California Peculiarities Employment Law

So I Have to Get Dressed and Come to Work? The “Work-at-Home” Debate Continues, but What About “Reasonable Accommodation” Obligations?

By Catherine M. Dacre and Cassandra Carroll on Posted in Work Time Series

What’s the latest in telecommuting?  If you have many employees who rely on their ability to work from home, you probably were interested to hear of a change in trend in telecommuting.  Yahoo! CEO Marissa Mayer caused an uproar when it was leaked to the public that the company’s “work-from-home” policy was being revoked.  People seemed shocked that such a strong advocate for the balance of work and family would want to eliminate what had provided a solution for many employees seeking a non-traditional work arrangement. 

In support of its decision, Yahoo! explained that working “side-by-side” would foster better communication and collaboration in the workplace, and that “speed and quality are often sacrificed” when employees work from home.  Others followed suit, reviving the debate as to whether and to what extent large-scale telecommuting should be allowed.  Proponents of flex-work arrangements countered by arguing that valuable work-time will be lost to the commute and talent will be more difficult to attract and retain, particularly in the technology sector, where employees have become quite accustomed to working in their pajamas at home. 

How does the law weigh in?  The marketplace will ultimately decide which approach is most effective business-wise.  However, when it comes to California’s disability discrimination laws, one thing is certain –regardless of your views on work-at-home arrangements, a “one size fits all” approach will not fly.  Both the California Fair Employment and Housing Act (FEHA) and the Americans with Disabilities Act (ADA) require employers to make reasonable accommodation for known disabilities of employees to enable them to perform a position’s essential functions, unless doing so would result in undue hardship to the employer’s operations.  Cal. Gov. Code § 12940(m); 42 U.S.C. § 12112(b).  Under these laws, picking an appropriate accommodation requires a highly individualized, case-by-case inquiry, which depends on the employee’s disability and the essential functions of the job.  McGregor v. National R.R. Passenger Corp., 187 F.3d 1113, 1116 (9th Cir.1999); Ross v. RagingWire Telecommunications, Inc., 42 Cal.4th 920, 938 (2008).

There is no question under California state and federal case law that telecommuting and other forms of flex-work arrangements can amount to a “reasonable accommodation.”  For example, in Humphrey v. Memorial Hospitals Association, 239 F.3d 1128 (9th Cir. 2001), the Ninth Circuit held that a “work-at-home” arrangement was a potential “reasonable accommodation” for a medical transcriptionist who suffered from obsessive compulsive disorder (OCD), finding at-home work an appropriate accommodation because physical attendance at the office was not an essential job duty.  See also Norris v. Allied Sysco Food Services, Inc., 948 F. Supp. 1418, 1431 (S.D. Cal. 1996) (where disabled employee’s duties (administrative and clerical) could be performed on the computer and over the telephone, she could be reasonably accommodated by permitting her to work from home, part-time if necessary.)

The United States Equal Opportunity Commission’s Enforcement Guidance also makes it clear that policies regarding where work is performed must be modified if needed as a reasonable accommodation (subject, again, to the undue hardship defense). 

This suggests, at a minimum, that employers must be ready to show that presence in the workplace is an essential function of the job if not prepared to permit working from home as a reasonable accommodation.  (See, EEOC Enforcement Guidance:  Reasonable Accommodation and Undue Hardship Under the Americans with Disabilities Act, 915.002 (October 17, 2002).)

So What’s An Employer To Do?  Don’t be so quick to have your employees hand in their bathrobes quite yet.  Employers should be careful about implementing broad-brush policies prohibiting at-home work arrangements unless they are prepared to make exceptions when necessary or presence at the office is truly an essential function of the job.  This is especially true if the policy represents a dramatic change to a previous policy. 

If the employer is on notice that a request for a flex-work arrangement is disability-related, each request must be considered on a case-by-case basis.  In such instances, employers must scrutinize any specific limitations caused by the disability, and compare them to the essential functions of the job to determine whether a work-at-home arrangement may amount to a “reasonable accommodation” under the law.

Don’t Hire A Lawsuit: Five “Don’ts” When Hiring Employees in California

By Lori O'Hara and Samantha Evans on Posted in Recruiting and Hiring Series

Isn’t it true that nationwide employers can interview and hire employees for their California offices so long as they follow federal hiring laws?  In a nutshell, no way.  Hiring in California presents a host of nuanced, state-specific rules that often add up to “don’ts.” We list a few for you below.

