We’re pleased to cross-post a piece by our sister blog, Trading Secrets, regarding California’s peculiar take on employee non-solicitation provisions.

On November 1, 2018, the California Court of Appeal, Fourth Appellate District affirmed a trial court’s ruling in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. et al., No. D071924, 2018 WL 5669154 (Cal. App. 2018), which (1) invalidated the plaintiff’s non-solicitation of employees provision in its Confidentiality and Non-Disclosure Agreements (CNDAs), (2) enjoined AMN from enforcing or attempting to enforce the employee non-solicitation provision in its CNDA with any of its former employees, and (3) awarded $169,000 in reasonable attorneys’ fees to defendants for plaintiff’s use of the provision.

The case is a significant decision which may impact some employers’ continued use of employee non-solicitation provisions with their California employees, at least in certain industries. There is now a split in California authorities and the issue is likely ripe for California Supreme Court guidance.

AMN and Aya are competitors in the business of staffing temporary healthcare professionals, namely providing “travel nurses” to medical care facilities across the country.  When former employees, named as individual defendants in the action and who worked as travel nurse recruiters in California, left AMN for Aya, AMN brought suit against Aya and the former employees, asserting 11 causes of action, including for breach of contract and trade secret misappropriation.

The Trial Court Ruling

The trial court granted defendants’ motion for summary judgment on all plaintiff’s claims, as well as summary judgment for defendants on their causes of action for declaratory relief and unfair competition asserted in their cross-complaint. The trial court held that under California law, the non-solicitation of employees provision was an unlawful restraint of trade in violation of Business and Professions Code section 16600 because it prevented the individual defendants from engaging in their lawful trade or profession—soliciting and recruiting travel nurses on temporary assignment with AMN—for at least one year post-termination. The trial court found no evidence of misappropriation of trade secrets, reasoning that the customer list of names and identities and other information at issue did not qualify as trade secrets, and any disclosure or use did not cause harm to plaintiff. The trial court awarded defendants their fees under Code of Civil Procedure section 1021.5 and Civil Code section 3426. AMN appealed.

The Court of Appeal Decision

AMN required the defendant former employees to sign the CNDAs as a condition of their employment with AMN. Section 3.2 of the CNDAs, the non-solicitation of employees provision, states in pertinent part:

Employee covenants and agrees that during Employee’s employment with the Company and for a period of [one year] or eighteen months after [termination], Employee shall not directly or indirectly solicit or induce, or cause others to solicit or induce, any employee of the Company . . . to leave the service of the Company . . .

Analyzing Section 3.2 of the CNDAs, the Court of Appeal independently arrived at the same conclusion of the trial court, that the employee non-solicitation provision was void as an unlawful restraint of trade in violation of section 16600, which provides “[e]xcept as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Looking to the history of section 16600 and its broad language, as well as California case law evidencing a strong public policy in favor of employee mobility, the Court concluded that the non-solicitation provision “clearly restrained [the] individual defendants from practicing with Aya their chosen profession – recruiting travel nurses on 13-week assignments.” Writing for the three-judge panel, Judge Benke stated that the trial court was within its discretion to invalidate the provision because “unless a contractual restraint falls into one of section 16600’s three statutory exceptions . . . it ostensibly is void.”

Analysis of the Non-Solicitation Provision

In reaching its conclusion, the Court cited California case law rejecting employee non-competes and “overbroad” customer non-solicitation provisions.  “Indeed,” the Court observed, “the undisputed evidence in the record shows that, if a former AMN recruiter… was barred for at least one year from ‘soliciting or recruiting any travel nurse listed in AMN’s database,’ that would restrict the number of nurses with whom a recruiter could work… while employed by his or her new staffing agency” and “[n]ot being permitted to contact travel nurses who currently work for AMN could limit the amount of compensation a recruiter would receive with his or her new agency after leaving AMN.”

A crucial detail to note is the nature of the profession at issue in the case. The Court’s extensive discussion of the non-solicitation provision emphasized the fact that the job at issue is recruiting and soliciting. Defendant former employees were AMN “travel nurse recruiters” who all, for various reasons, left to join Aya as travel nurse recruiters. The ability of these particular defendants to engage in their profession, then, was directly affected by the covenant not to solicit employee traveling nurses. Based on that fact, the court rejected AMN’s attempt to analogize to Loral Corp. v. Moyes, which ultimately determined that the employee non-solicitation provision at issue was not an invalid agreement not to compete, but a non-solicitation agreement prohibiting the defendant from “raiding” the plaintiff’s employees. 174 Cal. App. 3d 268, 279 (1985). The Moyes court reasoned that the “restriction only slightly affects employees. They are not hampered from seeking employment with [the defendant’s new employer] nor from contacting [the defendant]. All they lose is the option of being contacted by him first.” The Court also distinguished AMN’s former employees’ recruiting role from the role of the former executive officer in Moyes, who was not similarly burdened by the restrictions set forth in the non-solicitation provision.

