because he/she has filed for bankruptcy or is associated with a person who has filed for bankruptcy.
  2. It is a felony offense under Section 276.001 of the Texas Election Code for a person to withhold wages or another benefit of employment (or to threaten to do so) in retaliation for voting for or against a particular candidate or refusing to say how he/she voted. 
  3. Section 158.209 of the Texas Family Code makes it unlawful for an employer to use an order or writ of withholding as grounds for refusing to hire or fire an employee. 
  4. Texas Government Code § 431.006 prohibits private employers from terminating an employee who is a member of the military forces of any state because the employee is ordered to authorized training or active duty. 

 The Bottom Line for Employers:

 “At-will” employment has it limits.  Employers should continue to familiarize themselves with all applicable laws governing the workplace; train their managers and supervisors accordingly; and draft policies where appropriate.  These laws may not be as familiar as Title VII, but can be just as costly if not diligently observed.

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Lessons to Be Learned: Verizon’s No-Fault Absence Control Policy Leads to the Biggest ADA Settlement Ever Achieved by the EEOC

As we have previously blogged, http://www.m3law.com/another-inflexible-work-policy-fails-the-ada-2, the EEOC continues to target inflexible work policies, such as “no fault” absence control policies and “100% fit” return-to-work policies, that do not allow exceptions in cases where a reasonable accommodation may be necessary.  Recently the EEOC achieved its biggest ADA settlement ever – to the tune of $20 million and widespread injunctive relief – in challenging Verizon’s nationwide “no fault” absence control policy.  The policy required the discipline and eventual termination of employees after a certain number of “chargeable” absences, which could include absences taken to accommodate an employee’s disability. 

The settlement – which is now awaiting Court approval – requires Verizon to expressly state in its policies that excusal of an absence as “nonchargeable” may be considered a reasonable accommodation under the ADA, and that where employees have been granted a modified or flexible work schedule as a reasonable accommodation, such absences will not be “chargeable.”  It further states that before terminating any employee under the absence policy, Verizon will make reasonable efforts to determine whether the absence is “nonchargeable.”  When making this determination, Verizon is to apply a detailed set of factors regarding the employee’s condition and the absence(s) themselves.  Specifically, Verizon is to evaluate whether each of the following factors is satisfied:

(a)    The Current Associate has a mental or physical impairment that substantially limits one or more major life activities of such individual as defined by the ADA, and for the period on and after January 1, 2009, as amended through the ADA Amendments Act of 2008;

(b)   The Current Associate’s absence was caused by a disability;

(c)    The Current Associate or someone else on the Current Associate’s behalf requested through the Company’s designated process a period of time off from work due to a disability;

(d)   The Current Associate’s absences have not been unreasonably unpredictable, repeated, frequent or chronic;

(e)    The Current Associate’s absences are not expected to be unreasonably unpredictable, repeated, frequent or chronic;

(f)    Verizon was able to determine, from the request by or on behalf of the Current Associate or through the interactive reasonable accommodation process, a definite or reasonably certain period of time off that the Current Associate would need because of a disability; and

(g)   The Current Associate’s need for time off from work as a reasonable accommodation does not pose a significant difficulty or expense for Verizon’s business.

If all factors are met, the absence(s) must be considered “nonchargeable” and the employee cannot be disciplined or terminated based on the absence. 

The Bottom Line for Employers: 

The ADA’s reasonable accommodation obligation can include modified work schedules, additional leave beyond what is ordinarily offered by the employer, and exceptions to blanket policies to allow employees to take advantage of such accommodations.  In light of this obligation, employers should examine their absence control policies to make sure that they allow for exceptions that may be warranted by the ADA. 

