Texas follows the federal wage and hour laws. Under the federal law governing wage and hour disputes (the Fair Labor Standards Act (FLSA)), jobs are classified as either exempt or non-exempt from overtime requirements. Employees that are non-exempt from overtime are typically paid on an hourly basis and are entitled to be paid overtime for any hours worked in excess of 40 hours in a single working week. The overtime rate of pay is 1.5 times the non-exempt employee’s regular rate of pay. In order to avoid a claim of unpaid minimum wage or overtime, it is imperative for employers to ensure non-exempt employees are accurately recording and reporting their hours worked.

Exempt employees are typically paid on a salary basis and are not entitled to be paid overtime. Thus, if an exempt employee works more than 40 hours in a working week, the employee is not entitled to be paid any additional money beyond their weekly salary. Additionally, tracking hours is not required. Sometimes employers are inclined to classify employees as exempt in order to avoid tracking hours and paying overtime, but employers must ensure that the employee properly qualifies as exempt to avoid potential liability.

To be exempt from overtime, an employee must meet all the criteria of an applicable exemption. There are several exemptions, including the professional exemption, administrative exemption, and highly compensated employee exemption. Each exemption has its own specific requirements in order for the employee to qualify.

Employers who violate the FLSA are liable for economic damages in the form of unpaid overtime wages. If there is a violation, the employee is also entitled to liquidated damages or “double damages” that match the amount of the unpaid overtime wages, unless the employer proves it acted in good faith and had reasonable grounds to believe its actions did not violate the FLSA. Additionally, if the employee proves the violation was wilful, the statute of limitations period extends beyond the standard two years to a third year. In the largest category of damages, workers are also often entitled to recover their attorney’s fees if they prevail.

Texas is an “at will” employment state, which means that – in the absence of an agreement otherwise – either party can end the relationship at any time, with or without notice. Employment contracts are not required except in the case of collective bargaining agreements with unionised employees. However, employment contracts may be entered into if desired between the employee and employer, and the contract should be in writing.

What an employment contract includes is customisable and there are no required terms. If the intention of the employer is to limit how the parties can end the employment relationship, this should be carefully drafted with defined terms and specifying when the relationship can be terminated upon notice, without notice, and what the repercussions of the termination will be. It is also recommended that the agreement includes a carefully drafted outline of the employee’s compensation plan (including bonuses, equity, and commissions, if applicable) and states whether the employer can change that compensation plan proactively without entering into a new agreement.

When an employer does choose to enter into an employment agreement that sets out a specific term of employment and under what circumstances the employee and employer can end the relationship, this is typically referred to as termination “for cause”. In such situations, it is not uncommon for disputes to arise concerning:

• whether proper cause was present to end the employment;
• whether the terminating party followed all the requisite steps to terminate the employment;
• whether any severance is required; and
• how the termination affects the employer’s obligation to pay out bonuses and commissions or to implement their equity agreements.

These disputes are highly variable depending on the contract language, including the remedies set out in the agreement. The main remedy is typically the “benefit of the bargain” or what the party would have received had the breach not occurred. Additionally, in some situations, the prevailing party will be entitled to their attorney’s fees incurred.

Contractual disputes can also arise when the employee’s employment contract sets out how they will be paid (salary, bonuses, equity options, etc) but the compensation is not paid according to the contract provisions. Contractual disputes regarding pay also typically arise when an at-will employee has a commission agreement and disputes that their commissions have been calculated and paid correctly under the contract.

Texas employees can work full time (typically 35–40 hours a week) or part-time (typically 30 or less hours a week). An employee’s status as part-time and full-time is determined by the hours worked, not by agreement.

Texas requires employers to pay overtime to a non-exempt (full-time or part-time) employee who works more than 40 hours in a single working week. However, Texas does not set a maximum of total hours allowed, so potential overtime earnings can be significant. Exempt employees are generally full-time, are not entitled to overtime pay and have no limit on hours worked in a week.

Although generally Texas does not have a maximum of daily hours worked for exempt or non-exempt employees, certain exceptions apply in safety-sensitive industries such as nursing and for truck drivers.

Both Texas and federal US law require Texas employers to pay the federal minimum wage, which is currently USD7.25. Texas presently sets its minimum wage based on the applicable federal rate. Thus, if the federal rate increases, the Texas minimum wage rate would also increase.