Don’t Oversell

Question:  We really would like to hire this guy.  Is it okay to tell him what he wants to hear about the job?

Answer:  No, especially if he will be moving for the job.  California Labor Code § 970 prohibits employers from making knowingly false representations about the nature of the work, the length of time that the work will last, and the compensation, among other things.  Not only can an alleged misrepresentation serve as the basis for a civil lawsuit, it is also a misdemeanor punishable by a fine or imprisonment for up to 6 months, or both!

Don’t Forget to Exclude The “Puffer”

Question:  We can ask an applicant about criminal convictions, right?

Answer:  Yes, but make sure you do not ask questions about any arrests, detentions that did not result in conviction, or certain marijuana convictions that are over two years old.  If the marijuana inquiry prohibition is violated, an applicant can recover the greater of his or her actual damages or $200, plus attorneys’ fees and costs.  It is also a misdemeanor, punishable by a fine.

Don’t “Judge”

Question:  An applicant owns handguns and goes to the shooting range on weekends to practice.  These are valid reasons not hire him, right?

Answer:  No, if the conduct is lawful, and takes place off-premises and during nonworking hours.  Labor Code §§ 96(k) and 98.6 (c)(1) protect applicants from such discrimination.  If such discrimination occurs, the applicant will be entitled to employment, and reimbursement for lost wages and benefits caused by the acts of the prospective employer.

Don’t Take Solace in Your Arbitration Agreements

Question:  Our company requires new hires in all states where we do business, including those in California, to sign an arbitration agreement.  We won’t have to worry about lawsuits in California court, correct?

Answer:  Not necessarily.  The California Supreme Court held in Armendariz v. Foundation Psychcare Services that “unconscionable” arbitration agreements are unenforceable.  Unconscionability is defined very broadly and includes situations where an employee does not have a realistic opportunity to bargain about the terms of an arbitration agreement, or where the terms are harsh or one-sided.  Some thought the United States Supreme Court’s decision in AT&T Mobility LLC v. Concepcion would chip away at Armendariz in favor of enforcement of arbitration agreements, but most California courts have refused to part with the Armendariz holding. (See e.g., Compton v. Superior Court).

Don’t Forget The “Paper”

Question:  We follow federal law in the distributions to new employees at or near the time of hire.  We are good to go in California, right?

Answer:  No.  California has specific distribution requirements at or near the time of hire, including:

  • California Labor Code § 2810.5 requires private California employers to provide written notice to employees no later than their first day at work about information including, but not limited to, the rate of pay, basis of pay (e.g., hourly, salary, commission, etc.), allowances for items claimed as part of the minimum wage (e.g., tips, meals and lodging), the regular payday, employer’s name, address, and phone number, any “dba,” and information regarding the employer’s worker’s compensation insurance carrier. 
  • Employers must submit a Report of New Employee(s) (DE 34) within 20 days of any new employee’s first day of work.  Employers must also provide new employees with, among other things, a Disability Insurance Provisions pamphlet (DE 2515) within five days of hire, a Paid Family Leave Insurance pamphlet (DE 2511) no later than any new employee’s first day of work, and a California tax withholding form (DE-4), which some employees must complete upon hire. 
  • The California Department of Fair Employment and Housing requires employers to provide its Sexual Harassment pamphlet (DFEH 185) or an equivalent document to all new hires.

Workplace Solutions: Even if you have only a handful of employees in California, it is prudent to familiarize yourself with the California-specific requirements pertaining to hiring and new employees.  A review of  any employment applications, interview questions, and new hire packets or checklists are all steps to ensure California compliance.

Seyfarth Shaw’s 2013 Cal-Peculiarities Publication – It’s Here!

By David D. Kadue and Colleen M. Regan on Posted in 2013 Cal-Peculiarities: How California Employment Law is Different

It’s here!  On April 30, we released the 2013 edition of Cal-Peculiarities: How California Employment Law is Different, the industry’s only annual guide that focuses exclusively on the most vexing aspects of employment law in the country’s most populous state.   Authored by Seyfarth’s California Workplace Solutions group, this 262-page guide captures the latest legislative, judicial and regulatory developments which continue to make California the most uniquely challenging environment for private employers in the United States.