A link to the EEOC’s press release regarding the settlement is here:  http://eeoc.gov/eeoc/newsroom/release/7-6-11a.cfm

A link to the proposed settlement agreement is here:  http://hr.cch.com/eld/11-01832.DCMD.pdf

 

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In a Groundbreaking Decision, the Texas Supreme Court Substantially Broadens the Universe of Enforceable Noncompetes

For many years, Texas appellate courts have held that stock, stock options, and other similar forms of remuneration cannot be sufficient consideration for a covenant not to compete.  Instead, as the courts have generally held, only confidential information or specialized training may be sufficient consideration.  In one fell swoop, the Texas Supreme Court has now overruled this substantial body of law.  In Marsh USA Inc. et al. v. Cook, Case No. 09-0558 (Tex. June 24, 2011), http://www.supreme.courts.state.tx.us/historical/2011/jun/090558.pdf, the Texas Supreme Court ruled by a 6-3 majority that stock options are sufficient consideration for a noncompete because they give rise to the employer’s interest in protecting its business “goodwill.”  The Court cautioned, however, that the “hallmark” of enforcement remains whether the particular restrictions at issue are reasonable and do not impose a greater restraint than necessary to protect the employer’s interests. 

This case gives employers more ways to contractually restrain employees from competing.  No longer is providing confidential information or specialized training the only safe option.  That said, the case raises important new questions about (1) what forms of financial benefit other than stock options may be sufficient consideration for a noncompete, and (2) how the courts will determine the reasonableness of the restrictions in agreements involving financial benefits.  The case and these issues are discussed in greater detail below.     

The FactsMarsh involves a former managing director of Marsh USA Inc., a risk management and insurance business.  According to the company, the director was a “valuable employee who had successfully performed at his position,” and had both attracted and retained business for the company.  During the director’s employment, and to encourage further good performance, Marsh offered him options to purchase 500 shares of stock in Marsh’s parent company.   The options vested in increments and fully vested after four years.  Upon exercise of the options, the director was required to sign a non-solicitation agreement in which he promised that if he left the company within three years after exercising the options, he would not solicit certain company clients or certain employees for a period of two years.  (The agreement also required the director to maintain the confidentiality of Marsh’s trade secrets, but the Court did not examine whether the provision of confidential information was a basis for enforcing the noncompete.)

In attempting to enforce these promises after the director left the company, the company argued that the stock options were sufficient consideration because they furthered the company’s “goodwill,” which is an expressly protectable interest under the Texas Covenants Not to Compete Act, Tex. Bus. & Comm. Code § 15.50.

The Holding:   Previous appellate court precedent had held that stock options and similar financial incentives were not sufficient consideration because, unlike confidential information or specialized training, mere financial consideration does not “give rise to the employer’s interest in restraining the employee from competing.”  In Marsh, the Supreme Court held that this was the wrong test to apply, and thus overruled a portion of its prior decision in Light v. Centel Cellular Co. of Texas setting out this test.  Instead, the Marsh Court held, the proper test is whether the consideration merely gives rise to, or is “reasonably related to,” an “interest worthy of protection.”  Under this test, the Court found, stock options were sufficient consideration because they made the employee an “owner” of the company and linked his interests with the company’s long-term business interests, including the development of solid, long-term customer and employee relationships.  Thus, the stock options furthered the company’s goodwill, which is expressly an “interest worthy of protection.” 

The Court stressed, however, that the “hallmark” of enforcement was whether the particular restrictions at issue are reasonable and do not impose greater restraints than necessary to protect the employer’s interests.  The Court did not attempt to determine whether the particular restrictions at issue in this case were reasonable, but sent the case back to the trial court to make this determination. 

Significant Open Questions —    

What other forms of benefits will suffice and in what fact patterns?  As the three dissenting Justices forcefully pointed out, the Court’s opinion leaves unclear what other forms of financial benefit create sufficient business goodwill.  The majority opinion could conceivably be read to suggest that any form of financial consideration to any employee – such as a bonus, promotion, or even payment of a salary – could further business goodwill, and thus satisfy the majority’s test.  The majority does not directly address this point, except perhaps to explain that stock options generally further goodwill because they are designed to give the employee a greater stake in the company’s performance and in its long-term relationships with customers and employees, and to note that the employee at issue was a valued high-level employee who had already been successful in developing customer relationships.   

