Author: Site Staff

The case of a former Starbucks marketing executive who allegedly violated his noncompete agreement to accept a job with Dunkin’ Donuts may be the best example of one truism: Employees go to work for competitors all the time.

But if a company takes precautions, including a noncompete agreement, appropriate conditional severance and putting competitors on notice, that can’t happen, right?

Well, it did happen, at least according to Starbucks, which is seeking injunctive relief of $75,000, and damages to be determined, from Paul Twohig, who left the company in March and is now brand operations officer at Dunkin’.

According to Starbucks’ filing, Twohig first joined the Seattle java giant in 1996 and left in 2002.

He returned to the company in 2004 on the condition that he sign an 18-month noncompete agreement that, according to the suit, bars Twohig from participating in “management or control of any business which is in direct competition with Starbucks’ business within a 50-mile radius.” Twohig left the company in March 2009 and was given “substantial severance pay.”

At the time, according to the suit, he was senior vice president of retail operations for the Southeast division, with job responsibilities including “formulating business strategies to grow Starbucks business and respond to competitors, including Dunkin’ Donuts.”

Dunkin’ has boldly proclaimed its competition with Starbucks on several occasions, including offering discounted beverages during Starbucks’ closure for its latte retraining session of 2008, and with the “Dunkin’ Beat Starbucks” taste-test campaign, which launched last October and recently returned to the airwaves.

According to the suit, Twohig contacted Starbucks requesting release from the noncompete agreement in August so that he could accept a position at Dunkin’.

Starbucks said it then contacted Dunkin’s senior vice president of human resources, Christine Deputy, who is also a former Starbucks employee, and informed her that Twohig was still contractually bound to a noncompete agreement. Last week, Starbucks uncovered “through periodic internet searches,” it said, that Twohig had accepted a job at Dunkin’.

A call to Twohig’s office was not immediately returned. Starbucks attorney Brad Fisher, of Davis Wright Tremaine, did not immediately return a call for comment.

“We are hopeful that Dunkin’ Donuts and Twohig will unwind this situation,” Starbucks spokeswoman Lisa Passe wrote in an e-mail. “We are open to hearing from them to resolve the situation in a way that protects Starbucks’ interests.”

At least publicly, Dunkin’ wants no part of this.

“Dunkin’ Brands is not party to any lawsuit with Starbucks,” Dunkin spokesman Andrew Mastrangelo said in a statement. “Certainly we are aware of the situation, but we do not feel it is appropriate to comment.”

So what are Starbucks’ chances of prevailing?

A company’s ability to enforce a noncompete, said Larry Drapkin, a lawyer with Mitchell Silberberg & Knupp in Los Angeles, depends a lot on which state you’re in.

Noncompete agreements aren’t usually enforced in California, but they do stand a better chance in Washington state, where Starbucks executed the agreement and filed its lawsuit. It also helps if the employee accepts a hefty severance as part of the agreement, and you’ve put your competitors on notice that the departing executive is under a noncompete agreement.

“The issue of noncompetes [is] huge because there are countervailing pressures,” Drapkin said. “On the one hand, companies are attempting to protect their commercial and competitive advantages, including intellectual property and trade secrets. On the other hand, in many states there are public-policy considerations that are intended to protect the ability of employees to work and take other jobs, and not curtail employment opportunities.”

Ann Brown, a creative recruiter who runs Chicago-based Ann Brown Co., described the Twohig situation as “flagrant.”

“This is flat-out ‘Oh man, you’re crazy if you do that,’ ” she said. “Then again, you can’t prevent someone from working. But if it’s that obvious, it’s really kind of crazy. I’ve known people who have tried to take a job within a competing holding company and had to wait a year to go there.”

Filed by Emily Bryson York of Advertising Age, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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A federal judge approved an $11 million settlement October 8 in a class-action lawsuit against Kelly Services Inc. by temporary workers over vacation pay and payment notices, according to a filing with the U.S. District Court for the Northern District of Illinois Eastern division.

Class-action members include current and former temporary workers in Illinois who did not receive vacation pay between January 1, 2002, and December 31, 2008, according to the settlement’s final approval order filed with the court.