Led by Seyfarth co-editors in chief, David Kadue and Colleen Regan, Cal-Peculiarities marks its 14th year in publication and is available for the first time in e-book format, which can be ordered here. 

We also hope you caught our Cal Peculiarities Webinar presented on April 30 by our own David Kadue, Laura Maechtlen and Andrew McNaught.  If you missed it, you can access a recording here.

Highlights of the broadcast include: 

  • New requirements for businesses on posting information regarding human trafficking 
  • Prohibition for employers requesting or requiring employees or job applicants to disclose or divulge information regarding personal social media accounts, including passwords 
  • Inclusion of breastfeeding as a protected characteristic under the Fair Employment and Housing Act 
  • Reorganization of the Department of Fair Employment and Housing 
  • Continued striking down of arbitration agreements, notwithstanding the U.S. Supreme Court upholding the preemptive power of the Federal Arbitration Act 
  • Inability of prevailing defendants to obtain attorney fees relating to s claims for meal- and rest-break violations, or for split-shift premium pay 
  • Court holding that a retailer did not have to provide “suitable seats” to a cashier, but suggested that a lean-stool might be required 
  • Application of the ban on non-compete agreements to settlement agreements 
  • Continued support from courts upholding special provisions favoring union picketing 
  • Court decision that a group of individuals could use a class action to challenge their classification as independent contractors

You won’t want to have missed it.

Coming soon:  Stay tuned for the next in our series on Hiring Issues. 

Seyfarth Shaw’s 2013 Cal-Peculiarities Publication – Coming Soon!

By David D. Kadue and Colleen M. Regan on Posted in 2013 Cal-Peculiarities: How California Employment Law is Different

As you may know, Seyfarth Shaw is the only firm to publish a book annually that highlights the inevitable changes in California law.  We want our blog readers to be the first to hear of the release of the 2013 edition! 

California continues to be “where the future happens” for employment law.  If your company does business in California, you are aware that it is more important than ever that California employers understand their peculiar legal obligations.  We are thrilled to announce that we are very close to the release of 2013 Cal-Peculiarities: How California Employment Law is Different.  This publication, authored by our California Workplace Solutions group, reflects the breadth and depth of our California employment practice, and focuses entirely on the most vexing aspects of California employment law.  More importantly, this publication will be available to our clients and friends beginning Monday, April 29th!  Please stay-tuned for additional information.

We also invite you to our webinar, The Peculiarities of California Employment Law Annual Update, taking place on Tuesday, April 30th.  In this program, our experts will cover the growing list of laws that should concern executives, managers, general counsel, and human resource professionals in California.  We promise you won’t want to miss this event!  If you would like to sign up for this program, please click here to register.

She Posted What? Employers Face Increased Legal Scrutiny For Using Social Media in Hiring Decisions

By Aaron R. Lubeley and Candace Bertoldi on Posted in Recruiting and Hiring Series

Wouldn’t we like to know if a potential applicant has ever criticized a former employer, or whether their online presence gives evidence of illegal activity or violent, discriminatory or unethical behavior? Or just poor judgment? What if they belong to political groups, like the Tea Party or the ACLU?

What is so wrong with learning information like that? The answer is it can expose the employer to liability.

The use of social media in hiring decisions remains a hotbed of potential legal risk for employers. Yet, an increasing number of employers are using social media sites such as Facebook, LinkedIn, Twitter, YouTube and even Craigslist to screen potential candidates to avoid hiring the “wrong” candidate.

What Can An Employer Look At?  California enacted AB 1844 last year, which affords job applicants greater social media protections by prohibiting employers from seeking log-in information from applicants, asking applicants to “friend” other employees, or asking an applicant’s “friends” to disclose what the applicant has posted on social media.  However, employers are not explicitly restricted from accessing publicly available information about candidates.

  • Bandwagon effect:  Since California passed AB 1844, many other states have followed with similar legislation. On the federal front, the National Labor Relations Board (NLRB) has kept a watchful eye on employers using social media information in employment decisions.  It is worried that concerted activity protected under federal labor laws may be restricted.  On February 4, 2013, the federal government reintroduced the “Social Networking Online Protection Act” (SNOPA) which would prevent employers from seeking access to social media and other online information from job seekers and current employees.

­Discrimination Traps.  Social media can reveal personal information about a candidate that would be illegal to request during the hiring process (e.g., physical disability, age, marital status, religious affiliation, political affiliations, etc.).  Employers should be mindful that this may open the door for potential discrimination claims.