What is reasonable?   How will the courts measure the reasonableness of temporal, scope of activity, and geographical restrictions when the only valid consideration is stock options or similar financial benefits?  To date the case law that has developed on the issue of reasonableness has focused on whether confidential information and/or specialized training that the employee has received is substantial enough to justify the particular restrictions in the agreement.  But what facts become relevant when examining financial benefits and their impact on business goodwill?  For example, does the amount or form of the financial benefit matter, including any vesting or similar restrictions?  How is the employee’s “value” to the company to be determined?   

The Bottom Line for Employers:

Employers who want to restrain employee competition now have more options at their disposal.  We know that at a bare minimum, providing stock or stock options to a higher-level, valued employee will satisfy the Marsh test.  It is an open question as to whether other forms of remuneration – such as a bonus, promotion to a higher position, or salary increase – will suffice, and in what fact patterns. 

Employers must also remember that just because a noncompete agreement is based on sufficient consideration does not mean that courts will enforce all of its restrictions as to time, scope of activity, and geography.  Whether particular restrictions will be enforced depends on whether those restrictions are reasonable given the facts and circumstances of the case.   When drafting noncompetes based on stock options or similar financial benefits, employers will need to give careful consideration to the restrictions and whether they are justified by factors such as the employee’s position within the company, the employee’s access to confidential information and trade secrets, his or her performance, the amount of financial benefit being provided, and similar considerations.  Employers also need to keep up with the precedent that develops in this area.

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NLRB Pursues Another Facebooking Case

As we reported in a previous post (http://www.m3law.com/to-the-employer-its-insubordination-to-the-nlrb-its-protected-conduct), the National Labor Relations Board has lately been focusing on employee rights under Section 7 of the National Labor Relations Act, which protects “concerted” employee activities engaged in for “mutual aid and protection.”  Now, for the second time in less than a year, the Board is litigating Section 7 violations against an employer for terminating an employee because of a Facebook post that the Board says reflected concerted, protected activity. 

In this most recent case, the Board asserts that a salesman at a car dealership in Chicago and several of his co-workers were upset with the quality of food and drinks (hot dogs and bottled water) served at a dealership promotional event.  Allegedly the salesmen complained that the lame refreshments could affect their sales commissions.  Subsequently, one of the salesmen criticized the event through photos and commentary on his Facebook page, which was accessible to other employees.  (It is currently unclear who else had access to the page.)  Although the dealership asked the salesman to remove the post and he complied, it terminated his employment shortly thereafter. 

While the Facebook post seemingly disparaged the dealership in a semi-public way, that does not appear to matter to the Board – instead, the Board alleges that the salesman’s post constituted concerted, protected activity because “it involved a discussion among employees about their terms and conditions of employment.”   The matter is set to be litigated later this summer.  The Board’s press release summarizing the complaint is attached here: http://nlrb.gov/news/chicago-car-dealership-wrongfully-discharged-employee-facebook-posts-complaint-alleges.

The Bottom Line for Employers:

While this matter is yet to be litigated, this most recent NLRB complaint reflects the great tension between what the Board views as concerted, protected activity, on the one hand, and an employer’s interest in precluding disparagement of its products or services, on the other.  As this is a rapidly evolving area of the law with highly fact-specific precedent, employers are advised to keep up with legal developments and to carefully consider situations in which the discipline of an employee for insubordination or disparagement via social media activity might nonetheless implicate Section 7 rights because the activity involves communications among employees regarding the terms and conditions of work.   Note that Section 7 applies in both unionized and non-unionized workplaces.

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Legislative Update: Worker Misclassification Legislation Re-Introduced in U.S. Senate

As expected, Congress has introduced new legislation designed to deter and crack down on the misclassification of workers as independent contractors.  The Payroll Fraud Prevention Act (S. 770) was introduced on April 8, 2011 in the U.S. Senate and, similar to last term’s Employee Misclassification Prevention Act, would do the following:

  • increase penalties (double liquidated damages and $5,000 per violation for repeat violators);
  • impose new reporting and recordkeeping requirements;
  • require employers to provide workers with notice of their classification and instructions for contacting the Department of Labor with concerns about misclassification (and create a presumption that the worker is an employee where timely notice has not been provided); and
  • create a retaliation claim for workers who allege they have been discharged or discriminated against because they complained about misclassification.