In addition, the settlement includes temporary workers in non-clerical and non-professional positions between January 1, 2006, and August 27, 2007, who did not receive wage and payment notices as required by the Illinois Day and Temporary Labor Services Act.

According to court records, $10 million was allocated to a fund for vacation pay allegations and $1 million was allocated to a fund for payment notice allegations.

Kelly did not admit wrongdoing in the settlement.

“There was no admission on our part of any violations of the statute, nor were there any findings of a violation by the judge or the court,” said Jim McIntire, vice president of public affairs at Kelly. “It was a settlement that in our view reflects the very considerable expense of ongoing litigation and we acted to avoid those continuing expenses.”

Named defendants in the class-action suit were Estella Arrez and Erica Alonso, according to court filings.

Arrez worked for Kelly from December 2005 through October 8, 2006, at Caterpillar Inc., according to the complaint in the suit. Alonso worked for Kelly from June 11, 2003, through July 22, 2004, at several sites.

Chicago Public Radio reported the suit involved 96,000 temporary workers and that it was one of the largest wage-and-hour cases in Illinois history.

—Staffing Industry Analysts

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An employee is entitled to an “inference” that her injuries are work-related because Xerox Corp. failed to produce medical records from a work-site facility she visited, a New York appellate court has ruled.

The decision Thursday, October 8, by the 3rd Judicial Department of Appellate Division of New York Supreme Court in Deana Curtis v. Xerox et al. stemmed from a claim filed by a data entry employee who, after 33 years at Xerox, stopped working in 2005 because of severe pain and swelling in her hands, fingers and wrists.

During hearings in 2006, Curtis testified she visited her employer’s “plant medical department” and a workers’ compensation judge ordered Xerox to produce medical records from the visit. Xerox did not produce the records, but the judge ruled later that she had not established that her injuries were occupation-related.

In 2007, the New York State Workers’ Compensation Board rescinded that decision and ordered Xerox to produce the records. But Xerox then alleged the records did not exist, court records state.

A series of hearings ensued and the board found that Curtis was entitled to an “inference” that the medical records exist and they show a diagnosis favorable to her.

The employer appealed and the appellate court ruled  that even without the inference, substantial evidence existed to find that the claimant “sustained a work-related occupation disease.”

The court also ruled that despite repeated direction to produce the medical records, the employer failed to do so. Therefore, it was appropriate to draw an inference in favor of the employee, the court ruled.

Filed by Roberto Ceniceros of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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The pending rule changes around Roth IRA conversions present a huge business opportunity for financial advisors to have deeper conversations with clients, according to a new survey by Charles Schwab & Co. Inc.

Starting January 1, people making more than $100,000 annually will be eligible to convert their traditional individual retirement accounts or 401(k) plans with previous employers into Roth individual retirement accounts. Currently, only those who make less than that amount a year are eligible to convert.

However, 61 percent of Americans surveyed by Schwab who made more than $100,000 annually were unaware of the Roth conversion rule changes, while only 14 percent of these 400 individuals said they could explain the rule changes.

As a result, 71 percent of the people polled said they would be likely to consult with a financial advisor on Roth IRA conversion issues.

“Advisors have a chance to initiate a conversation on a topic that for many clients is very confusing,” said Scott Slater, managing director, business consulting, in Schwab’s advisor services division.

The rule changes also gives financial advisers an opportunity to talk to clients about their entire financial portfolios, to which they might not ordinarily have access, said Howard Schneider, president of Practical Perspectives, a research and consulting firm in Boxford, Massachusetts.

“This isn’t just about how the advisors can manage the portfolio and earn the client an extra 100 basis points,” Schneider said. “This rule change provides advisors with a great entry into a deeper discussion about what clients want in retirement.”

Filed by Jessica Toonkel Marquez of InvestmentNews, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Employers must comply with a new law on parity for mental health care benefits next year, but may have to do so initially without the aid of federal regulations.

The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 requires employers to provide the same coverage for mental health and substance abuse disorders as they do for other medical conditions in their group health care plans.