  • Example:  An applicant, a mother who tweets that her son is undergoing cancer treatments, is not hired.  She could bring a claim for association discrimination under the Americans with Disabilities Act (ADA), the California Fair Employment & Housing Act (FEHA), or even the Genetic Information Nondiscrimination Act (GINA).
  • Example: A decision not to hire an individual because he or she has sued a previous employer could violate laws prohibiting retaliation under antidiscrimination, wage and hour, or whistleblower statutes.
  • Example: The CA Department of Industrial Relations has interpreted Section 96(k), which prohibits employers from taking adverse action due to an employee’s lawful conduct outside of work, to apply to decisions not to hire employees, even though the statute does not explicitly reference hiring. 

Workplace Solutions:  The best practice is to avoid using social media in hiring decisions since there are serious legal risks involved.  If an employer would still “Like” to do this, the following steps can help you mitigate those risks:

  • Document the hiring process.  Include a checklist of the relevant hiring credentials that sets forth the scope of any lawful use of social media information (e.g., if a candidate’s social media background is relevant to the position being filled).
  • Wait Until You Extend the Offer.  If you make an offer and then later discover that a new hire has made a material misrepresentation about prior employment, etc., you can then record the offense.
  • Designate a Screener.  Have a non-decision-maker do the search and only have them report on permissible job-related information.  Filter out the rest.
  • Educate Your Employees.  Instruct HR and management employees to not conduct independent searches on prospective candidates.  Train and educate personnel on how information from or even accessing an individual’s profile on social media and the Internet may give rise to allegations of employment discrimination.
  • Be consistent:  If you are going to use social media in hiring, use it for all applicants, not just some. 
  • Be skeptical.  Remember, not everything on the Internet is true!

California Courts: a Piece of Work?

By Emily E. Barker on Posted in Case Update

If you are employing piece-rate employees who don’t get paid for downtime, California Courts have just given you a piece of their minds. 

In Gonzalez v. Downtown LA Motors, a group of car repair technicians who were paid on a piece-rate basis brought a class action to recover unpaid minimum wages for the time they spent waiting between repairs.  They claimed that because they had to remain near the shop during their shifts so that they would be available when cars arrived for repairs, they should be paid for that time. 

The employer argued it had paid enough because each technician’s total pay, on average, always met or exceeded the minimum wage. The employer would calculate the total hours each technician worked each pay period—including hours spent waiting for repair work or performing other tasks covered by the piece-rate—and then multiplied this total by the minimum wage.  The employer would supplement the technician’s pay to cover any shortfall.

What did the Court do?  The Court disagreed with this calculation.  It awarded $1.5 million to the class in minimum wages for their downtime and another $237,840 in penalties for a willful failure to pay wages.  The Court of Appeal affirmed and in doing so, extended the reasoning of a 2005 decision, Armenta v. Osmose, Inc., which involved hourly maintenance workers servicing utility poles in remote locations who were paid for “productive” hours, but not for hours considered “nonproductive”—such as travel time. The employer in Armenta argued, much like in Gonzalez, there was no violation because total pay exceeded the total hours worked (both paid and unpaid) times the minimum wage. But the Armenta Court ruled that California law doesn’t allow averaging total compensation over the total hours worked in a given pay period to meet minimum-wage requirements.   California minimum wage applies separately to each hour worked.

The Gonzalez Court applied Armenta’s reasoning to the piece-rate context on the theory that because the technicians were under their employer’s control for their entire shift—whether or not they were actually performing repairs—all hours of the shift were compensable. Therefore, because the technicians were paid piece-rates for only the time spent on repair work, the employer had failed to pay the minimum wage for each of the remaining hours.

So What Now?  Gonzalez is a case of first impression, but employers should be aware that it may signal a trend.  A federal district court, in Balasanyan v. Nordstrom, also recently applied similar reasoning to commissioned employees.  In both Gonzalez and Armenta we expect the losing employers to seek further judicial review, but for now, employers paying on a piece-rate or commission basis must consider revamping their pay systems to separately pay the minimum wage rate for hours during which employees are subject to the employer’s control and not earning a piece rate or commission. 

A more detailed look on Gonzalez can be found here.

To Film at Work, or Not to Film at Work — Is that the Question?