In its discussion of Moyes, the Court challenged the Moyes court’s “reasonableness” or “slight affect” approach to employee non-solicitation provisions and contrasted it with the plain language of section 16600 and the California Supreme Court’s decision in Edwards v. Arthur Anderson LLP, 44 Cal. 4th 937 (2008). The Court concluded that it “doubt[s] the continuing viability” of Moyes, and took the opportunity to further illustrate California’s uniquely strict policy against restraints of trade, even restraints subject to the “narrow-restraint exception” adopted by the Ninth Circuit in Campbell v. Trustees of Leland Stanford Jr. Univ.  817 F.2d 499 (9th Cir. 1987), which was explicitly rejected by the California Supreme Court in Edwards. The Court reasoned that while it doubted the continuing viability of Moyes post-Edwards, “the instant case does not rest on that analysis alone.” The Court determined that notwithstanding the survival of the reasonableness standard after EdwardsMoyes was factually distinguishable because the non-solicitation provision here, if enforced, would restrain individual defendants from engaging in their chosen profession, even if the provision was “narrow” or “limited.”

Analysis of the Trade Secret Claims

The Court also rejected AMN’s trade secret misappropriation claims. The nature of individual defendants’ profession also played a role in the court’s conclusion that there was no evidence of trade secret misappropriation. The Court was unpersuaded by AMN’s argument that the information at stake (the names, addresses, and identities of its “Travelers” or traveling nurses) was “secret” for purposes of AMN’s trade secret claims. In light of the evidence, the Court explained that in the industry of temporary healthcare professional staffing, “some travel nurses work with many different healthcare recruitment firms in order to increase the likelihood that they will be placed in assignments which fit their needs.” AMN even conceded that some of the information was accessible to Aya through independent means, for example, a social media group page for traveling nurses.

Furthermore, the Court noted that some of the traveling nurses at issue had applied for employment with Aya before they were recruited for AMN by individual defendants, or least before individual defendants joined Aya. The Court found that a list of names and email addresses of nurses that one individual defendant took was never actually used to take, or attempt to take, AMN’s business. Thus, while it may have been “wrong” for that individual defendant to send the information to her personal email, the court found “no evidence she or Aya ever used or relied on such information to recruit, or attempt to recruit, any of the travel nurses on that [list of Travelers and their information].” The Court concluded that plaintiff was neither harmed by any such disclosure nor was such a disclosure a “substantial factor” in causing plaintiff any harm. Additionally, the Court found that plaintiff had not demonstrated the competitive information that one of the individual defendants had taken qualified as trade secret information because it was very general and there was no evidence that Aya obtained any economic value from its disclosure.

Analysis of the Trade Secret “Exception” to Section 16600

Moreover, in rejecting plaintiff’s tort claims for breach of duty of loyalty and intentional and negligent interference with prospective economic advantage, the Court rejected the argument that the employee non-solicitation provision could be justified under a trade secret exception to section 16600. The Court reasoned that because the allegedly confidential information was not “secret,” AMN’s agreements fell outside the common law “trade secrets exception” to section 16600. The Court cited The Retirement Group v. Galante to reiterate that contractually preventing the misappropriation of trade secrets is not so much an “exception” to section 16600, but instead enjoining tortious conduct that is “enjoinable because it is wrongful independent of any contractual undertaking.” 176 Cal. App. 4th 1226, 1238 (2009). The Court reasoned under the Retirement Group decision that while a plaintiff may seek an injunction to prevent actual or threatened misappropriation of trade secrets, it cannot obtain an injunction to enforce a non-compete or non-solicitation provision on the grounds that the provision is designed to protect trade secrets. The Court held that the tort claims failed because section 16600 precludes an employer from restraining an employee from engaging in his or her “profession, trade, or business,” even if that employee uses information that is confidential but not a secret.

Upholding the Injunction and Award of Fees

The Court concluded by affirming the trial court’s grant of summary judgment on defendants’ declaratory relief and unfair competition claims, and upholding the injunction entered against AMN. In its review of the injunction prohibiting enforcement of the non-solicitation provision against any former employees, the Court examined evidence that AMN had brought a similar suit against an employee who left for a competitor and that AMN was continuing in its efforts to enforce section 3.2 by sending cease and desist letters to former employees upon their acceptances of employment with competitors. The Court rejected plaintiff’s contention that the injunction was overbroad or imprudently granted.

With respect to the award of fees under section 1021.5 of the California Code of Civil Procedure, the Court upheld the award, noting that this was an important issue affecting the public interest, and conferred a significant benefit on many people, i.e., all current and former AMN California employees who had signed a CNDA containing a similar non-solicitation provision.

It is unclear whether the plaintiff will seek California Supreme Court review or whether employer groups will mobilize to challenge the decision through legislation or amicus briefing.

Steps Forward

In sum, while many California courts have followed the reasoning in Moyes over the years, there is now likely a split in authority in California concerning the continued viability of employee non-solicitation provisions, at least in certain industries and positions, like recruiting and staffing. Going forward, plaintiff employers may argue that this case is limited to its facts and the unique industry involved and point to Moyes and its progeny to defend such provisions. California Supreme Court review is likely needed to resolve these important issues. In any event, this decision serves as further confirmation of California’s aggressive pro-employee mobility policy and judicial hostility toward restrictive covenants and protection of company information. Employers should conduct a careful review of their employee non-solicitation provisions with California employees to address the uncertainty created by this decision. Employers should use extra care in specialized industries and positions where a non-solicitation covenant may prevent former employees from engaging in their chosen profession.

