Another Non-Solicit Bites the Dust

The Court of Appeal took up a complex lawsuit involving claims and cross-claims of unfair competition, including strong agreements not to compete or solicit and choices of law and forum clauses. The Court expanded on the decision this summer in The Retirement Group v. Galante, posted here.

Basically, Dowell, other employees and their new employer, St. Jude, sued Biosense, which was attempting to enforce a non-compete agreement, which included broad non-solicitation clauses. The Court of Appeal agreed with the trial court that the agreements were unenforceable. Here is some language from the opinion:

Biosense contends that the clauses are valid because they were tailored to protect trade secrets or confidential information, and as such satisfy the so-called trade secret exception, citing cases such as Thompson v. Impaxx, Inc. (2003) 113 Cal.App.4th 1425, 1429–1430; Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1462; Metro Traffic, supra, 22 Cal.App.4th at p. 860; and American Paper & Packaging Products, Inc. v. Kirgan (1986) 183 Cal.App.3d 1318, 1322. Plaintiffs counter that in light of our Supreme Court’s recent decision of Edwards, supra, 44 Cal.4th 937, a common law trade secret exception no longer exists.The Court in Edwards concluded that section 16600 “prohibits employee noncompetition agreements unless the agreement falls within a statutory exception.” (Edwards, supra, 44 Cal.4th at p. 942.) . . . .

* * *

Although we doubt the continued viability of the common law trade secret exception to covenants not to compete, we need not resolve the issue here. Even assuming the exception exists, we agree with the trial court that it has no application here. This is so because the noncompete and nonsolicitation clauses in the agreements are not narrowly tailored or carefully limited to the protection of trade secrets, but are so broadly worded as to restrain competition. ...

Biosense argues that the clauses in the agreements are narrowly tailored to protect trade secrets and confidential information because they are “tethered” to the use of confidential information, and are triggered only when the former employee’s services for a competitor implicate the use of confidential information. As such, to the extent that no confidential information was disclosed or made known to Dowell and Chapman during their employment with Biosense, the noncompete clause would never be triggered. But this argument ignores the broad wording of the agreements. The noncompete clause prohibits an employee from rendering services, directly or indirectly, to a competitor where those services could enhance the use or marketability of a conflicting product through the use of confidential information to which the employee had access at Biosense. “Confidential information” is broadly
defined as information disclosed to or known by the employee, including such
information as the number or location of sales representatives, the names of customers, customer preferences, needs, requirements, purchasing histories or
other customer-specific information. Given such an inclusive and broad list of confidential information, it seems nearly impossible that employees like Dowell and Chapman, who worked directly with customers, would not have possession of such information. The prohibition here is not unlike the noncompete clause found facially invalid by the court in D’Sa, supra, 85 Cal.App.4th at p. 930. . . . .

We also reject the argument of Biosense that the nonsolicitation clause is narrowly tailored to protect trade secrets and confidential information. The same argument was rejected by the Galante court, which noted: “However, Edwards rejected the claim that antisolicitation clauses could be exempt from section 16600 if the conduct covered by such clauses fell within the ‘narrow-restraint’ exception discussed in Campbell (Edwards, supra, 44 Cal.4th at pp. 948–950), and we decline TRG’s implicit invitation to engraft that exception onto this case.” (Galante, supra, 176 Cal.App.4th at p. 1241.) Moreover, the clause at issue here goes well beyond prohibiting active solicitation by prohibiting departing employees from selling or rendering any services to Biosense customers or directly or indirectly assisting others to do so—even if it is the customer who solicits the former employee. (See
Morris v. Harris (1954) 127 Cal.App.2d 476, 478 [invalidating restraint that
prohibited employee from providing services to former customers who sought him
out without any solicitation].)

St. Jude, though, lost on its attempt to enjoin Biosense from enforcing its non-compete agreement against all employees in California. The court said that St. Jude had no standing under the UCL to enforce an injunction in favor of plaintiffs not before the court.

Biosense cross-claimed against St. Jude for "raiding" by hiring Dowell and other employees. The Court of Appeal again affirmed summary judgment against Biosense, holding there was no evidence of unlawful conduct by St. Jude, which by default has the right to hire away St. Jude employees.