The law, which goes into effect for most group plans on January 1, 2010, succeeds an earlier statute that banned discriminatory annual and lifetime dollar limits but allowed health care plans to discriminate in other ways, such as imposing annual limits on the number of covered visits to mental health professionals, while having no limits for other medical conditions.

However, federal officials say regulations won’t be ready until January at the earliest.

“We are committed to ensuring access to these critical services, and it is our goal to issue regulations by January 2010 that will address the key issues,” Department of Health and Human Services Secretary Kathleen Sebelius wrote in an October 2 letter to Sen. Al Franken, D-Minnesota.

Sebelius said federal agencies have received more than 400 written comments in response to an April notice requesting input from the public on key issues associated with the law.

Among other things, federal regulators sought comment on which provisions in the law require regulatory clarification, how out-of-network coverage for mental disorders differs from out-of-network coverage for other medical disorders, and whether special consideration should be given to small employers.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Dear Spread Thin:



Your riddle is a more like a puzzle box with intricate paths, subtly designed into the surface required to open it—a puzzle, by the way, spreading well beyond the Pacific Rim.

I think your description of the problem, however—”plagued by poor levels of commitment”—is very apt.

When I was in China less than a year ago, HR and staffing professionals uniformly pointed to high turnover (30 to 40 percent) among middle managers as the No. 1 issue affecting their companies’ plans for growth, as well as concern over sustaining company performance. As a consequence, nearly all firms were resorting to counteroffers—promotions and money primarily—in a doomed attempt to improve retention. This short-term mentality has unintended consequences that you’ve described very well. Seeing how consistently their colleagues are rewarded by obtaining external job offers and parlaying them into promotions and raises, other career-minded employees are following suit. They see little alternative to periodically interviewing for an extra internal move, whether or not it makes any sense for the business.

I recently surveyed 100 of my U.S. colleagues and found that 97 percent are using counteroffers as a retention strategy—just not as liberally (yet) as their Asian counterparts.

In my opinion, the problem cannot be solved by escalating the compensation and titles without regard to profits. It can be solved by focusing on the core needs of a growing professional class in the Pacific Rim. There, as you know well I’m sure, the importance and expectation of rapidly escalating income and promotions are inextricably linked to family and mentors (to whom a high level of commitment is required).

If, for example, the successful completion of a project were to be followed by a great celebration where all the members of the team (not just management) were feted and their families were involved and they received significant bonuses, it would be clear where the honor (and commitment) lay.

If real profits are shared with employees, and especially if those profits include high regard for safety and social responsibility, there would be alternatives to this too-rapid ladder climbing. If leaders of multinational corporations continue to make 600 to 1,000 times an entry-level professional worker’s salary, however, employees are going to feel as if management isn’t committed to them—so why should employees commit to the company?

Your firm may be very different (I certainly hope so). Therefore it is essential that you break the cycle by:

1) Branding your company’s “difference” as part of the interviewing process. Tell stories in each interview about how employees are honored in ways that give their family great face in the community, not solely by compensation and promotion. Show real career maps and then commit to them.

2) Describe during the offer what a counteroffer is—how it may meet short-term career goals (for more money or prestige) by accepting it, but how long-term success may be lost forever by accepting short-term deals. Use this approach to pre-empt counteroffers. Never make a counteroffer after, only before.

3) Reduce to near zero your company’s use of counteroffers when your people leave. And if you do make a counteroffer, make it public to the rest of your workforce. That way, either they will have to be explained as an exception and business necessity or, as will likely be the case, they will be reduced even further as an embarrassment.

4) Develop a very aggressive alumni program to build relationships with all alumni so that they can refer candidates or return themselves. Celebrate every returning employee. This means that when someone leaves you treat them as if they are going away for a short time to learn new skills and return.

5) Publicize your programs in the industry and act as if it puts your company head and shoulders above competitors, who must resort to bribery to keep theirs.

SOURCE: Gerry Crispin, CareerXroads, Kendall Park, New Jersey

LEARN MORE: Sometimes, sweetening the pot to keep a valued employee may turn other things in your company sour.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.