Seyfarth Synopsis: California Legislators sent Governor Jerry Brown 1,217 bills to consider in his final bill-signing period as Governor—more than any California governor has seen since 2004. The final tally: 1016 signed, 201 vetoed. Below is our full, final roundup of new laws that employers must comply with, bills that fell to the Governor’s veto pen, and bills that never made it to the Governor’s desk. Even though the Governor’s veto saved California employers from some truly awful legislation (such as AB 3080’s attempted ban on employment arbitration agreements), 2019 may well bring a new Legislature just as hostile to business, and a new Governor not known for the practical caution that sometimes has characterized Governor Brown. We expect that the vetoed bills will re-emerge, and may receive a more favorable gubernatorial consideration.

Sign up for our webinar on October 10, 2018 for a discussion of these results and implications for employers.

APPROVED

Sexual Harassment Bills

Human Trafficking Awareness. SB 970 requires hotel and motel employers (excluding bed and breakfast inns), to provide—by January 1, 2020, and once every two years thereafter—at least 20 minutes of interactive human trafficking awareness training to employees likely to interact with human trafficking victims. The Department of Fair Employment and Housing can seek an order requiring an employer comply with these requirements. Adds section 12950.3 to the Government Code.

Sexual Harassment Omnibus Bill. SB 1300 adds a section to the Government Code that declares the purpose of harassment laws is to provide all Californians with equal opportunity to succeed in the workplace. To that end, the bill expressly affirms or rejects specified judicial decisions in:

  • Harris v. Forklift Systems: approving the standard in Justice Ruth Bader Ginsburg’s concurrence that in a workplace harassment suit “the plaintiff need not prove that his or her tangible productivity has declined as a result of the harassment. It suffices to prove that a reasonable person subjected to the discriminatory conduct would find, as the plaintiff did, that the harassment so altered working conditions as to make it more difficult to do the job.”
  • Brooks v. City of San Mateo: prohibiting reliance on Judge Alex Kozinksi’s Ninth Circuit opinion to determine what conduct is sufficiently severe or pervasive to constitute actionable harassment under FEHA.
  • Reid v. Google, Inc.: affirming the California Supreme Court’s rejection of the “stray remarks doctrine,” because the “existence of a hostile work environment depends on the totality of the circumstances and a discriminatory remark, even if made not directly in the context of an employment decision or uttered by a nondecisionmaker, may be relevant, circumstantial evidence of discrimination.”
  • Kelley v. Conco Companies: disapproving use of this case to support different standards for hostile work environment harassment depending on the type of workplace.
  • Nazir v. United Airlines, Inc: affirming this case’s observation that “hostile working environment cases involve issues ‘not determinable on paper.’ ”

SB 1300 also:

  • Expands an employer’s potential FEHA liability for acts of nonemployees to all forms of unlawful harassment (removing the “sexual” limitation).
  • Prohibits employers from requiring an employee to sign (as a condition of employment, raise, or bonus): (1) a release of FEHA claims or rights or (2) a document prohibiting disclosure of information about unlawful acts in the workplace, including nondisparagement agreements. This provision does not apply to negotiated settlement agreements to resolve FEHA claims filed in court, before administrative agencies, alternative dispute resolution, or though the employer’s internal complaint process.
  • Prohibits a prevailing defendant from being awarded attorney’s fees and costs unless the court finds the action was frivolous, unreasonable, or groundless when brought or that the plaintiff continued to litigate after it clearly became so.
  • Authorizes (but does not require) employers to provide bystander intervention training to its employees.

SB 1300 would have—contingent upon SB 1038 also passing—subjected employees alleged to have engaged in harassment to personal liability for retaliation, discrimination, and other adverse employment actions taken against any person who has opposed practices forbidden by FEHA or participated in a FEHA action. As SB 1038, discussed below, failed to make it out of the Legislature, this proposed amendment in SB 1300 does not become operative.

SB 1300 amends Government Code sections 12940, 12965 and adds Government Code sections 12923, 12950.2, 12964.5.

Sex Harassment Settlement Agreement Confidentiality Restrictions. For settlement agreements entered into on or after January 1, 2019, SB 820 will prohibit and make void any provision that prevents the disclosure of information related to civil or administrative complaints of sexual assault, sexual harassment, and workplace harassment or discrimination based on sex. SB 820 expressly authorizes provisions that (1) preclude the disclosure of the amount paid in settlement and (2) protect the claimant’s identity and any fact that could reveal the identity, so long as the claimant has requested anonymity and the opposing party is not a government agency or public official. SB 820 suggests that a violation of its provisions would give rise to a cause of action for civil damages. Adds section 1001 to the Code of Civil Procedure.