Cities are permitted to require employers pay the employees who work within city limits a higher minimum wage. By way of example, the city of Austin, Texas requires a USD15 minimum wage for employees who work within Austin, Texas.

Employees can also be paid on a salary basis, which is when an employee is paid the same amount each week regardless of hours worked. Both hourly and salary employees can earn bonuses if offered by their employers, but bonuses are not required. If a bonus plan is enacted, it is important to define when the bonus is earned, how it is calculated, and how the employee’s separation from employment will affect whether the bonus will be paid.

Paid Leave and Time Off

Texas does not require employers to provide any paid leaves of absence, including maternity, disability, family, medical, or sick leave. However, there are several laws requiring Texas employers provide unpaid leave for certain reasons, including for disabilities and serious health conditions and to care for newborn or adopted babies.

Additionally, many Texas employees provide paid leaves to attract and retain employees. Providing paid time off (vacation and sick leave) for full-time employees is generally expected of Texas employers. If paid time off is provided to employees, Texas does not require an employer pay out accrued but unused paid time off at the time an employee resigns or is terminated, unless the employer has a policy stating it will or the employee has an agreement stating such pay is owed.

Limits on Confidentiality and Non-disparagement Clauses

The US Congress also passed the Speak Out Act, which became effective on 7 December 2022. In the event of allegations of sexual assault and/or sexual harassment, any related non-disclosure and non-disparagement clauses entered into “before the dispute arises” are rendered unenforceable under this law. This means that, unless a dispute related to sexual harassment or sexual assault is being resolved by virtue of a settlement containing confidentiality and non-disparagement language, broad-sweeping confidentiality and non-disparagement language in other agreements may not be enforceable. This could impact multiple standard agreements, including typical non-disclosure agreements and severance agreements. Those templates should be examined for compliance with these new laws.

Texas passed sweeping legislation (effective as of September 2021) imposing more stringent sexual harassment laws on employers in the state. Key changes under the law include:

• additional time for employees to bring claims;
• expanded coverage to any company with one or more employees (previously 15 or more employees);
• personal liability for supervisors or managers or anyone else acting directly in the interests of the employer; and
• liability if the employer fails to act “immediately” once the employer or its agents knew (or should have known) about the harassment.

Please refer to 6.2 Employee Representative Bodies and 7.4 Termination Agreements for other limitations on non-disparagement and confidentiality clauses set out by the National Labor Relations Board (NRLB).

In Texas, non-competes are governed by Section 15.50 of the Texas Business and Commerce Code. Under this provision, a covenant not to compete is enforceable if it:

• is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made;
• contains limitations as to time, geographical area, and scope of activity to be restrained; and
• the limitations are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the company.

Typically, the payment of money cannot form the consideration for a non-compete agreement. It must have some special, unique consideration, such as access to confidential information, specialised training, investment of the company’s business goodwill, or equity.

Enforcement

In enforcement actions, courts scrutinise the reasonableness of the time, geography, and scope of the activity prohibited in relation to the business interests the company is trying to protect. By way of example, if a salesperson was assigned the Dallas, Fort Worth market as their sales territory, then a non-compete preventing the salesperson from working in Houston would likely be found to be over-broad. However, if a salesperson was assigned all of Texas as their market (and did in fact market and converse with customers across the state), then a non-compete preventing the salesperson from working anywhere in the state would likely be upheld as reasonable. Non-competes should be tailored to the job the employee is performing for the company and the relevant business interests the company is trying to protect.

The damages typically available to a business enforcing a non-compete include injunctive relief and lost profits that result from the breach. Most non-compete cases focus on enjoining the conduct at issue to protect the business.

Reformation

If a court finds that a non-compete is over-broad then it must reform and narrow the agreement to make it enforceable. This is called “blue penciling.” However, if the court has to blue pencil the non-compete, then the party seeking to enforce the non-compete may not recover money damages and is limited to injunctive relief.

Additionally, if the court finds that the business knows at the time it imposed the non-compete that it was more broad than necessary to protect its business interests, then the court may award the employee their costs and reasonable attorney’s fees incurred in defending the action to enforce the non-compete.

