Today’s Consenting Relationship Might Be Tomorrow’s Sexual Harassment Suit…

Yes, I admit I ripped off this “consenting” phrase from sexual harassment prevention training I recently went to, but I couldn’t agree with the point more.   Just last week another high-profile sexual harassment case arose from the same set of facts. The article summarizing the case stated: “…Kenya Burks, who was employed as the Chief of Staff with the city of Vicksburg, initially had a consensual sexual relationship with Mayor Paul Winfield. Ms. Burks alleges in her complaint that during her employment that she attempted to end the consensual sexual relationship with Mayor Winfield after he became physically abusive; however, Mayor Winfield continued his sexual advances toward Ms. Winfield even though she had informed him that they were unwanted on numerous occasions. Finally, the complaint alleges that Mayor Winfield terminated Ms. Burks and threatened frivolous criminal charges against her in retaliation for her refusing to continue the sexual relationship with Mayor Winfield.”

This story is so commonplace that I’m sure it must be the number one way that sexual harassment lawsuits come to pass. So beware: today’s consensual, innocuous workplace romance can become tomorrow’s workplace headache. How can you protect yourself? Have a no dating policy in place and, if employees insist on dating, have them sign a dating waiver that outlines the risk they are taking, waives liability for the company, and articulates ways in which consensual relationships can become non-consensual. This is particularly important for supervisor-supervisee relationships. A sample waiver might say this:

As of Effective Date, Employee A and Employee B acknowledge again that they have a voluntary dating relationship and that they are equal co-workers. They acknowledge that they entered into this relationship voluntarily, with out duress, and are engaging in the relationship purely for personal reasons.

B. Neither Employee has requested or expects work-related favoritism from the other or from Company as a result of this dating relationship.

C. As of the Effective Date, Employee A and Employee B are not aware of any conflicts related to their dating  relationship; however, acknowledge the potential for conflicts to arise.

D. As of the Effective Date, Employee A and Employee B are not aware of any conduct that they would consider to be wrongful on the part of the Company, its employees, or other affiliated entities and waive any claim potentially related to same.

E. Should Employee A or Employee B consider the other’s conduct to be sexually harassing at any time, they will immediately inform ___of this.

F. Any such continued employment does not limit Company’s rights to terminate the at-will employment of either Employee A or Employee B, to request that one or both of the employees leave their current position and interview for a new position at Company (with no conflicts of interest), or to leave Company altogether.

Keep in mind that such a waiver will not erase company’s liability, but it will go a long way toward bringing potential problems out into the open before they become lawsuits.

The San Francisco Sick Leave Ordinance

Recently it has come to my attention that many of my clients are not following the San Francisco Sick Leave Ordinance, and are thereby exposing themselves to potential lawsuits. The ordinance, which became effective on February 5, 2007, requires employers of all sizes to provide employees who work in San Francisco with one hour of paid sick leave for each 30 they work. Again, this is for all employees who work in San Francisco (more than 56 hours a year) regardless of where the employer is based! There is a cap of 40 hours of paid sick leave for employers who have less than 10 employees, and a cap of 72 hours for those who have more than 10 employees. However, this cap only applies until the employee uses it up. Then the employee can begin to accrue again. There is no annual cap for how much sick leave an employee can accrue or take.

In addition, the ordinance requires employers to post it (clicking here will bring you to a printable poster) where it can easily be seen, to keep track of employees hours for the purposes of according paid sick leave, and to keep a record of these hours for four years in case of audit by the Office of Labor Standards Enforcement (OLSE). I would also recommend including something about it in your employee handbook. I’ve enclosed a sample policy I recently drafted below. It’s a very bare bones one that can be added to as your company sees fit. Please feel free to post comments or questions about it on the blog.

A great Q&A produced by OLSE the can be found by clicking here.  Of course you can always email me, Diana@dianamaierlaw.com, or call me with questions too.

Sick Leave Insert for Employee Handbooks

Sick leave is a form of insurance that employees accumulate in order to provide a cushion for incapacitation due to illness. It is intended to be used only when actually required to recover from illness or injury; sick leave is not for “personal” absences. Sick leave can be used when an employee is ill, injured, or receiving medical care, treatment, or diagnosis, or when attending to a family member or designated person who is ill, injured, or receiving medical care, treatment, or diagnosis.