By Dana Peterson on Posted in Updates in the Complicated World of Employee Privacy

Picture this scenario:  you run a private residential facility for abused children.  Late one night, one of your computers is used to access pornographic web-sites and other inappropriate material in violation of several well-publicized workplace policies.  After further investigation, you learn that the inappropriate computer usage occurred on several occasions, but was limited to that one computer, which is located in an office shared by two day-shift employees in the administrative building.  Several employees have access to the building and could have used the computer on the nights in question.  Concerned that the culprit might be a staff member who works with the children, you hatch the perfect plan to catch him or her:  place a hidden camera in the office!  Of course, you don’t want to publicize its placement.  That would defeat the purpose and the guilty party would simply find another computer to use.  Besides, you plan to activate the camera only at night, several hours after the day shift has left the facility.  The daytime occupants of the office won’t care that it’s there.  Genius!

Did we mention that you are operating this facility in California?

The above scenario mirrors the facts of a case brought by, you guessed it, the two day shift employees who brought suit alleging that the placement of the hidden camera in their office without their knowledge or consent violated their right to privacy under both common law and the California Constitution.  What?  Are you telling me that merely placing a camera in an office, without even recording the occupants during business hours, is unlawful?  Fortunately, the California Supreme Court answered that question with a resounding “no” in Hernandez v. Hillsides, Inc., 47 Cal. 4th 272 (2009).  However, the case makes clear that whether or not you can surreptitiously videotape depends on the facts and circumstances unique to your workplace, and you must carefully evaluate when, where, why and how you can do so in order to minimize your liability.

For starters, in California, employees have a constitutional right to privacy which creates at least a limited right of action against both private and government entities, which is in addition to other tort actions, like unlawful intrusion.  California has a well-developed body of law prescribing the various elements that a plaintiff must prove in order to succeed on an invasion of privacy claim; however, when considering secretly videotaping your employees, these are the big questions you have to ask:

Do employees have a reasonable expectation of privacy in the area that is going to be recorded?  Bathrooms, locker rooms or other areas where reasonable persons would agree employees rightfully expect privacy are strictly off-limits.  However, hallways or entryways where employees interact with the public and one another and expect that their activities can and will be viewed by others are generally areas where a reasonable person would not have an expectation of privacy. 

Do you have a good faith legitimate business reason for secretly videotaping?  Harassment, blackmail or prurient curiosity are never valid reasons for secretly recording your employees’ actions.  On the other hand, the court found the reason articulated by Hillside in our case above, which was to prevent a rogue employee with access to children in a residential facility from accessing pornographic material at the facility, was a legitimate reason that did not offend societal standards.

Is the taping conducted in a reasonable manner, or is it offensive?  Even if secret videotaping is conducted for legitimate business reasons in areas where employees have no reasonable expectation of privacy, the manner in which the recording is conducted could still subject an employer to a breach of privacy claim.  For example, if a camera is zoomed in on a female employee’s cleavage while she’s conversing with a customer, or an employees’ back-side as he/she walks down the hallway, what otherwise would have been acceptable becomes arguably offensive and unacceptable.

Workplace Solutions: In the end, whether, when, why, and how to surreptitiously videotape your California employees should be decided on a case by case basis after full review of the factual circumstances.  Most videotaping does not need to be secret and disclosing your intention to do so may prevent employees from engaging in behavior that violates your policies. 

If you determine videotaping is appropriate, determine whether the purpose of filming can be accomplished with the employees’ knowledge or whether secret taping is required.  If notice is appropriate, consent to the taping is recommended, but notice will typically suffice, especially where the cameras are prominently displayed and in common areas.  Placement of signs, such as “smile, you’re on camera,” in areas where videotaping is taking place is a common way to provide notice of taping.

Just Say No! Protection for Workplace Medical Marijuana Use Up in Smoke

By Ann Marie Zaletel and Jamie Chanin on Posted in Updates in the Complicated World of Employee Privacy

Drug use in California can cause headaches for employers.  Balancing employee privacy interests against safety concerns forces employers to make tough choices with little guidance.  Legal drug testing of existing employees is so limited that most drug use won’t be detected until after an accident.  With increasing support for legal medical marijuana, many employers have struggled to determine how to respond to applicants and employees who test positive.  Now, with recent case law and the FEHC’s final regulations, employers finally have the support they need.