As reported previously in our blog, two misclassification bills were introduced in Congress last session — the Employee Misclassification Prevention Act and the Fair Playing Field Act of 2010.  Congress held hearings on these bills, but there was no vote before the end of the session.  As worker misclassification continues to be a hot-button issue for Congress and it seems inevitable that legislation will be passed at some point, companies should continue to pay close attention to the classification of their workers and seek advice, where needed, to ensure proper classification.

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To the Employer, It’s “Insubordination”; To the NLRB, It’s Protected Conduct

In a presentation given to Houston employment lawyers last week, Martha Kinard – who is a Regional Director of the National Labor Relations Board – highlighted the Board’s continued focus on “protected, concerted activity,” an area of labor law that applies to unionized and non-unionized workplaces alike. 

Although many non-union employers believe labor law doesn’t apply to them, in fact, Section 7 of the National Labor Relations Act guarantees all employees – unionized or not – the right to engage in “concerted activities” for the purpose of “mutual aid and protection.”  This includes situations in which two or more employees act together to protest a working condition, or an employee speaks out on behalf of others about terms and conditions of employment. 

Employees’ Section 7 rights can impact employers in many ways, including with respect to the enforcement of social media policies and similar standards of conduct.  Kinard drew attention to three recent NLRB cases:

•           In American Medical Response of Connecticut (2010), the Board filed a complaint against an employer for firing an employee who posted vulgar and disparaging comments about her supervisor on Facebook on the ground that such comments were protected, concerted activity.  The agency stated, “This is a fairly straightforward case under the National Labor Relations Act — whether it takes place on Facebook or at the water cooler, it was employees talking jointly about working conditions, in this case about their supervisor, and they have a right to do that.”  The case settled before a final decision.

•          In Worldmark by Wyndham, 356 NLRB No. 104 (2011), a resort hotel employee challenged his supervisor for requiring employees to tuck in their shirts.  Other employees spontaneously gathered and chimed in, and the challenging employee was written up for “negativity.”  The Board overturned the discipline, finding that even unplanned employee protests about the workplace can constitute “concerted” activity that may be protected.

•          In Parexel, International, 356 NLRB No. 82 (2011), an employee complained to management and HR that certain coworkers were receiving unfair raises, and suggested that employees should take action to protest this.  She was then fired.  The Board found that her termination was to prevent her from acting in concert with her fellow employees, and that employers may not terminate employees to prevent impending protected concerted activity.

The Bottom Line for Employers:  

Employees’ Section 7 rights may include behavior that is unprofessional, disparaging, and insubordinate in its delivery or message.  When considering discipline for certain forms of misconduct, unprofessionalism, or violation of social media policies, ask first if the employee was speaking out about terms and conditions of employment.  To be sure, not all employee complaints constitute protected, concerted activity.  And some forms of expression are so offensive or disruptive as to lose protection.  It is essential for employers to stay up to date on this rapidly-changing area of the law.

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Supreme Court Allows Third-Party Retaliation Claims Under Title VII

The Supreme Court has opened the gates to third-party retaliation claims under Title VII.  In a unanimous decision issued on January 24, 2011, which reversed an en banc decision of the Sixth Circuit Court of Appeals, the Supreme Court decided that an employee who was fired after his fiancée filed an EEOC charge against their employer had standing to file a Title VII retaliation lawsuit. (Thompson v. North American Stainless, LP, No. 09-291, Jan. 24, 2011, Scalia, J.)

In Thompson, the plaintiff and his fiancée both worked for the employer when the fiancée filed an EEOC charge alleging sex discrimination.  Three weeks after the employer received notice of the charge, the plaintiff was terminated for alleged poor performance.  He subsequently filed an EEOC charge claiming retaliation based on his fiancée’s charge and then filed suit.  The district court granted summary judgment in favor of the employer, and after a Sixth Circuit panel reversal, the full en banc court affirmed the district court’s ruling, holding that Title VII did not permit a third-party retaliation claim.