The company offers paid sick leave to employees pursuant to the San Francisco Paid Sick Leave Ordinance. This ordinance is posted on the Company’s premises at ___. Employees accrue paid sick leave at the rate of one hour for each 30 worked. After an employee accrues 40 hours of sick leave, she is ineligible to accrue more paid sick leave until she has used some or all of her accrued paid sick leave (note that this cap changes with larger employers). There is no cap on how much sick leave an employee may accrue or use in a year.

The Company does not pay employees in lieu of unused sick leave.

MORE ON INVESTIGATIONS…

Potential workplace investigation clients have been asking me a lot of questions lately about who should conduct an investigation, and how, in order to garner the maximum legal protection such investigations may provide.  In short, to get the most bang for your buck, it’s important to hire someone licensed to conduct investigations (generally a private investigator or attorney, see Business and Professions Code Section 7520 et seq),  and to follow the dictates of Cotran v. Rollins Hudig Hall Internat., Inc. (1998) 17 Cal. 4th 93.  In Cotran, the California Supreme Court explained that the reasonableness of the employer’s investigation into an employee’s claim of harassment, not whether the harassment actually occurred, determined whether the employer could be liable for wrongful termination of an accused harasser.

Reasonableness was essentially determined by determining whether the investigation contained a few key ingredients.  They included: promptness of a company’s response to the allegations, the hiring of an impartial investigator who is trained in the skills required for interviewing witnesses and assessing credibility, whether allegations were kept confidential during the investigation (so as not to contaminate the reliability of information the investigator gathers); how thorough the investigation was, and whether the investigator made credibility determinations that ultimately allowed management to decide whether something actionable occurred.  California Employment Lawyers Association (CELA) member Michael Robbins wrote an excellent article on this topic.

The same year as the Cotran decision, the California Court of Appeal in Silva v. Lucky Stores, Inc. (1998) 76 Cal.Rptr.2d382 affirmed the elements of a reasonable investigation outlined in Cotran. The Silva court held that the reasonableness of an employer’s investigation depended on whether the investigation was timely, conducted by a competent investigator, and was reasonable under the circumstances.

For more questions on this topic, please free to contact me. diana@dianamaierlaw.com

Why Hiring the Right Workplace Investigator is So Important

I just got back from a three-day conference of the Association of Workplace Investigators (AWI).  AWI is going to change the way workplace investigations are done, and I suspect all for the better.  Finally there is a place where investigators can compare notes and develop methodologies that support investigative health.  That is, workplace investigators can use AWI as a touch point to ensure their investigations are litigation ready in case their investigations are challenged in court.

But employer-clients must do their part too.  Recently I was hired to defend a company facing a charge of sexual harassment.  When I reviewed the investigation that had been conducted, I was dismayed to see that the investigator had not interviewed the complaining witness.  Apparently the complaining witness had declined to be interviewed at the outset and the investigator gave up without making any additional calls or efforts to reach the witness.  She also failed to advise the client how severely this omission would limit her findings. An experienced investigator who is properly trained knows how difficult it is to come to any conclusion about a complaint without speaking to the person who started the ball rolling in the first place.  I have had many complaining witnesses refuse to speak with me at first.  However all of them have eventually agreed to let me interview them when I persistently explained the importance of their role or offered some concession that would make them comfortable.  Frankly I felt that I really couldn’t do my job without the complaining witness’ statement, and it was perfectly appropriate to be flexible (as well as tenacious) in pursuing a solution with them.  As I said, in all cases the complaining witness has eventually come around.   A good investigator should not give up on getting this interview until she has tried everything possible to make it happen.

The sex harassment litigation I described above could have been prevented with a proper investigation.  The client told me they hired this investigator because she was inexpensive, but the company ended up being penny-wise, pound foolish when it had to pay on the litigation.  I urge employers everywhere to find an investigator who is either a certified private investigator or an attorney, as the California Business and Professions Code Section 7520 et seq requires, and ultimately someone who understands what’s at stake in workplace investigations.  Please always feel free to email or call me to either ascertain my availability, or to get a reference for other investigators who can perform an investigation that will protect the employer’s interests.  Also, if this is an area that’s unfamiliar to you, read my blog on the topic to understand why investigations are so important: http://dianamaierlaw.com/blog/2011/03/17/another-important-reason-to-conduct-investigations/ and http://dianamaierlaw.com/blog/2011/03/10/investigations-and-the-appearance-of-neutrality/ are good places to start.