A Puff of History on Legalized Medical Marijuana  In 1996, California legalized prescription medical marijuana use. It did not, however, address use in the employment context.  California employers had no guidance as to whether or to what extent an employee who tested positive had to be accommodated. 

This left two main questions:

  • Does an employee with a “medical marijuana card” get a pass if he or she fails a drug test because in that context it’s no longer considered an “illegal drug?”
  • Does the fact an employee uses the drug to treat a potentially disabling condition make allowing the use of medical marijuana a “reasonable accommodation?” 

In 2003, the California Legislature added more smoke by saying the Compassionate Use Act does not require any accommodation of medical marijuana use on the property or premises of any place of employment or during the hours of employment.  This implied that an employer must not interfere with an individual’s use of medical marijuana beyond working hours and off the employer’s premises.  Thus, hypothetically, if Joe the forklift operator got stoned in his car right before work to dull his arthritis pain, it was not clear whether his employer could do anything about it.

The Courts Weigh In  Employees got a buzz kill in 2008, when the California Supreme Court concluded in Ross v. Ragingwire that an employer could deny employment based on an individual’s off-duty, off-premises use of marijuana without violating California’s Fair Employment and Housing Act (FEHA) or the constitutional right to privacy.  The Ragingwire employee had his offer rescinded after he failed a drug test, but he had a prescription for marijuana.  He claimed disability discrimination for failing to reasonably accommodate him, but the Court rejected it, concluding that the Act doesn’t limit an employer’s right to enforce its policies regarding failing a drug test, even when the drug is legal (in California) medical marijuana.  It is important to remember that, notwithstanding the Act, all marijuana use is still illegal under federal law. 

Legislative and Regulatory Reaction  Many predicted the Legislature would step in to protect employees using medical marijuana.  In fact, several bills suggesting employment protections similar to those for other prescription drugs died in session. 

Then, in one of its last acts before being dissolved in December 2012, the Fair Employment & Housing Commission added to the discussion by inserting the following language into the new disability regulations: 
                        An applicant or employee who currently engages in the use of
                        illegal drugs or uses medical marijuana is not protected as a
                        qualified individual under the FEHA when the employer acts on
                        the basis of such use, and questions about current illegal drug use
                        are not disability-related questions. 

With that emphatic statement by a binding rule-making authority, employers now can feel confident in denying employment to applicants who test positive for marijuana, even with a prescription.

What about the underlying condition?  It gets tricky, though, when the smoker explains positive test results by mentioning a medical condition that led to the marijuana use.  The employer could still choose not to hire the applicant, or to fire the employee.  However, this decision would be the least risky when the employer applies a zero tolerance policy for marijuana use across the board, and when the position is safety-sensitive (like operating machinery).  The key is to make sure that decisions are made based only on the drug test results, and not on the underlying medical condition.  But, depending on the circumstances, the employer may want to explore other options.  For example, if an applicant for an office job fails a drug test due to off-duty medical marijuana treatment for cancer, the employer may decide to hire anyway — the job is not safety-sensitive and there would be a risk of being sued for discriminating on the basis of the medical condition (cancer) if the applicant were not hired. 

Workplace Solutions When the position is safety sensitive or the company wants its policy to be absolutely zero tolerance, we recommend reviewing to ensure the policy is clear and states that failure of a post-offer drug test will lead to rescinding of that offer.  However, if the policy is more lax and the position is not safety sensitive, consider the impact of accommodating some use if it is to treat a protected medical condition and does not impact the work. 

Also, be mindful that many employees assume if they have a medical marijuana card, they can use without restriction.  Train managers to spot the symptoms of drug use so if employees are working under the influence, the proper steps can be taken.

Growing California Trade Secret Preemption Doctrine May Thwart Efforts To Combat Employee Data Theft

By Robert B. Milligan, Jessica Mendelson, and Daniel Joshua Salinas on Posted in The Latest in California Trade Secrets and Non-Compete Issues

Company information that is sensitive, but may not rise to the level of a trade secret is protectable in California, isn’t it? 

Not necessarily.  Some recent California decisions have significantly limited an employer’s ability to pursue certain claims and remedies based upon the theft of mere confidential or proprietary information by rogue employees. 

Defendants (often individual former employees) who are sued in California for stealing a company’s data are increasingly using the trade secret preemption doctrine to seek dismissal of non-trade secret claims, which are often pled alongside trade secret misappropriation claims, that allegedly fall within the scope of the California Uniform Trade Secrets Act (“CUTSA”).