Banning Waivers of Rights to Testify. As to any contract or settlement agreement entered into on or after January 1, 2019, SB 3109 makes void and unenforceable any provision that waives a party’s right to testify in a legal proceeding (if required or requested by court order, subpoena or administrative or legislative request) regarding criminal conduct or sexual harassment on the part of the other contracting party, or the other party’s agents or employees.  Adds section 1670.11 to the Civil Code.

Strengthening Prohibitions Against Harassment With Respect to Professional Relationships. SB 224 gives additional examples of professional relationships where liability for claims of sexual harassment may arise and authorizes the DFEH to investigate those circumstances. Amends section 51.9 of the Civil Code and section 12930 and 12948 of the Government Code.

Requiring Sexual Harassment Education by Talent Agencies. AB 2338 requires talent agencies to provide adult artists, parents or legal guardians of minors aged 14-17, and age-eligible minors, within 90 days of retention, educational materials on sexual harassment prevention, retaliation, and reporting resources. For adult model artists only, the talent agency will be required to provide materials on nutrition and eating disorders. Talent agencies will also have to retain, for three years, records showing that those educational materials were provided. Adds Article 4 (commencing with Section 1700.50) to Chapter 4 of Part 6 of Division 2 of the Labor Code.

Expanding Scope of Required Sexual Harassment Training. SB 1343 requires an employer of five or more employees—including seasonal and temporary employees—to provide certain sexual harassment training by January 1, 2020. Within six months of their assuming their position (and once every two years thereafter), all supervisors must receive at least two hours of training, and all nonsupervisory employees must receive at least one hour. SB 1343 also requires the DFEH to make available a one-hour and a two-hour online training course employers may use and to make the training videos, existing informational posters, fact sheets, and online training courses available in multiple languages. Amends sections 12950 and 12950.1 of the Government Code.

Requiring Sexual Harassment Education for In-Home Support Services. AB 3082 requires the Department of Social Services to develop or identify—and provide a copy and description to the Legislature by September 30, 2019—(1) educational materials addressing sexual harassment of in-home supportive services (IHSS) providers and recipients, and (2) a method to collect data on the prevalence of sexual harassment in the IHSS program. Adds section 12318 to the Welfare & Institutions Code.

Non-Harassment Bills

Lactation Location. AB 1976 requires employers to make reasonable efforts to provide a room or location (that is not a bathroom, deleting “toilet stall” and inserting “bathroom”) for lactation. The also bill authorizes a temporary lactation location if certain conditions are met and provides a narrow undue hardship exemption. The Governor vetoed the similar, more onerous, SB 937, discussed below. Amends section 1031 of the Labor Code.

Pay Statement: Right to Receive. Stating it is declaratory of existing law, SB 1252 provides employees the right “to receive” a copy of—not just inspect or copy—their pay statements. Amends section 226 of the Labor Code.

Rest Breaks in Petroleum Facilities. AB 2605 exempts from rest-period requirements certain workers who hold “safety-sensitive positions,” defined as a position whose duties reasonably include responding to emergencies in the facility and carry communication devices. The exemption applies only to workers covered by a collective bargaining agreement and subject to Industrial Wage Commission Wage Order No. 1. But employers must pay exempted workers one hour of pay at the regular rate if the rest period is interrupted to respond to an emergency. Because AB 2605 is an urgency statute, these provisions took effect immediately when approved by the Governor on September 20, 2018 and will sunset on January 1, 2021. The author of this bill sought to carve out an exemption for these positions in light of the recent Augustus v. ABM Security Services, Inc. case. Adds section 226.75 to the Labor Code.

Port Drayage Motor Carries. SB 1402 requires the DLSE to post a list on its website of port drayage motor carriers with any unsatisfied judgment or assessment or any “order, decision, or award” finding illegal conduct as to various wage/hour issues, specifically including independent contractor misclassification and derivative claims. This bill also extends joint and several liability to the customers of these drayage motor carriers for their future wage violations of the same nature. Adds section 2810.4 to the Labor Code.

Contractor Liability. Passed as an urgency statute to make clarifying changes to last year’s AB 1701—which created joint liability for construction contractors and subcontractors—AB 1565 immediately repeals the express provision that relieved direct contractors for liability for anything other than unpaid wages and fringe or other benefit payments or contributions including interest owed. For contracts entered into on or after January 1, 2019,  the direct contractor must specify what documents and information the subcontractor must provide in order to withhold a disputed payment. Amends section 218.7 of the Labor Code.

Criminal History. SB 1412 requires employers to consider only a “particular conviction” (“for specific criminal conduct or a category of criminal offenses prescribed by any federal law, federal regulation, or state law that contains requirements, exclusions, or both, expressly based on that specific criminal conduct or category of criminal offenses”) relevant to the job when screening applicants using a criminal background check. Amends section 432.7 of the Labor Code.