Can You Prohibit Personal Computer Use at Work?

A question that repeatedly arises from my clients is whether it’s OK to limit employees’ personal use of computers, particularly their access to certain websites and their use of personal email.

It is absolutely legal, and definitely a good idea, to prohibit employees’ personal use of workplace computers. It’s also legal to block employee’s access to certain websites. However, the key thing is to be sure to have a written policy outlining what isn’t allowed in the workplace and have all employees read and sign this policy. In that way, employers diminish the employee’s expectation of privacy in their electronic workplace and protect themselves legally.

A recent California case outlined some key elements to include in such a policy:

[E]mployers can diminish an individual employee’s expectation of privacy by clearly stating in the policy that electronic communications are to be used solely for company business, and that the company reserves the right to monitor or access all employee Internet or e-mail usage. The policy should further emphasize that the company will keep copies of Internet or e-mail passwords, and that the existence of such passwords is not an assurance of the confidentiality of the communications. An electronic communications policy should include a statement prohibiting the transmission of any discriminatory, offensive or unprofessional messages. Employers should also inform employees that access to any Internet sites that are discriminatory or offensive is not allowed, and no employee should be permitted to post personal opinions on the Internet using the company’s access, particularly if the opinion is of a political or discriminatory nature.” (Fernandez, Workplace Claims: Guiding Employers and Employees Safely In And Out of the Revolving Door (1999) 614 Practicing Law Institute, Litigation and Administrative Practice Course Handbook Series, Litigation 725; see also Gantt, An Affront to Human Dignity: Electronic Mail Monitoring in the Private Sector Workplace (Spring 1995) 8 Harv. J.L. & Tech. 345, 404-405. (TBG Ins. Services Corp. v. Superior Court (Zieminski) (2002) 96 Cal. App. 4th 443, 451-452.)

I think TBG offers good advice regarding its policy suggestions and I’d also add to your policy anything else relating to personal computer use. Err on the side of being over inclusive. Don’t forget to get that employee signature when you’re through!

More on AT&T Mobility v. Concepcion: Will Employment Class-Action Suits Disappear in California?

By Diana Maier and Debra B. Burns

California’s employment-law community is scratching its corporate head over what the recent U.S. Supreme Court’s 5-4 split decision in AT&T Mobility v. Concepcion means for class actions in California. (Apr. 27, 2011) 563 U.S.. Is it the death of employment class actions? Or will it be limited to consumer cases only? Has federal law effectively taken over the state’s arbitration and class-action laws? Or will California courts find a way to limit Concepcion’s preemptive effect in employment-related cases?

Federal Arbitration Act Preempts California State Contract Law.

In the 5-4 split decision of AT&T Mobility v. Concepcion, the U.S. Supreme Court held that the Federal Arbitration Act (“FAA”) preempted California contract law. (Apr. 27, 2011, p. 18 of the slip opinion). Lower courts had applied state laws to invalidate arbitration agreements that did not permit class arbitration. Id. at 2. Although the Concepcion decision involved a consumer contract and not an employee contract, the Court’s reasoning might be extended to cases where employers seek to enforce employment agreements that prohibit workplace class actions and require the individual arbitration of employment-related claims.

The facts of the Concepcion case are straightforward. AT&T advertised that a free cell phone would be given to customers who signed up for new service. Id. at 2. To sign up, new customers agreed to submit any disputes to binding arbitration and to waive the right to file a class-action suit. Id. AT&T gave these customers a free phone but charged them sales tax. Id. Mr. Concepcion as lead plaintiff filed a class action against AT&T for false advertising and fraud. Id. at 3. AT&T moved to compel arbitration, the federal district court denied the motion, and the Ninth Circuit Court of Appeals affirmed, relying on Discover Bank v. Superior Court.  AT&T Mobility v. Concepcion at 3. Discover Bank v. Superior Court (2005) 36 Cal. 4th 148.

California Supreme Court held in Discover Bank that class action waivers in consumer arbitration agreements are unconscionable and therefore unenforceable.  AT&T Mobility v. Concepcion at 3. The United States Supreme Court disagreed and found that the FAA preempted California state contract law because the law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”

But Does AT&T Mobility v. Concepcion Relate to Employment Arbitration?