Non-trade secret claims advanced by the employer typically include:

  • conversion
  • interference with contract
  • interference with prospective economic advantage
  • breach of fiduciary duty
  • unjust enrichment
  • fraud
  • statutory claims brought under Bus. & Prof. Code section 17200.   

These claims are typically made because they are often easier to prove than the elements of trade secret misappropriation.

While trade secret preemption does not displace breach of contract claims, it can significantly limit the claims and remedies that companies may seek when their confidential or proprietary information is stolen.

 Differences Among the States:

Other States: The breadth and scope of trade secret preemption varies from state to state. While some states have held that preemption eliminates alternative causes of action for misuse or theft of confidential, proprietary or trade secret information, other states allow common law claims to be brought for the theft of confidential or proprietary information alone or along with trade secret misappropriation claims.

California state courts:  In California, CUTSA generally preempts causes of action that rely on the same “nucleus of facts” as a trade secret misappropriation claim. A recent California Court of Appeal decision reaffirmed that CUTSA provides the exclusive civil remedy for conduct falling within its terms, so as to supersede other civil remedies based upon misappropriation of a trade secret. Accordingly, California state courts typically do not allow both trade secret and non-trade secret claims to be brought for the theft of company information.

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Protecting Company Information When Employees Bail: California Alternatives to Employee Non-Compete Agreements

By Robert B. Milligan, Jessica Mendelson, and Daniel Joshua Salinas on Posted in The Latest in California Trade Secrets and Non-Compete Issues

How does a California employer prevent its business from walking out the door along with a departing employee?  In most jurisdictions, the employer could have the employees sign a non-compete agreement.  Not in California. 

One of the notorious employment laws that separates California from other states is its long-standing prohibition of employee non-compete agreements. California’s strong public policy against non-competes not only affects local employers, but it often complicates efforts of multi-state employers to utilize uniform restrictive covenants–such as non-competes and non-solicitation provisions–with its employees.  Here is a brief recap:

Non-Competition Agreements:

Most States:  Most states enforce agreements where employees agree not to compete with their former employer for a reasonable period after employment, within a reasonable geographical area.

California:  In California, even narrowly drawn restraints are contractually invalid, unless they fall within the specific statutory exceptions, such as agreements in connection with the sale of a business.

Customer non-solicitation provisions:

California:  California significantly limits the use of customer non-solicitation provisions and will likely prevent enforcement of a contract clause purporting to ban a former employee from soliciting former customers to transfer their business away from the former employer to the employee’s new business. 

Employee non-solicitation provisions:  

California:  The California ban on non-compete agreements can extend to “no hire” agreements between two businesses.  While some California courts still enforce non-solicitation of employees provisions, “no hire” agreements are not enforceable.

No “blue-penciling”

Many States:  Many states permit the modification or “blue-penciling” of overly broad restrictive covenants to make them enforceable.

California:  California courts typically do not allow “blue-penciling” in the employment context.  Instead, they refuse to enforce agreements, even if the parties have agreed to “save” the clause to the extent enforceable.

Is there a trade secrets exception?

Some California courts have stated that certain non-competition clauses are enforceable if they are necessary to protect trade secrets, while others have cast doubt on whether a trade secret exception exists.  To date, there has not been a detailed analysis of the nature of the trade secrets exception, if any, and what an employer must show to support its application.  Caution is thus the watchword in relying on a trade secrets exception.  If it turns out there is no genuine trade secret, nonsolicitation clauses are likely to be unenforceable.  Plus, the inclusion of such a provision may open up the employer to liability under California’s unfair business practice statute.

Without the backstop of non-compete agreements, what is the California employer to do to ensure that its trade secret information is adequately protected? 

Workplace Solutions

California employers must be vigilant to ensure that their employees don’t share their valuable information with competitors.  

Best practices include:

  • Robust confidentiality and invention assignment agreements.
  • Effective entrance and exit interview protocols.
  • Employee education programs that create a culture of confidentiality whereby employees understand the value of protecting company data.
  • Effective trade secret protection measures that take into account new technologies and threats, including cyber threats and social media/cloud computer issues.

Please see our recorded webinar on Trade Secret Protection Best Practices: Hiring Competitors’ Employees and Protecting the Company When Competitors Hire Yours for more details on how to put your company in the best position.