Biosense argued St. Jude used similar agreements to prevent competition by its own former employees. Therefore, Biosense reasoned, St. Jude came into court with "unclean hands." No sale. St. Jude's alleged unfair practices with respect to their own employees did not go to the heart of the matter with respect to Dowell's suit against Biosense. Therefore, unclean hands did not apply.

So, lots to read. Bottom line, though, is that a non-solicit probably is not going to be enforced except as a remedy for trade secret violations, not as a prophylactic measure where there is no finding of actual or threatened misappropriation under the UTSA. The agreement here was too broad, but there does not seem to be much room left for clauses that prohibit solicitation merely because an employee is exposed to "confidential" information and might use them some day.

The case is Dowell v. Pacesetter, Inc. and the opinion is here.

Court of Appeal Once Again Explains 132a Liability

The Court of Appeal clarified what Labor Code Section 132a means - again. It appears the Workers' Compensation Appeals Board has not adapted to the California Supreme Court's decision in Department of Rehabilitation v. Workers’ Comp. Appeals Bd. (2003) 30 Cal.4th 1281 (Lauher).

So, Fowler had significant spine surgery. Initially he could not be cleared to return to work as an order puller / machine operator. The doctor's restrictions permitted him to use equipment for just an hour a day. Then, the doctor changed his mind and returned Fowler to work with no restrictions. Because of the seeming conflict, Fowler and his employer submitted his case to an "AME" doctor, who decided Fowler could return to work.

Fowler filed a workers' compensation discrimination claim under Labor Code Section 132a because of the delay in returning him to work. The Workers' Compensation Appeals Board held that Gelson's, the employer, discriminated against Fowler by refusing to accept his doctor's note returning him to work. The Board appeared to apply old law, basically saying that any negative action against an industrially injured worker is a violation of section 132a regardless of whether the employer would take the same action against a non-injured worker.

The Court of Appeal annulled the WCAB decision because Fowler did not prove discrimination - differential treatment:

Here Fowler made no showing that Gelson’s treated him differently from nonindustrially injured employees. That is, Fowler made no showing that Gelson’s would have returned to work a nonindustrially injured employee whose physician provided the same releases, but discriminated against Fowler by not returning him to work. Fowler made no showing that Gelson’s treated him disadvantageously because of the industrial nature of his injury, as compared to how Gelson’s treated a nonindustrially injured employee. Thus he did not make a prima facie case of discrimination in violation of section 132a and did not shift the burden to Gelson’s to establish an affirmative defense.

The case is Gelson's Markets, Inc. v. WCAB and the opinion is here.

Anybody See a Top 100 Employment Law Blog?

Who us? I mean, of COURSE it's us. Well, thanks for the honor, Delaware Employment Law Blog. We like you too.

California Supreme Court Upholds Bonus Plan's Forfeiture

Can a bonus plan provide for forfeiture of unpaid bonus if an employee voluntarily leaves employment or is fired for cause? Yes, said the California Supreme Court. Money quote:

“nothing in the public policy of this state concerning wages . . . transforms [a] contingent expectation of receiving bonuses into an entitlement.” (Neisendorf, supra, 143 Cal.App.4th at p. 522.) Only when an employee satisfies the condition(s) precedent to receiving incentive compensation, which often includes remaining employed for a particular period of time, can that employee be said to have earned the incentive compensation (thereby necessitating payment upon resignation or termination). (Ibid.; Lucian v. All States Trucking Co., supra, 116 Cal.App.3d at p. 975 [“An employee who voluntarily leaves his employment before the bonus calculation date is not entitled to receive it”].)

Here, of course, Schachter voluntarily terminated his employment before his restricted stock fully vested. By the terms of the Plan, and Schachter’s own concession, he is not entitled to those unvested shares of restricted stock. Having elected to receive some of his compensation in the form of restricted stock, a transaction he was aware carried risk as well as the potential for reward, Schachter cannot now assert that he should have been paid in cash that portion of his compensation he elected to receive as restricted stock.[1] As the company persuasively argues, Schachter’s “bargained-for ‘wages’ have been paid in full. He received all of his promised cash compensation, received immediately exercisable voting and dividend rights in the restricted stock, and was awarded contingent rights of full ownership in that stock. The only thing that has not been ‘paid’ is something Schachter never ‘earned’ — fully vested [company] stock. Schachter therefore has no claim under [section] 201 or [section] 202.” [1]

So, the Supreme Court has blessed bonus plans that require the employee to remain employed. However, the Court did note that Citigroup's plan would have paid certain compensation to Schachter if he has been fired without "cause," e.g., laid off. The Court approved this formulation, noting that employees terminated "without cause" may not be be deprived of the benefits of their contract. This was all "dicta" so it should not have much force. But the DLSE will rely on it to bolster its own enforcement position.