Although Concepcion concerns consumer arbitration and employee arbitration cases, it still may have a major impact on employee arbitration law in California. For example, Concepcion overturns Discover Bank’s holding, which the California Supreme Court had extended in Gentry v. Superior Court, to waivers in employee arbitration agreement, finding them unenforceable. Gentry v. Superior Court (2007) 42 Cal. 4th 44; 64 Cal. Rptr. 3d 773, 789-90. State courts might decide that they can no longer invalidate class-action waivers in arbitration contracts because the FAA preempts state contract laws.

ConcepcAion also puts California Supreme Court’s 4-3 decision in Sonic-Calabasas v. Moreno into question. (2011) 51 Cal. 4th 659. Decided two months before Concepcion, the court held under section 2 of the FAA (9 U.S.C. §2) that California courts may refuse to enforce an arbitration agreement based on generally applicable contract defenses, such as unconscionability. Id. at 686. The court did say, however, that a court might not apply these defenses in a manner that discriminates against arbitration. Id. at 686.

So are Waivers of Class Actions in Arbitration Contracts Valid?

Possibly, although it is unclear to what extend courts might apply the holding of Concepcion to employment contracts. If the reasoning of Concepcion extends to the arbitration of employment claims, it would seem to overrule a vast body of well-settled California law. In their reluctance to enforce employment arbitration agreements, California courts have long relied on public-policy grounds. The Fourth Circuit recently dodged the validity question of class action waivers in employee arbitration clauses under the FAA. Brown v. Ralphs Grocery Company (July 12, 2011) 195 Cal. App. 4th. Thus, we may need to wait for a dispute over a class-action waiver clause in an employment arbitration contract to work its way up to the California Supreme Court. Perhaps then the court will provide more guidance on the validity of class-action waivers.

AB 240: Making a Claim for Unpaid Wages for Minimum Wage Earners

On September 7 Governor Jerry Brown signed into law a new bill that seeks to ensure that minimum wage workers who have been victims of wage violations receive the same relief, whether they pursue their claims administratively or through the courts. Assemblywoman Susan A. Bonilla (D-Concord), authored and introduced the bill, AB 240.

AB 240 provides that an employee alleging a minimum wage violation may recover liquidated damages equal to the amount of wages improperly withheld plus interest in proceedings before the Labor Commissioner.

California labor law offers employees two alternatives when making a claim for unpaid wages: an employee may file a claim in superior court or may file a claim with the Labor Commissioner’s office. While—in the past—employees could pursue wage violation complaints through either litigation or an administrative process, they could obtain liquidated damages only through complaints decided in litigation. Workers seeking relief through the administrative process could not receive liquidated damages. AB 240 thus makes significant changes to the law by permitting employees to obtain liquidated damages by filing administrative complaints.

This is significant because minimum wage workers that have been victims of wage violations are likely to find it particularly difficult to attract attorneys for their claims. Therefore, minimum wage workers are often forced to seek relief through the administrative process, which does not require an attorney. The new law will likely make it easier for plaintiffs to retain an attorney regardless of the venue they choose.

What’s Legal to Put in a Workplace Dress Policy?

Dress and grooming policies for businesses are generally lawful unless a policy discriminates on the basis of a protected group or significantly burdens the employee. For California law, see Cal. Govt. Code §§12900-12906 and 2 Cal. Code Regs. §7287.6(c). Listed below are seven general principles to remember when writing your dress-code policy.

1. Fit within social norms. If the dress code policy fits within social norms and is for the reason of professional public image, it is generally acceptable. For example, employers may require employees in the workplace to cover tattoos and to limit visible body piercing. Montoya v. Giusto, 2004 U.S. Lexis 29363 Dist. Or. 2004; Riggs v. City of Fort Worth, 229 F.Supp. 2d 572 (N.D. Tex. 2002); Baldetta v. Harborview Medical Center, 116 F.3d 842 (9th Cir. 1997); Swartzentruber v. Gunite Corp., 99 F.Supp. 2d 976 (N.D. Ind. 2000); Cloutier v. Costco Wholesale Corp., 390 F.3d 126 (1st Cir. 2004).
A sex-differentiated policy of dress that fits within common social customs may be acceptable. For example, the requirement that men keep hair trimmed short while allowing women to wear long hair would not establish sex discrimination. Fountain v. Safeway Stores, Inc., 555 F.2d 753 (9th Cir.1977). Yet a hair-length policy only applicable only to men could be a violation of Title VII. Donohue v. Shoe Corp. of Am., 337 F. Supp. 1357 (C.D. Cal. 1972).