Physicians

Special rules apply to non-competes governing physicians in the State of Texas. A covenant not to compete relating to the practice of medicine is only enforceable against a licensed physician if the covenant complies with all the following requirements.

• The non-compete may not deny the physician access to the list of patients whom the physician saw or treated within the year immediately preceding termination of the contract or employment.
• The non-compete must provide access to medical records of the physician’s patients upon authorisation from the patients.
• The non-compete must provide that patient lists or medical records can be provided in the format in which they are normally maintained, unless the parties agree otherwise.
• The non-compete must provide for a buyout of the covenant by the physician at a reasonable price or at a price determined by an arbitrator.
• The non-compete must provide that the physician will not be prohibited from providing continuing care and treatment to a specific patient or patients during the course of an acute illness even after the contract or employment has been terminated.

The buyout clause for a non-compete is unique to physicians in Texas. Often, this buyout amounts to the equivalent of one to two years of the physician’s earnings.

Sale of a Business

Although outside the scope of this employment-related article, it is important to note that non-competes in the context of a sale of business are given much greater deference in Texas. These non-competes are allowed to be much more broad than non-competes in the employment context.

Possible Nationwide Ban on Non-competes

A current federal regulation issued by the Federal Trade Commission (FTC) seeks to ban all non-competes in the employer–employee context. Lawsuits have been filed to block the ban and, in August 2024, a Texas judge blocked the FTC rule, which was set to go into effect on 4 September 2024. The ruling will be appealed and work its way through the appellate courts. If the regulation goes into effect, nearly all non-competes across the USA in the employer–employee context will be invalidated. Practitioners should follow this litigation closely before advising clients on non-compete matters at the state level.

Further information on the prospective ban on non-competes can be found in the USA – Texas Trends and Development chapter in this guide – in which non-competes are discussed in more detail.

Non-solicitation agreements are often referred to as non-competes, but the two are not synonymous. Whereas a non-compete prohibits an employee from working elsewhere (within certain temporal, geographic and industry limitations), a non-solicit allows the employee to work anywhere but prohibits the employee from soliciting certain categories of people ‒ typically the people they worked with during their employment (including employees, vendors, contractors, customers and investors).

In Texas, non-solicits are treated very similarly to non-competes in terms of enforcement. They must be reasonable in time, geography and scope and narrowly tailored to protect the business interest at issue. Practitioners should tie the non-solicit to the relationships at risk that they are trying to protect. By way of example, the non-solicit could prevent a departing employee from taking their team with them ‒ although a court may not enforce a non-solicit that prohibits the hiring of any person who works for the company, even if they never spoke to or interacted with the departing employee. Such a broad non-solicit could run afoul of antitrust rules.

There is a growing trend in Texas and many other states to remove non-competes from agreements and rely on non-solicits to protect the applicable business interest. In other words, the employee can go work wherever they want, but they cannot solicit the company’s employees, customers, etc.

Non-solicitation agreements are not subject to the FTC ban on non-competes (see 2.1 Non-competes), which is set to take effect on 4 September 2024 if it is not enjoined. For further details on this ban and on non-solicitation agreements in Texas, please see theUSA – Texas Trends and Development chapter in this guide.

The biggest privacy issue facing companies is the intermingling between the personal and professional lives of workers caused by the drastic rise in consistent remote work. Prior to 2020, remote work was not unheard of; however, it was not the norm it is presently. Accordingly, there are both worker-specific and business-specific considerations to which companies must pay attention.

From the worker end, companies must make sure that none of their monitoring equipment or systems unlawfully intrude on the worker’s right to privacy. That level of privacy varies by state. In Texas, employers should adopt policies making it clear that the employee has no right to privacy on company equipment or systems, including phone, email, chat and voicemail.

From the company end, businesses must require and enforce adequate protections to ensure their confidential information and any trade secret material does not become compromised (either by accident or intent). This requires heightened attention to information security and meticulous enforcement of policies and practices for remote workers or those who regularly deal with such information outside of the confines of a business’ physical premises.

Foreign (ie, non-US) workers looking to work in Texas are required to have some form of authorisation, which typically comes in the form of a work visa. There is a waiting list of more than a year for visa interviews in some countries. The USA is still feeling the effects of the COVID-19 pandemic-era state department shutdowns and this is expected to continue to be felt for the foreseeable future. Thus, employers must allow for a delay in the application process when arranging for their foreign workforce to start employment in the USA.