Women on Boards. SB 826 requires California-based publicly held corporations to have on their board of directors at least one female—defined as people who self-identify as women, regardless of their designated sex at birth. The deadline for compliance is December 31, 2019. A corporation may need to increase its authorized number of directors to comply with this requirement. The bill imposes minimum seat requirements that must be filled by women, proportional to the total number of seats, by December 31, 2021. The Secretary of State must publish a report by July 1, 2019 of the number of corporations whose principal executive offices are in California and have at least one female director, and an annual report beginning March 1, 2020, detailing the number of corporations that (1) complied with requirements in 2019, (2) moved their headquarters in or out of California, and (3) were subject to these provisions during 2019, but no longer publicly traded.

For each director’s seat not held by a female during at least a portion of the calendar year—when by law it should have been—the corporation will be subject to a $100,000 fine for the first violation and a $300,000 fine for further violations. Corporations that fail to timely file board member information with the Secretary of State will also be subject to a $100,000 fine. Adds sections 301.3 and 2115.5 to the Corporations Code.

Mediation Confidentiality. SB 954 requires attorneys, except in class actions, to provide their mediating clients with a written disclosure containing the confidentiality restrictions provided in Section 1119 of the Evidence Code and obtain the client’s written acknowledgment that the client has read and understands the confidentiality restrictions. This duty arises as soon as reasonably possible before the client agrees to participate in mediation or a mediation consultation. The bill is of little consequence as an attorney’s failure to comply is not a basis to set aside an agreement prepared in or pursuant to a mediation. Amends Evidence Code section 1122 and adds Evidence Code section 1129.

Class Action Settlements. Among many other changes not directly relevant to this blog, AB 3250 revises amendments to Code of Civil Procedure section 384, which took effect immediately upon the Governor’s signing SB 847 on June 27, 2018 (SB 847 also added relevant Code of Civil Procedure sections 382.4 and 384.5). By virtue of SB 847, Section 384 requires a court, before the entry of a judgment (including consent judgment, decree, settlement agreement approved by the court) in a class action, to determine the total amount that will be payable to all class members, and set a date when the parties are to report to the court the total amount that was actually paid to the class. After the report is received, the court must amend the judgment to direct the defendant to pay the sum of the unpaid residue, plus interest on that sum at the legal rate of interest from the date of entry of the initial judgment (AB 3250 deletes this italicized language and replaces it with “that has accrued thereon”), to nonprofit organizations or foundations to support projects that will benefit the class or similarly situated persons, or that promote the law consistent with the underlying cause of action, or to child advocacy programs, or to nonprofit organizations providing civil legal services to the indigent. An attorney for a party to a class action must notify the court if the attorney has a connection to a proposed nonparty recipient of class action settlement funds that could reasonably create the appearance of impropriety. The court must transmit a copy of the judgment to the Judicial Council, identifying nonparty recipients of class action settlement funds. Amends Business and Professions Code section 6402.2, Civil Code sections 51.7, 52.1, and 54.8, Code of Civil Procedure sections 384, 1013b, 1276, 1277, and 1277.5, Health & Safety Code section 103430, and Insurance Code section 10861.03. Repeals Code of Civil Procedure section 630.30.

VETOED

Banning Contractual Limits on Disclosure and Arbitration Agreements. AB 3080 would have prohibited businesses from requiring, as a condition of employment, employment benefit, or contract (1) that a job applicant or employee waive any right, forum, or procedure (e.g., arbitration) for a violation of FEHA or the Labor Code, and (2) that a job applicant, employee, or independent contractor not disclose instances of sexual harassment suffered, witnessed, or discovered in the work place or in performance of the contract, opposing unlawful practices, or participating in harassment and discrimination related investigations or proceedings. Biting their fingernails into the night on the Governor’s signing deadline, to employers’ relief, Governor Brown vetoed the bill. The Governor stated he was compelled to veto this bill because it “plainly violates federal law.” He remained consistent with his veto of a similar bill in 2015, in which he referred to recent court decisions that invalidated state policies that impeded arbitration and stated his desire to watch future US Supreme Court decisions on the topic before “endorsing a broad ban on mandatory arbitration agreements.” He stated that the “direction from the Supreme Court since my earlier veto has been clear—states must follow the Federal Arbitration Act and the Supreme Court’s interpretation of the Act,” citing DIRECTV, Inc. v. Imburgia; and Kindred Nursing Centers Ltd. Partnership v. Clark to reject this bill’s premise “that the Act governs only the enforcement and not the initial formation of arbitration agreements.”

Expanding Record Retention. AB 1867 would have required employers with 50 or more employees to maintain records of complaints alleging sexual harassment for at least five years after the last date of employment of the complainant or alleged harasser, whichever is later. In his veto message, the Governor sagely noted this bill could lead to the retention of records for decades and could require complaints alleging sexual harassment to be maintained for the same amount of time regardless of the result of the investigative process. For those reasons, and because existing law requires personnel records, including records of complaints, be maintained “for suitable periods of time,” the Governor found the time expansion of this bill unwarranted.

Expanding Administrative Charge Filing Deadlines. AB 1870 would have extended a complainant’s time to file an administrative charge with the DFEH from one year to three years after the alleged incident for all types of FEHA-prohibited conduct, including sexual harassment. In vetoing this bill, Governor Brown found the current filing deadline, in place since 1963, “not only encourages prompt resolution while memories and evidence are fresh, but also ensures that unwelcome behavior is promptly reported and halted.”