The case is Schachter v. Citigroup and the opinion is here.

Mixed Motives in FEHA Cases

The U.S. Supreme Court in Gross v. FBL Fin. Servs. (blogged here) limited "mixed motive" cases under federal law. The Court said there is no need for that defense in age discrimination cases under the federal ADEA. Employees must prove "but-for" causation, so the employer need not prove it would have made the same decision with or without additional discriminatory motivation. The defense remains viable in discrimination cases brought under Title VII.

Anyway, in California, the mixed motive is alive and well. The Court of Appeal in Harris v. Santa Monica, opinion here, held that the trial court prejudiced the city of Santa Monica by refusing to instruct the jury that even if discrimination played a role in Harris' termination, the City was entitled to win if it would have made the same decision regardless.

The opinion is noteworthy for a few reasons:
- it reinforces the relevance of employment at will in discrimination cases.
- it explains clearly that the employer's decision cannot be attached for being "unwise" or "factually incorrect" if it is not motivated by discrimination.
- it revives the old "BAJI" jury instruction on mixed motive cases, given the new CACI instructions do not contain model for mixed motive cases.
- "mixed motives" need not be pleaded as an affirmative defense because it is not "new matter."

New Poster!

The EEOC has issued a revised “Equal Employment Opportunity is the Law” poster. See the announcement here.
Here's your chance to update the look of your breakroom, time clock wall, and anywhere else that employees are likely to see the poster. Those of you with laminated multi-posters will contribute to our economic recovery by purchasing the new versions.

Click here for the compliance options. You either may print and post the "supplement" or replace your existing posters.

Greg

New California Employment Statutes 2009

The California Bar's Labor and Employment Law Section provided this helpful list of the employment law bills Governor Schwarzenegger signed.... He vetoed the scary ones. The long list below primarily involve public sector employees and their benefits.


SB 519 by Senator Roy Ashburn (R-Bakersfield) - This one affects certain retirement benefits calulations for public employees.

SB 538 by Committee on Public Employment and Retirement - County employees’ retirement: mandatory retirement.

SB 751 by Senator Gloria Romero (D-Los Angeles) - Teacher credentials - permits California to issue teaching credentials to teachers certified in other countries.

AB 399 by Assemblymember Julia Brownley (D-Santa Monica) - Public employee retirement benefits.

SB 11 by Senator Gloria Negrete McLeod (D-Chino) - County employees retirement: San Bernardino County health benefits.

SB 37 by Senator Tony Strickland (R-Thousand Oaks) - State employees: statement of deductions. This law permits state employees to receive electronic wage statements unless they opt out.

SB 634 by Committee on Public Employment and Retirement - State Teachers’ Retirement System.

AB 65 by Assemblymember Mary Hayashi (D-Hayward) - Public employee health benefits: vision care: local, school, and university members.

AB 239 by Assemblymember Julia Brownley (D-Santa Monica) - Teacher credentialing.

AB 468 by Assemblymember Mary Hayashi (D-Hayward) - Public Employees’ Medical and Hospital Care Act: employer contributions.

AB 506 by Assemblymember Warren Furutani (D-South Los Angeles County) - State teachers’ retirement: postretirement earnings.

AB 544 by Assemblymember Joe Coto (D-San Jose) - Teaching credential: American Indian languages.

AB 854 by Assemblymember Juan Arambula (I-Fresno) - Employment regulation and supervision: unpaid wages.

AB 1319 by Assemblymember Paul Krekorian (D-Burbank) - Talent services.

AB 1584 by Assemblymember Dr. Ed Hernandez (D-West Covina) - Public employees’ retirement: retirement boards.