Additionally, many H-1B workers have taken advantage of the work-from-home opportunities in the past few years and have relocated to areas outside their approved H-1B locations without filing amendments to their H-1B petitions. This causes a change of status for employees and impacts the renewal of visas, requiring the employees to return to their previous country. Identifying and remedying these issues far in advance of the renewal process may alleviate complications.

Apart from the application process with the United States Citizenship and Immigration Services (USCIS) for the applicable employment-based visa, the USA and Texas do not have requirements to register foreign workers.

As the world continues to adapt after the pandemic and with new generations entering the workforce and management, remote or hybrid work is the expectation and norm in some industries. Although there are many benefits to remote work, certain legal issues that were not commonplace before have arisen during the past few years.

Accurate Logging of Hours by Remote Workers

As discussed in 1.3 Working Hours, employers in Texas must track their hourly non-exempt employees’ hours and pay them the proper wages, including overtime. Tracking hours can be challenging in a remote work setting, with employees having more freedom to multi-task work and non-work activities. Employers should establish policies regarding tracking and reporting hours and may want to implement software to monitor work hours if productivity seems to have dipped compared to hours worked. If software is implemented, employers should give notice to employees.

Duty of Employers to Ensure Safety of Remote Workers

It is an employer’s duty to provide a safe work environment for their employees. But what if the work environment is now the employee’s home or a shared office space? Employers should implement policies regarding locations for work, including policies that prohibit conducting work calls, meetings or emails while operating a vehicle or conducting non-work activities (eg, taking a work call while hiking). Additionally, employers may evaluate providing equipment that would prevent certain ergonomic issues.

Duty of Remote Workers to Report Any Change of Address

Remote workers sometimes do not see the importance in updating their employer as to where exactly they are working from. Although it may not matter if an employee works remote temporarily while visiting another state, there has been a sharp increase in government agencies finding that employers failed to register to do business in the proper state and did not pay the proper employment taxes because an employee moved to a state other than that which the employer had accounted for. This can also cause issues in workers’ compensation, unemployment insurance, and other programmes run on the state level. Thus, it is important to have remote workers update or confirm their address on a biannual basis and have a policy that the employer must approve any move outside their current city by remote employees. Even an employee moving cities within the same state can have a detrimental impact – for example, a minimum-wage employee moving from Dallas, Texas (where the minimum wage is USD7.25 per hour) to Austin, Texas (where it is USD15 per hour) would not earn the applicable minimum wage as a result.

It is very uncommon in Texas for employers to have a sabbatical leave policy, except for some governmental employers. Rather, Texas employers are only required to provide unpaid leave for certain reasons, including for disabilities and serious health conditions and to care for newborn or adopted babies. Employers are given the option to approve leaves that do not fall under these laws, which some employers have opted for. In that instance, employers should have a carefully drafted leave policy that is uniformly applied to all employees so as to avoid claims of discrimination.

If an employee does take an extended leave of absence from work, without an agreement or policy otherwise, the employer has no obligation to return that employee to their position at the end of such leave. Additionally, employers would not be required to maintain certain benefits during the employee’s absence.

New work is a social concept that focuses on creating an environment where employees work to live rather than live to work. New work encompasses innovative approaches to work that address changing technologies, organisational structures, and employee expectations. Recent manifestations in this field reflect a shift towards more flexible, collaborative and technology-driven work environments.

The goals of new work initiatives are to:

• increase job satisfaction;
• improve quality of life;
• improve productivity;
• increase engagement levels;
• establish better working relationships with colleagues;
• provide more time for leisure and self-care activities outside work hours; and
• give better accessibility for neurodivergent employees.

Most recently, new work combines modern practices such as:

• flexible and remote work;
• desk sharing or unconventional office spaces; and
• flat hierarchies.

While most people understand flexible and remote work as it is, advances in virtual and augmented technologies to explore remote collaboration and training are expected. In other words, remote work may not feel so remote if employees can attend a virtual reality meeting with their colleagues.

Some cities and industries in Texas have embraced new work set-ups, while others show no signs of embracing the new trends. For those that are moving in the “new work” direction, it will be necessary to still maintain clear expectations of productivity, work quality, and standards of conduct. These details can get lost in the shuffle of new work arrangements, which will make documenting working hours and disciplining employees for not meeting expectations difficult.