Extending Liability for Employers and for Businesses Using Labor Contractors. AB 3081 would have amended the FEHA and Labor Code to (1) add status as a sexual harassment victim to existing prohibitions on discrimination against employees who are victims of domestic violence, sexual assault, or stalking, (2) create a rebuttable presumption of unlawful retaliation if an employer—within 30 days of notice of the victim’s status—discharges or threatens to discharge, demotes, suspends, or otherwise discriminates against a victim employee, (3) make a business jointly liable for harassment of workers supplied by the business’s labor contractor (existing law similarly extends liability for the contractor’s failure to pay wages and obtain valid workers’ compensation coverage), (4) prohibit businesses from shifting to their labor contractors duties or liabilities under the Labor Code workers’ compensation insurance provisions. Governor Brown rejected the bill on the basis that most of its provisions are unnecessary as already contained in current law, or, if new, are confusing.

Immigration Documents. AB 2732 would have subjected to penalties employers that destroy or withhold passports or other immigration documents, and required all employers to provide a “Worker’s Bill of Rights” (to be developed by the DIR) to all employees. AB 2732 also would have made various changes to the Property Service Worker Protection Act, contingent upon this bill’s and AB 2079’s passing. In a lesson to narrowly tailor bills, Governor Brown found the “provision of this bill that prohibits employers from withholding immigration documents from workers is very appropriate,” but still struck down this entire bill due to its “burdensome and unwarranted” mandate that all employers, even those having nothing to do with labor trafficking, provide the “Worker’s Bill of Rights’ to every employee in California. “This goes too far.”

Lactation Accommodations. SB 937 would have required employers to (1) provide a lactation room with prescribed features and access to a sink and refrigerator (or another cooling device suitable for storing milk) in close proximity to the employee’s workspace, (2) develop and distribute to employees a lactation accommodation policy, and (3) maintain accommodation request records for three years and allow the employee and Labor Commissioner access to the records. SB 937 would have also deemed the denial of time or space for lactation a failure to provide a rest period under Labor Code section 226.7, and required the DLSE to create a model lactation policy and a model lactation accommodation request form. Having signed AB 1976 to further “the state’s ongoing effort to support working mothers and their families,” Governor Brown vetoed this bill as not necessary.

Property Service Worker Protection Act Amendments. Governor Brown vetoed two bills (AB 2732, discussed above, and AB 2079) to amend the Property Service Worker Protection Act, which went into effect July 1, 2018 (AB 1978), and imposes requirements to combat wage theft and sexual harassment for the janitorial industry. In his veto message, the Governor urged AB 2079’s authors and sponsors to allow the Act—“the first of its kind in the country”—to be fully implemented before proposing significant changes. AB 2079 would have required (1) all employers applying for new or renewed registration to demonstrate completion of sexual harassment violence prevention requirements and provide an attestation to the Labor Commissioner, (2) the Department of Industrial Relations (DIR) to convene an advisory committee to develop requirements for, and maintain a list of, qualified organizations and peer-trainers for employers to use in providing training, and (3) employers, upon request, to provide requesting employees a copy of all training materials. AB 2079 would have also prohibited the Labor Commissioner from approving a janitorial service employer’s request for registration or for renewal if the employer had not fully satisfied a final judgment to a current or former employee for a violation of the FEHA.

Janitorial Workers Employment Classification. AB 2496 would have established a rebuttable presumption that janitorial workers who perform services for property service employers are employees, not independent contractors. Governor Brown vetoed the bill as premature, pending Legislature review of the California Supreme Court decision in in Dynamex Operations West, Inc. v. Superior Court, which recently established a new test to determine whether a worker is properly classified as an employee or independent contractor.

Veterans and Military Personnel. Governor Brown vetoed SB 1427, which would have added veterans and military personnel as a protected class under the FEHA, because the bill’s other, non-employment-related provisions went “too far.”

Construction Industry Harassment and Discrimination. SB 1223 would have required the DIR to convene an advisory committee to recommend minimum standards for a harassment and discrimination prevention policy and training program specific to the construction industry, and to report to the Legislature specific implementation recommendations. Governor Brown vetoed this bill as better placed with the DFEH—responsible for enforcing the FEHA and its harassment and discrimination prevention and training requirements—not the Labor Commissioner.

FAILED TO PASS BOTH HOUSES OF THE LEGISLATURE

Personal Liability for Retaliation. SB 1038 proposed the same amendment to FEHA as SB 1300 to impose personally liability upon an employee for retaliating against a person who has filed a complaint against the employee, testified against the employee, assisted in any proceeding, or opposed any prohibited practice. As discussed, above, since SB 1038 failed, so did the same proposed amendment in SB 1300.

Hotel Panic Button. AB 1761 would have required hotel employers to provide employees with a “panic button” to call for help in case of an emergency, post a notice of these provisions in each guestroom, provided paid time off or a reasonable accommodation to an employee who is the victim of an assault, required an employer—upon the employee’s request—to contact police, prohibited employers from taking action against any employee who exercises the protections, and imposed penalties for violations of the proposed provisions.