SB 72 by Committee on Budget and Fiscal Review - State employees: payroll: health care.

SB 752 by Senator Lou Correa (D-Santa Ana) - County employees’ retirement: Orange County.

AB 1025 by Assemblymember Connie Conway (R-Tulare) - Schools: employees and volunteers: Activity Supervisor Clearance Certificate.


AB 381 by Assemblymember Marty Block (D-San Diego) - Unemployment compensation disability benefits: academic employees.

AB 395 by Assemblymember Felipe Fuentes (D-Sylmar) - Employment: apprenticeship programs.

AB 720 by Assemblymember Anna Caballero (D-Salinas) - Peace officers: marital privilege.

Court of Appeal: "Reasonable Accommodation" Must Be Perfectly Executed Every Time

It is one thing to grant a reasonable accommodation. It is another thing to ensure that it is implemented perfectly, every time. Hard cases make bad law. This is a combination of a sympathetic plaintiff, a big company, and a one-time event resulting in a huge verdict.

A.M. was a cashier at an Albertson's in Marin County. After receiving treatment for cancer, she needed to drink copious water. Albertson's let her have water at her station, even though it was against policy. Naturally, A.M. had to use the bathroom more frequently because of the water she was drinking. Albertson's said that she could call her supervisor and they would cover her.

So, Albertson's had granted A.M. extra breaks as an accommodation, and had implemented a system for A.M. to obtain them. The system was working, with A.M. receiving extra breaks by calling her supervisor. On one occasion, the system did not work because the supervisor was the only person who could relieve her and he was unloading a truck. A.M. had an accident at her cashier station. She went home and did not return to work for Albertson's.

According to the court of appeal, that single failure of the supervisor sufficed to be a "denial" of reasonable accommodation. The court upheld a jury verdict of $200K for that one incident. Add the plaintiff's and defense attorney's fees and sooner or later we're talking about a lot of money.

By the same argument, then, if an employee's wrist starts to hurt a few months after the employer installs ergonomic equipment, that alone is the denial of an accommodation? If a diabetic experiences low blood sugar one day, does that mean the employer's accommodation of permitting food at the work area is actionable?

If an accommodation becomes ineffective, the employer is required to engage in the interactive process to come up with a better accommodation, and grant the new accommodation. It is unreasonable to assume that an employee with a disability has a right to a perfect work environment and a guaranteed flawless accommodation, every day. The world does not work that way for anyone - with or without a disability. The issue is: did Albertson's grant her request for accommodation? Yes. Was it effective? Except for the one occasion, apparently so. Was there evidence the company intended to mistreat A.M. or only pretended to accommodate her? No. Could A.M. have filed a workers' compensation claim if she were injured by a work-related condition? Yeah, which was her real remedy here.

Again, A.M. was very sympathetic and what happened that day was truly unfortunate. But absent proof of intentional discrimination, the result of this case is that FEHA is not providing a remedy for a wrong; it is elevating individuals with disabilities above all others and exposing employers to potential liability for isolated failures.

The case is A.M. v. Albertson's and the opinion is here.

My 0.02.

U.S. DOT: Medical Marijuana Users Cannot Breathe Easier

And they can't breathe sighs of relief, either. I kill me. Anyway, the Department of Justice announced it would pull back on enforcement against medical marijuana users where they are operating within the bounds of state law. (See DOJ memo: here) But the US Department of Transportation wants you to know they're a completely separate agency and there is no free pass on drug testing for medical marijuana users. Here is the DOT announcement.

Ninth Circuit Upholds FLSA OT Plan

Ponoma Valley Hospital pays nurses one rate for 12 hour shifts, and a higher rate for eight hour shifts. The nurses requested the 12-hour shifts. To accommodate them, the hospital calculated how much it would have to pay to neutralize the payroll effect of the 12-hour shift.

An employee claimed that the differing rates were a subterfuge to avoid paying overtime under the federal FLSA.

The Ninth Circuit held that it is lawful to pay different rates for different shifts. And it is OK to lower a base rate to minimize paying overtime, as long as it is above minimum wage.
The opinion does not address California wage and hour law.

The case is Parth v. Pomona Valley Hospital and the opinion is here.