Unions in the USA surged during the Second Industrial Revolution in the late 1800s and early 1900s. However, in the 1970s and 1980s, the USA experienced the age of computers and a Presidential administration (under Ronald Reagan) that was largely anti-union. Between 1975 and 1985, union membership fell by five million. By the end of the 1980s, less than 17% of American workers were unionised. Until recently, unions were traditionally thought of as being only for the public sector or certain industries (eg, the airline, transit and automotive industries).

The current union activity in the USA is in markets and industries that have not traditionally been unionised – in particular, retail and hospitality. Recently, more than 200 Starbucks stores officially voted to unionise, according to the NLRB. First-ever unions have also been formed at an Apple Store in Maryland, Trader Joe’s grocery store, and national retailer REI. What differentiates this union activity from previous union activity is that it is concentrated among young workers and sometimes college-educated young workers who feel over-worked, under-paid and over-educated for the jobs they have. Many have decided to band together to demand more. According to Gallup data from 2021, there is a 77% approval rate for unions among young adults aged 18 to 34.

Generally, the top reasons employees cite for joining a union are:

• “the company ignores my complaints and does not care about me”;
• “my boss does not respect me”;
• “the company does not care about safety”;
• “I do not like my pay or benefits” or “I do not understand how pay and benefits are calculated and awarded”; and
• “my boss plays favourites and I am not treated fairly”.

What the USA experienced immediately after the pandemic had not been seen for decades or maybe ever – employees are asking for more and they are, in many respects, controlling the market. This has tapered off a bit as experts predict a US recession; however, in the meantime, there has been a large resurgence of unions. Companies need to be aware of these issues and make sure that they are being addressed in the workplace. Even in states such as Texas that are largely anti-union, there is growing popularity for union organisation.

Under the Biden administration, the NLRB has been more active and aggressive in pro-employee rulings. The National Labor Relations Act (NLRA) was passed by Congress in 1935 to encourage collective bargaining by protecting workers’ full freedom of association. Although many have viewed the NLRA as antiquated because it protects union activity and organising efforts, there has been more NLRB activity with the new surge of organising efforts in the USA.

Even outside a unionised workforce, the NLRB safeguards employees’ right to engage in protected concerted activity. This means that discussions or comments regarding wages, hours, working conditions, or other terms and conditions of employment by more than one employee – or by someone speaking on behalf of others – cannot be restricted and are protected under the NLRA. The NLRB has cracked down on company social media policies in recent years where these policies appear to restrict protected concerted activity by employees on social media.

In McLaren Macomb, Case 07-CA-263041, the NLRB ruled that an employer cannot demand that a laid-off employee refrain from publicly disparaging the company or otherwise keep confidential the terms of the employee’s severance as part of a severance agreement. The NLRB decision overruled decisions of the board issued just a few years prior. Under the Biden administration, the NLRB reversed course and found that an employer’s use of severance agreements that contain sweeping non-disparagement and confidentiality provisions interferes with a laid-off employee’s Section 7 rights. In response to this ruling, employers using severance agreements with confidentiality and non-disparagement clauses should ensure the clauses are narrowly tailored and contain appropriate language to carve out conduct protected by Section 7 of the NLRA.

Companies from overseas expanding into the US market should be aware of these NLRA regulations and ensure that their policies – especially policies that might limit employees’ ability to discuss wages and other terms of employment – are not restricted.

Collective bargaining agreements are agreements between employers and representatives of their employees (eg, unions), which address the wages, hours and other conditions of employment.

Collective bargaining agreements exist and operate under the statutory framework established by the NLRA. Most collective bargaining agreements contain the following common elements:

• union recognition clause;
• management rights clause;
• union rights provisions;
• prohibits on strikes and lockouts;
• union security clause;
• non-discrimination provisions;
• grievance and arbitration procedures;
• provisions establishing the terms and conditions of employment;
• provisions addressing changes in the employer’s business; and
• terms defining the scope of the agreement.

A collective bargaining agreement will typically require “just cause” (as defined in the agreement) for an employer to terminate employment. If the employee disputes that the employer had just cause, this will likely proceed under the grievance procedures until a determination is finalised.