2. Avoid posing an undue burden and provide reasonable accommodation. A reasonable policy that does not pose an undue burden on the employee is generally acceptable. An employer should, however, provide reasonable accommodation to an employee if the policy would cause undue hardship based on a religious belief. See EEOC Compliance Manual §12, Religious Discrimination. Two common examples of religious accommodation relate to keeping a head covered and the growing of a beard. Id. The principle here is that religious accommodation to a dress policy is required unless it would create “undue hardship” on the business. Id. It is likely illegal if a business requires a man to shave a beard just because the employer wants a “clean-cut” business image, even though part of the man’s religious practice includes not shaving. Id. This is because the accommodation does not cause an undue hardship on the employer. In contrast, an undue burden on an employer would be allowing someone to wear a religious headscarf where it reasonably could get caught in machinery and thus pose a safety hazard. EEOC v. Kelly Services, Inc., No. 08-3880 (8th Cir. Mar. 25, 2010).

3. Avoid prohibiting specific types of dress. A policy should avoid prohibiting specific types of dress such as ethnic clothing or clothes with union insignia. For example, an employer should not prohibit traditional African attire, but otherwise permits casual dress, thereby treating some employees less favorably because of their national origin. See EEOC Compliance Manual §13, National Origin Discrimination. Additionally, a dress policy violates the National Labor Relations Act if it specifically forbids the wearing of union pins, buttons or T-shirts with union insignia, even in a non-union shop. P.S.K. Supermarkets, Inc., 349 N.L.R.B. No. 6 (2007).

4. Be careful when differentiating by sex. Dress codes might not be sex discriminatory under Title VII of the Equal Rights Act even when dress-code standards for women and men are different, if the requirements are not more burdensome for one sex than the other. The employer needs to avoid any policy where 1) the differentiation unduly burdens the affected employee, 2) the policy is motivated, at least in part, by sex stereotyping, or 3) the policy shows disparate treatment such as unequal burdens.

Certain types of differentiation are illegal. For example, under Cal. Govt. Code §12947.5(a), it is generally unlawful to prohibit women from wearing pants. Also, requiring female employees to wear sexually provocative uniforms may violate fair employment standards. See EEOC v. Sage Realty Corp. 507 F.Supp. 599 (1981). In contrast, a court found a dress policy acceptable where the female bartender did not show that a dress and grooming policy more heavily burdened women than men when it required male employees to maintain short hair and women employees to wear make-up. Jespersen v. Harrah’s Operating Co. 444 F.3d 1104 (9th Cir. 2006).

5. Keep the policy reasonable. In sum, an employer can require certain standards of professional dress of employees where the requirements are reasonable. Here is an exemplary grooming and dress policy found in an employee handbook:

The company recognizes the employee’s right to dress and groom as he or she chooses, unless the dress or grooming has an adverse effect on the company’s business or on the employee’s health and safety. Because your appearance affects the opinion that others may form of the company, the company requests that you dress in accordance with your positions and always be neatly attired.

6. Clearly communicate the policy. Use employee handbooks or memos to alert employees to the new policy and any revisions. In addition, explain the policy to job candidates.

7. Encourage employees to ask questions. Encourage employees to talk with their supervisor or someone in human resources if they have questions or concerns about the policy. This may avoid misunderstandings and identify if any accommodation is required.

Split Shifts: A Common Pitfall in California Employment Law

Many California employers don’t understand that under California labor laws they need to pay additional wages when they schedule employees for split-shifts. See: 8. Cal. Code Regs §§ 11010-11150, §§2(M), 4(C) . A split shift is defined as an employee being required to report to work twice in one workday. It is an interruption of working time in a workday by non-paid, nonworking time that the employer requires, other than a rest or meal break.

California labor law requires employers in most occupations to pay an employee who works a split shift one hour of pay at the minimum wage, in addition to the minimum wage due for a workday. See Securitas Security Services USA, Inc. v. Superior Court (Holland) (July 7, 2011). The amount of this premium decreases proportionally by the amount the worker’s wage exceeds the minimum wage. Thus, if a worker makes more than minimum wage for a workday, the amount paid over minimum wage decreases the hour of minimum wage owed.