Employers Pay Data. SB 1284 would have required private employers with 100 or more employees and required to file an EEO-1 report to submit a pay data report to the DFEH containing specified information. This bill would have also authorized fines to be imposed on employers who fail to report, authorized the DFEH to seek an order requiring the employer to comply, and require the DFEH to maintain the records for 10 years, though no individually identifiable information could be made public.

FAILED TO PASS THE HOUSE OF ORIGIN

Victims of Sexual Harassment. AB 2366 would have extended existing law that protects employees who take time off work due to being victims of domestic violence, sexual assault and stalking, to include victims of sexual harassment. This bill would have also extended job-protected leave to family members of such victims.

DLSE Time to File Extension. AB 2946 would have extended the time to file a complaint with the DLSE from six months to three years from the date of the violation and amended California’s whistleblower provision to authorize a court to award reasonable attorney’s fees to a prevailing plaintiff.

Familial Status. AB 1938 would have limited employer inquiries about familial status during the hiring or promotional process and made it unlawful to make any non-job related inquiry about an individual’s real or perceived responsibility to care for family members.

Pay Statements. AB 2223 would have provided employers the option to provide itemized pay statements on a monthly basis and extended the time an employer has to respond to a request to inspect or copy pay statements from 21 to 28 calendar days. AB 2613 would have imposed penalties on employers who violate Labor Code provisions requiring payment of wages twice per month on designated paydays, and once per month for exempt employees.

Flexible Work Schedules. AB 2482 would have allowed private non-exempt employees, not subject to collective bargaining agreements, to request a flexible work schedule to work ten hours per day within a 40-hour workweek without overtime compensation.

Marijuana. AB 2069 would have provided that the medical use of cannabis by a qualified patient with an identification card is subject to a reasonable accommodation by an employer.

Another Failed PAGA Effort. AB 2016 would have required an employee’s required written PAGA notice to the employer include a more in-depth statement of facts, legal contentions, and authorities supporting each allegation, and include an estimate of the number of current and former employees against whom the alleged violations were committed and on whose behalf relief is sought. AB 2016 would have prescribed specified notice procedures if the employee or employee representative seeks relief on behalf of ten or more employees. The bill excluded health and safety violations from PAGA’s right-to-cure provisions, increased the time the employer had to cure violations from 33 to 65 calendar days, and provided an employee may be awarded civil penalties based only on a violation actually suffered by the employee.

Sick Leave. AB 2841 would have increased an employer’s alternate sick leave accrual method from 24 hours by the 120th calendar day of employment to 40 hours of accrued sick leave or paid time off by the 200th calendar day of employment—but not needing to exceed 80 hours. An employer would have been able to limit the amount sick leave carried over to the following year to 40 hours. This provision would have applied to IHSS providers on January 1, 2026.

Criminal History. AB 2680 would have required the CA Department of Justice to adopt a standard form that employers would have to use when seeking the consent of an applicant for employment to conduct a conviction history background check on that applicant by the department. SB 1298 would have placed limits on the criminal history reporting that DOJ would provide to employers and required DOJ to provide the subject with a copy of the information and at least five days to challenge its accuracy before releasing it to the employer. AB 2647 would have prohibited evidence of a current or former employee’s criminal history from being admitted, under specified circumstances, in a civil action based on the current or former employee’s conduct against an employer, an employer’s agents, or an employer’s employees.

With this summary, our legislative team bids you, and Governor Jerry Brown, adieu. But don’t forget to sign up and attend our upcoming webinar for our verbal tribute to this year’s L&E legislation and Governor Brown’s final acts.

Seyfarth Synopsis: Heeding some lessons from HBO’s Silicon Valley can help employers avoid mistakes related to potential hostile work environments and discrimination that might occur in a startup environment.

In a world where life often imitates art, startups can avoid perceived gender bias and sexual harassment in the workplace by learning from the pitfalls of the socially awkward team at TV’s fictional startup firm: Pied Piper. In honor of the upcoming return of Silicon Valley, we discuss five lessons for fledgling companies, using situations that may sound oddly familiar to fans of this geek squad.

1. She Loves Me Not: Workplace Romances Gone Wrong

Imagine that your programming engineer is flirting with one of the (few) female engineers on staff. She politely tries to discourage him, but he isn’t taking the hint. What do you need to be concerned about?

Unwelcome conduct based on gender often forms the basis of a sexual harassment complaint. That’s why it’s important to take all complaints seriously and to both quickly and effectively address misconduct. An employer has a legal obligation to prevent harassment. Therefore, startups should have clear anti-harassment policies informing employees of their rights and outlining complaint and investigation procedures in place for addressing such complaints (more on this below).

But what, you ask, if the conduct is welcome? Does that mean all’s well? Not quite. Although California law doesn’t require employers to prevent all employees from dating or pursuing romantic relationships with their coworkers, a workplace romance between a supervisor and a subordinate can lead to prohibited conduct. Why? Such dalliances can lead to harassment or hostile work environment claims, as well as conflicts of interest and morale issues. In addition, some companies may want to consider implementing a “love contract” for peer relationships; review our prior blog post to see if one might suit your company.