At-Will Employment

When facing termination of the employment relationship, companies should look to see whether the employee is party to any employment contract or collective bargaining agreement that governs the termination or the employment relationship itself. The default rule in 49 states (including Texas) is that employees are “at will”, meaning the employee or the business can terminate the employment relationship for any reason or no reason at all, so long as the reason or no reason is not “illegal” – something that is typically tied to a protected classification.

Employment Contracts and Collective Bargaining Agreements

If there is an employment contract, the business must determine what steps – if any – are needed to end the relationship. By way of example, some employment contracts may require a severance payment or certain notice if the employee is terminated without cause (which should be defined in the agreement). A collective bargaining agreement will typically require “just cause” (as defined in the agreement) for an employer to terminate employment.

Best Practices to Minimise Risk

Assuming there is no contractual relationship or collective bargaining agreement with the employee that governs the termination, the employer should still ensure it has legitimate business reasons for the termination and no decision is tied to a protected classification or in response to a workplace complaint. If a protected classification listed in Section 7.5 is motivating the termination, liability could be found against the employer. There are many state and federal statutes that protect against discrimination, harassment and retaliation, which employers should heed.

The best defence against such a claim is to ensure that the employer documents important events during the entire employment relationship, such as discipline given, performance issues, absences/tardies, and verbal counselling provided. In Texas, there is no requirement that businesses use progressive discipline to coach an employee, but it can serve as a valuable legal defence against any claim of unlawful action.

Additionally, having clear and concise policies and guidelines (often found in an employee handbook) – in addition to appropriate non-disclosure and confidentiality agreements for private information – will help establish the rules and framework that will govern the employment relationship. Pay and position adjustments during the employee’s tenure, as well as performance reviews, should likewise be documented. Perhaps the most significant defence to employment claims concerns the real-time documentation of performance or conduct issues of employees. Many employers opt to implement progressive discipline polices, which typically (albeit not in all cases) require levels of warning or addressing of the performance or conduct issue before an ultimate termination.

In the absence of an employment contract, notice is not required for either an employee or employer to terminate the relationship. For employers who wish to get the “professionally courteous” two-week notice from their employees, the employer could pay out accrued and unused paid time off if the notice is given and worked or provide some other type of incentive. However, an employer cannot withhold any pay for hours or days already worked if an employee does not provide any notice of the decision to leave their employment.

As discussed in 7.1 Grounds for Termination, Texas does not require an employer to follow a progressive discipline policy. Accordingly, an employer can terminate the employment relationship for any reason or no reason at all, so long as the reason or no reason is not “illegal” – something that is typically tied to a protected classification.

However, an immediate termination can be viewed as a violation of anti-discrimination or anti-retaliation laws if the employer is not consistent in treating the preceding offence as grounds for immediate termination. By way of example, if one employee is terminated on the spot for workplace violence but another employee engaged in substantially similar violence and was not terminated a few months prior, the terminated employee may have grounds to claim discrimination. Accordingly, it is imperative that an employer is consistent in how it applies its discipline and termination policies, especially in the case of an immediate termination.

Severance agreements are frequently used by Texas employers to obtain a release of any claims the employee may have against the employer. Severance agreements must follow the typical contract rules, such as having consideration (the severance payment), being in writing, and being agreed to (the signature).

Limitations to Severance Agreement

There are certain claims that cannot be released in a severance agreement, such as the employee’s right to:

• be paid for hours worked or business expenses incurred prior to the termination;
• bring an administrative charge;
• file for unemployment benefits; or
• file for workers’ compensation benefits.

Additionally, the NLRB has instructed that any confidentiality and non-disparagement clause in a severance agreement must be narrowly tailored and provide appropriate language to carve out conduct protected by Section 7 of the NLRA.

Employees Over Age 40

If the severance agreement is for an employee who is over the age of 40 by the time they are presented with the severance agreement, the employer must ensure that the severance complies with the Older Workers Benefit Protection Act. This includes:

• ensuring the agreement is clear and understandable;
• refers to the Age Discrimination in Employment Act and the employee’s right to waive their claims under it;
• advising the employee to consult with a lawyer before signing; and
• providing at least 21 days (45 days if a group termination) before signing and seven days to revoke their signature after signing.