Let’s illustrate how this split-shift pay works by way of example. A restaurant worker works a four-hour lunch-hour shift, clocks out for two hours as required by the employer, and then returns to work four more hours during the evening shift. We have three examples of how split-shift pay would be calculated: one for minimum wage pay, one for slightly over minimum wage, and one for pay of $1.00 over the current minimum wage of California.

Example 1: One hour split shift due for restaurant worker paid minimum wage

Hourly wage: $8.00 (California’s minimum wage as of 1/1/2008)

Hours worked: 8 hours (4 hours during lunch time and 4 hours in the evening)

Split-shift wage rate: $8.00 for one hour

Total wages due: $72.00 = $64.00 (8 hours at $8.00 per hour) plus $8.00 (one split-shift hour)

Note: Even though the employee was paid for nine hours, no overtime is owed because only eight hours were actually worked in the day.

Example 2: Split shift partially offset by hourly wage for same restaurant employee except at pay of $8.15 per hour

Hourly wage: $8.15

Hours worked: 8 hours (4 hours during lunch time + 4 hours in the evening)

Split shift wage rate: $8.00 for one hour

Offset: $1.20 = $.15 (amount over minimum wage) x 8 hours

Split-shift wage owed: $6.80 = $8.00 – $1.20

Total wages owed: $72.00 = $65.20 (for eight hours work at $8.15 per hour) plus $6.80 (the partially offset split shift hour).

Example 3: Split shift fully offset by hourly wage for same restaurant with $9.00 per hour wage

Hourly wage: $9.00

Hours worked: 8 hours (4 hours during lunch time + 4 hours in the evening)

Split shift wage rate: $8.00 for one hour

Offset: $8.00 = $1.00 (amount over minimum wage) x 8 hours so split shift totally offset

Wages due: Eight hours worked = $72.00

Split-shift wage owed: $0 = $8.00 – $8.00

Total wages owed: $72.00 for eight hours work at $9.00 per hour with no offset.

So right now, for restaurant worker in the examples above, the splitting of the split-shift hairs are not necessary above $9.00 per hour wage. This is because an employer may use any hourly amount the employee earns above minimum wage to offset the split-shift requirement. In addition, the employer does not need not count the compensation for the time between split shifts for overtime purposes, since it is not compensation for hours actually worked.

There are a few exceptions to the premium pay for split shifts. One is where the employee resides at his place of employment. Another is where an employee requests the interruption in his or here work schedule or time off for personal convenience, e.g., to accommodate child care problems or personal business. Employers are advised in the latter situation to have the employee file a written request to work the interrupted schedule. This document that the request is voluntary and is for the employee’s benefit.

Please feel free to email the Law Offices of Diana Maier if you need clarification on this little known point of law.

A SHORT PRIMER ON NON-COMPETES

By Megan Nottingham and Debra Burns, UC Hastings Law Students and Interns at the Law Offices of Diana Maier

Although non-competition agreements are frequently used in California, they are generally invalid except in specific instances provided by the California Business and Professions Code. For this reason I generally advise clients not to use them except for the purpose of requiring a former employee not to solicit an employer’s clients when doing so may lead to disclosure of confidential information.  For this limited purpose, non-competes are effective and enforceable.

BACKGROUND

The California Business and Profession’s code permits generalized covenants not to compete in three narrow situations: where a person sells the goodwill of a business, where a partner agrees not to compete in anticipation of dissolution of a partnership, and where a member of a limited liability company agrees not to compete in anticipation its dissolution. Dowell v. Biosense Webster, Inc. (2009) 179 Cal. App. 4th 564. dissolution.

Despite these three exceptions provided by statute, it is well settled that in California it is generally against public policy for an employer to have an agreement that an employee cannot go to work for a competitor. See South Bay Radiology Medical Associates v. Asher 220 Cal. App. 3d 1074, 1080 (1990) (“covenants not to compete are void in California”). In fact, an employer cannot lawfully terminate an employee for refusing to sign an employment agreement that contains an unenforceable covenant not to compete. D’Sa v. Playhut, Inc. (2007) 85 Cal. App. 4th 927. 933.  This is true even where such an agreement contains choice of law or severability provisions that would enable the employer to enforce other provisions of the employment agreement.  Id.