2. Promise To Be Nice To Each Other? Pinky Swear? Not Enough

In the rush to open its doors, a startup might not contemplate certain policies until it becomes clear that they are necessary. For example, maybe you didn’t think to launch your startup with a clear anti-harassment policy in place, but are prompted to by the recent hire of a woman into what was previously a small, all-male workforce (think Pied Piper). In this case, would the following policy suffice?

“Essentially, if you find the workplace hostile in any way you can submit a written complaint. It will be completely anonymous. Essentially don’t do or say anything that might offend anyone. Okay? Thank you. That’s the policy.”

While well-meaning, the above policy falls short in a number of ways. California requires that employers prevent harassment in the workplace and take immediate and appropriate corrective action when harassment occurs. But blanket guarantees of confidentiality or anonymity are  impractical because remedial action may require some form of disclosure of the complainant’s identity. In addition, employer policies must use specific language that FEHA and DFEH regulations require. That includes clearly stating that the employer will not tolerate discrimination or harassment on the basis of protected characteristics including: age, ancestry, color, religion, race, national origin, citizenship, creed, ancestry, sex, gender, gender identity, gender expression, sexual orientation, medical condition, pregnancy, childbirth, or related medical condition, denial of family and medical leave, mental or physical disability, marital status, military and veteran status, and genetic information. It’s also required to designate a specific person to whom these types of complaints can be made—someone other than the complainant’s supervisor. Lastly, it’s important to note that startups with 50 or more employees must provide interactive sexual harassment training to their managers and supervisors every two years (more on this training in one of our previous blog posts).

3. There Are Such Things As Stupid Questions: Discrimination During Hiring

Imagine your Silicon Valley-like CFO “struggles” between hiring a woman and hiring the “best” engineer, falsely believing these are mutually exclusive propositions. This CFO claims to understand the value of diversity, but at the same time, wants to ensure that he hires “the most qualified person for the job. But it would be better if that person was a woman even though the woman part is irrelevant.”

California law, of course, protects against discrimination on the basis of gender, as well as the other protected characteristics mentioned above. An employer’s obligation to prevent discrimination begins with the application and hiring process. Whether it’s by asking questions during an interview that reflect a bias for or against a particular gender, or considering gender when deciding whether or not to hire, employers can expose themselves to liability. It’s important that those with the authority to interview and hire are properly trained with respect to what can and cannot be considered when making hiring decisions.

4. Equal Pay Or Bust

Similarly, what if your previously all-male workforce expresses concern that a newly hired female programmer will be paid the same as her male counterparts?

As previously reported here, as of January 1, 2016, California has one of the most aggressive pay equity laws in the country. It requires that employers pay persons of different genders equally for substantially similar work, or else be able to explain legitimate differences. Recent amendments impose the same rule for employees of different races or ethnicities (which we discussed at length here).

5. Creativity v. Etiquette

You may face a scenario in which certain startup members rely, for creative inspiration, on crude or vulgar language in order to produce the outcome your customers expect. Does the creation of groundbreaking compression software, for example, justify workplace use of vulgar language?

Probably not. Vulgar and crude language, if sufficiently pervasive and gender-specific, may give rise to a hostile work environment. Standing alone, the above scenario might not rise to the severe and pervasive standard required for workplace harassment. But if persistent vulgar language exists, your startup could be in some hot water. If the language is related to or directed toward a specific gender, your version of Pied Piper may ultimately have to pay.

Workplace Solution:

Until we reach a post-gender culture, or until the next tech genius creates an algorithm to perfect these issues, businesses—especially startups—should not be afraid to seek legal counsel on how to best handle these issues in the workplace.

Edited by Michael Cross.

By Jill Porcaro and Andrew Crane

As a well-intentioned employer, you know it is best to promptly investigate employee claims of workplace harassment  and other employee misconduct.  Due to the obvious sensitive nature of these types of investigations, you implement a policy prohibiting your employees from discussing the investigation with anyone other than the investigator.  You believe that your employees will feel more comfortable disclosing truthful information to the investigator knowing their confidences are assured.  Great policy, right?

  • Not exactly.  Now, more than ever, the National Labor Relations Board (the “Board”) is cracking down on blanket confidentiality policies that prohibit employees from discussing investigations of employee misconduct, including the right to discuss discipline or disciplinary investigations involving their fellow employees, on the grounds that these policies “chill” employees’ rights under Section 7 of the National Labor Relations Act (“NLRA”).

In Banner Health System d/b/a Banner Estrella Medical Center, 358 NLRB No. 93 (July 30, 2012), an employer had a policy of prohibiting its employees who made complaints from discussing the matter with their coworkers while the investigation was ongoing.  The Board held that this rule violated the NLRA because an employer must justify a prohibition by showing a “legitimate business justification that outweighs employees’ Section 7 rights.”

Well then, I’ll just nicely suggest to my employees not discuss the details of any investigation.  That ought to solve the problem, right? Continue Reading A Rock and a Hard Place: Keeping a Lid On Internal Workplace Investigations