If it is a group termination, employers must provide employees over the age of 40 included in the group termination with information about the factors that determine eligibility, the ages and job titles of employees who were laid off, and the ages and job titles of employees who were not laid off.

Applicants, employees and former employees are protected from employment discrimination based on:

• race;
• colour;
• religion;
• sex (including pregnancy, sexual orientation, or gender identity);
• national origin;
• age (40 or older);
• disability; and
• genetic information (including family medical history).

Such protected classification cannot be used when determining any term or condition of employment, including hiring, promotion, pay rate, and termination.

Texas law provides that if the same person that hired the employee is the decision-maker with regard to the termination, there is a presumption that no discrimination occurred. The reasoning being that the choice to hire the person shows no animus towards their protected class. Of course, this presumption would not apply if the employee’s inclusion in a protected category begins while in employment, such as becoming pregnant, turning 40, or developing a disability.

In recent years, there has been an increase in claims alleging “reverse discrimination” filed by non-minority employees, claiming a minority group or employee is getting preferential treatment and that the non-minority is thereby being discriminated against. Thus, it is critical for an employer to ensure that its policies with regard to hiring, promotion, pay rates, discipline and terminations are applied in a consistent manner without regard for such protected classes.

Wrongful termination claims are typically split into two groups:

• wrongful termination in breach of an employment agreement that limits the employer’s ability to dismiss the employee except for certain reasons; or
• wrongfully dismissing an employee for an unlawful reason, such as discrimination or retaliation.

Contractual Claims

When an employer chooses to enter into an employment agreement that sets out a specific term of employment and the circumstances under which the employee and employer can end the relationship, dismissal is typically referred to as termination “for cause”. In such situations, disputes arise concerning:

• whether proper cause was present to end the employment;
• whether the terminating party followed all the requisite steps to terminate the employment; and/or
• whether any severance is required.

These disputes are highly variable depending on the contract language, including the remedies set out in the agreement. The main remedy is typically the “benefit of the bargain” or what the party would have received had the breach not occurred. Additionally, in some situations, the prevailing party will be entitled to their attorney’s fees incurred.

Discrimination and Retaliation

Unlike contractual reasons, most employees in Texas have the right to not be terminated from their employment for discriminatory or retaliatory reasons. The details of a discrimination claim are outlined in 8.2 Anti-discrimination.

For retaliation, an employer is prohibited from terminating an employee because the employee opposed an unlawful employment practice or made a charge, testified, or assisted in an investigation into an unlawful employment practice. This is referred to as “protected activity”. However, not all employment complaints are protected activities that give rise to a retaliation claim. Rather, the complaint, charge, or opposition must be about an action that the employee reasonably believed violated an employment law. By way of example:

• if an employee reports to HR that they believe they did not receive a promotion because of their race, and points to instances of disparate treatment leading up to the promotion, this would likely qualify as protected activity because such alleged discrimination would be unlawful; but
• if an employee complains to their boss that a colleague called them a curse word but does not relate the curse word to the employees’ protected class, this would likely not qualify as protected activity because it is not unlawful or a colleague to be rude.

After showing they engaged in protected activity, the employee must also show that – “but for” the protected activity – they would not have been terminated.

If an employee is successful in proving retaliation, the employee can recover:

• the wages and value of benefits the employee would have earned if not for the retaliation;
• mental anguish damages;
• attorney’s fees; and
• punitive damages if the employee can show the discrimination was intentional and malicious.

Applicants, employees, and former employees are protected from employment discrimination based on race, colour, religion, sex (including pregnancy, sexual orientation, or gender identity), national origin, age (40 or older), disability, and genetic information (including family medical history).

For each type of discrimination, the employee must prove a different set of elements. However, most require the employee to show:

• that the employee is in one of the protected classes;
• that the employee was qualified for the job they had or applied for;
• that they experienced an adverse employment action (eg, termination, suspension without pay, or severe harassment); and
• that the adverse employment action was due to their protected class.

Once the employee shows this, the employer must be able to articulate a legitimate, non-discriminatory reason for the adverse employment action. If able to do so, the burden shifts back on to the employee to prove that the adverse employment action was in fact due to the employee being in the protected class and not only due to the legitimate, non-discriminatory reasons.