NON-SOLICITS

There are, however, exceptions to California’s general rule that non-compete agreements are unenforceable. If reasonable and not overly broad, an agreement not to solicit an employer’s customers may be enforceable where its purpose is to protect the employer’s confidential, propriety, or trade secret information. Thompson v Impaxx, Inc., (2003) 113 Cal. App. 4th 1425, 1429-30.

However, overbroad covenants not to solicit will violate section 16600, which states that “every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.” For a non-solicitation agreement to be valid, the employee may only be prohibited from using the employer’s trade secrets to engage in unfair competition. Retirement Group v. Galante 176 Cal. App. 4th 1226, 1237 (2009) (“A former employee may be barred from soliciting existing customers to redirect their business away from the former employer and to the employee’s new business if the employee is utilizing trade secret information to solicit those customers.”). In Dowell, the court declared void a non-solicitation agreement that it found “restrain[ed] employees from practicing their chosen profession,” where the agreement prevented employees for a period of 18 months postemployment from soliciting any business from, selling to, or rendering any service to any accounts, customers or clients with whom they had contact during their last 12 months of employment.” 179 Cal. App. 4th at 575.

The most positive case for the idea that it is acceptable to limit the soliciting of current employees when an employee leaves is Loral Corp. v. Moyes 174 Cal. App. 3d 268 (1985).  Two factors for assessing covenants not to solicit employees are whether an employee will be able to compete in the industry, and the resulting restraint on trade.  Id. at 219.

The Loral court stated that, although section 16600 invalidates an agreement for penalizing a former employee for obtaining employment with a competitor, it “does not necessarily affect an agreement that delimits how he can compete.”  The court examined whether an agreement not to solicit employees was more like a non-competition agreement, which is invalid, or a non-disclosure agreement, which is generally valid.

In upholding the covenant not to solicit former employees, the court in Loral called it a “non-interference” agreement, and stated that such contracts must be construed to be lawful if possible.  174 Cal. App. 3d at 278-79.  The court then examined the potential impact of the covenant on trade.  In so doing, the court first noted that the noninterference agreement expressly permitted the defendant to engage in a competing business.  The court then examined the effect that the agreement had on the other employees of the former employer, and noted that the restriction only slightly affected them because they were not hampered from seeking employment with the competitor or contacting the former employee. Id. at 279 (“[a]ll they los[t] is the option of being contacted by him first”).

In Loral, the two reasons why the employer sought the noninterference covenant was to maintain a stable work force and enable it to stay in business.  The court found these to be valid reasons for the restriction, even if they limited business practices in a small way.  Moreover, the Loral court noted that enforceability of the covenant depended upon its reasonableness, and determined that with the specific contract involved, a one-year restriction was not unreasonable. For these reasons, the Loral court found the non-solicitation covenant to be enforceable.

Based upon the tenets of Loral, in drafting covenants not to solicit employees, an employer should consider whether the language restricts its employees from affirmatively seeking employment with a competitor at all, or merely restricts its employees from being contacted by the former restrained employee.  Additionally, an employer should consider the reason it seeks the covenant, as well as the reasonableness of the restriction.  If Loral is the standard applied, a restriction may be held to be enforceable if the employees may still seek employment with the competitor, the restriction was sought for a valid reason, and the restriction itself is reasonable.

A word of caution:  Loral may not be the final word on the validity of narrowly tailored non-solicitation agreements.  In a more recent case, Edwards v. Arthur Anderson, the California Supreme Court offered general principles concerning contract clauses restraining trade, and then left unanswered the question about whether non-solicitation clauses are clauses that “restrict competition” however narrowly, in which case they are invalid pursuant to Edwards, or whether they are clauses that do not restrict trade, and therefore are not subject to Section 16600, as it seems to have concluded in Loral.  Edwards v. Arthur Anderson, 44 Cal.4th 937 (2008).  In applying the principles concerning clauses that restrained trade, the Edwards court found that the noncompetition and customer non-solicitation clauses restricted Edwards from performing work for Arthur Andersen’s clients, and therefore limited his ability to practice his accounting profession.  Accordingly, the court found these particular clauses invalid.

A good comparison of agreements regarding the non-soliciting of employees as opposed to clients is here (federal perspective) and here (California perspective).  Overall the principle to keep in mind is that the more reasonable and narrowly tailored the agreement, the more likely its chance to succeed.  Also, since non-solicit agreements are generally analyzed from a contract perspective, use an attorney who has some contractual expertise whenever possible.