The Supreme Court reversed.  First, the Supreme Court decided that the plaintiff’s termination was actionable under Title VII.  The Court found “it obvious that a reasonable worker might be dissuaded from engaging in protected activity if she knew that her fiancé would be fired.”  The Court rejected the employer’s argument that such a conclusion would cause “difficult line-drawing problems concerning the types of relationships entitled to protection.”  The Court wrote: “We expect that firing a close family member will almost always meet the . . . standard, and inflicting a milder reprisal on a mere acquaintance will almost never do so, but beyond that we are reluctant to generalize.”

Next, the Supreme Court decided that the plaintiff could sue the employer for this Title VII violation as an “aggrieved” person.  The Court held that the plaintiff had standing to sue under Title VII because the plaintiff fell within the “zone of interests” protected by Title VII.  He was an employee “and the purpose of Title VII is to protect employees from their employer’s unlawful actions.”  Additionally, the Court noted that the employee “is not an accidental victim of the retaliation–collateral damage, so to speak, of the employer’s unlawful act.  To the contrary, injuring him was the employer’s intended means of harming [the fiancée].”

Justice Ginsburg concurred in the Court’s opinion, with Justice Breyer joining her, to emphasize the point that the Court’s decision is in accord with “longstanding views” of the EEOC.

The Bottom Line for Employers:

Based on this decision, employers can expect to see an increasing number of third-party retaliation claims under Title VII, which will attempt to push the envelope on the required relationship between the employees.  If a fiancé can succeed, what about a girlfriend or a companion?  Employers should recognize this risk where an adverse employment action is taken against an employee who has a connection to another employee with a pending or recent EEOC charge.

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See Into The Future: Texas Legislature 2011

What is going on in the Texas Legislature than can impact your workplace?  Read on.

  • Guns in the Parking Lot Are Back.  This bill failed last session—and like a bad penny, it’s turning up again.  Senate Bill 321 (Hegar, Birdwell) would amend the Texas Labor Code to allow employees to transport or store guns or ammunition in their private vehicles in employer parking areas.  Employers can still prohibit firearms in their buildings and in any vehicle which the employer owns or leases.  Employers would not be civilly liable for any injury or death resulting from compliance with this law, except (in an exception that may swallow the rule) in cases of gross negligence.  Schools are exempt from this law.
  • Arizona in Texas.  Some Texas legislators are looking to pass Arizona-style rules for employers.  House Bills 178 and 601 (Jackson) require employers to use the federal “E-verify” program to electronically confirm employment eligibility to work, and subject employees to immediate termination if they are responsible for and fail to use the “E-verify” program.  House Bill 296 (Berman) goes one step further, also prohibiting contracts or subcontracts with independent contractors who are unauthorized to work in the United States.  Violations of this act include criminal and civil penalties, as well as revocation of occupational licenses and return of any government grant or subsidy.  House Bills 177 (Jackson) and 623 (Bonnen) require individuals who seek to obtain or renew occupational licenses, certificates, registrations, or permits to first prove employment eligibility using the federal I-9 standard.
  • No Unemployment Benefits For Drug Users.  House Bill 126 (Legler) would require individuals seeking unemployment benefits to submit to and pass a drug test.  Moreover, an individual receiving unemployment benefits who fails a pre-hire drug test is disqualified from benefits, and must notify the Texas Workforce Commission of the failure, or re-pay benefits.     
  • If You Turn Down An Applicant Based On Criminal History…  House Bill 68 (Martinez) requires employers who turn away an applicant based on criminal history to notify the applicant of the specific arrest or disposition that precluded employment, and how they learned of the arrest or disposition.  House Bill 542 (Dutton) prohibits employers from denying employment on the basis of dismissal, deferred adjudication, or discharge of a crime.
  • Leave For Crime Victims to Attend Court Hearings.  Senate Bill 64 (Zaffirini) would grant paid leave to attend court proceedings for employees who are crime victims or parents or guardians of crime victims, and protects them from retaliation for taking such leave. 

 The Bottom Line for Employers:

If any of these bills seem like a bad—or good—idea for your business, speak up.  Contact your state representative or senator, or join a group such as the Texas Association of Business to represent your interests.  As with any issue, prevention is the best solution.

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