If an employee is successful in proving discrimination, the employee can recover:

• the wages and value of benefits the employee would have earned if not for the adverse employment action;
• mental anguish damages;
• attorney’s fees; and
• punitive damages if the employee can show the discrimination was intentional and malicious.

Since the pandemic, the manner in which employment disputes play out in Texas has remained almost unchanged. Although Texas courts may entertain certain preliminary hearings via video conference, most are requiring all hearings and proceedings to be conducted in person, including the final trial. Even in arbitration, discussed further in 9.2 Alternative Dispute Resolution, arbitrators are requiring final hearings to be conducted in person. However, courts and arbitrators alike are increasingly approving certain out-of-town witnesses to testify remotely by video conference, and jurors are more open to receiving such testimony.

One aspect of employment litigation that there has not been a quick return to in person is the pre-hearing mediations conducted. Mediation is the parties’ chance to have settlement discussions with a third-party neutral who assists in the negotiations. Prior to the pandemic, mediations typically occurred in the mediator’s office and both parties travelled in for the meeting. However, mediations have largely remained remote, with both parties conferencing via video. In fact, some mediators have chosen to only offer remote proceedings. This is beneficial in keeping the cost of mediation down and being more efficient, but some larger disputes may warrant an in-person mediation in order to conduct the necessary negotiations.

In Texas, as in other states, a class action is a legal procedure that allows one individual or more to sue on behalf of a larger group of individuals who have similar claims. For employment claims, this could involve issues such as wage and hour violations, discrimination, or wrongful termination.

Eligibility for a Class Action

To proceed with a class action, the claim must meet certain criteria, as follows.

• Numerosity – the class must be so large that individual lawsuits would be impractical.
• Commonality – there must be common legal or factual issues that affect all class members.
• Typicality – the claims or defences of the representative parties must be typical of the claims or defenses of the class.
• Adequacy – the representative parties must fairly and adequately protect the interests of the class.

Filing a Class Action

The procedure for filing a class action is as follows.

• Complaint – the process begins when a plaintiff (or a group of plaintiffs) files a complaint in court, outlining the claims against the employer.
• Certification – the court must certify the class before it can proceed as a class action. This involves a hearing where the judge will evaluate whether the case meets the requirements for class action status discussed above.
• Notice – once the class is certified, notice is generally sent to all potential class members informing them of the class action and their rights.

Types of Employment Claims Suitable for Class Actions

Common employment issues that might be addressed in a class action include:

• wage and hour claims – allegations of unpaid overtime, misclassification of employees as exempt, or other wage violation;.
• discrimination – claims of systemic discrimination based on race, gender, age, disability, or other protected characteristics; and
• unlawful termination – cases where multiple employees claim they were wrongfully terminated under similar circumstances.

In class actions, it is crucial to have experienced legal representation. Attorneys specialising in employment law and class actions can help navigate the complexities of the case, including certification, litigation, and settlement negotiations.

With a well-written agreement, most Texas courts are quick to enforce an arbitration agreement signed by the employee. If the employee signs electronically, it is important to provide the agreement in a secure fashion and save certain signature authorisation data from the e-signature. These agreements are typically entered into as part of the employee’s hiring paperwork and can apply to any future claim arising from the employee’s employment, with the exception of certain claims (eg, sexual harassment claims and workers’ compensation claims).

At the federal level, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA) came into effect on 3 March 2022. Under this law, an employer cannot mandate forced (confidential) arbitration of claims related to sexual harassment and sexual assault. It also renders class action waivers of sexual harassment and sexual assault claims unenforceable.

If the agreement includes a provision that requires mediation prior to filing a lawsuit or arbitration, this will also typically be enforced by Texas courts.

Under applicable Texas and federal law, employees are entitled to their attorney’s fees and costs if they prevail on claims of discrimination, harassment and retaliation, hostile work environment claims, or claims that they were not paid the proper overtime or minimum wage. However, employers who successfully defend against such claims typically have no claim for their fees unless they can show that the employee brought it in bad faith, which Texas courts have held to be a very high – nearly impossible – standard.

Employees are also entitled to their attorney’s fees and costs if they are successful on a breach of contract claim, which typically arises when an employee claims they were not paid properly under their employment contract before or after termination. In these cases, if an employer successfully defends itself, it can typically recover attorney’s fees.