California Archives - Page 20 of 22

Former Executive’s Race to California Hits a Roadblock in New York

Like many things in life, there is a perceived formula for success in non-compete cases: If you are the former employee or his or her new or would-be new employer, conventional wisdom dictates that you identify the restrictions early and consider filing a preemptive declaratory judgment action in a state that is hostile to such agreements (provided the facts permit). California is the most well-known example, but there are others. The plan works best if the former employee lives in California (or similarly hostile state) or has other significant connections by virtue of his past or intended future employment. But now, a New York appellate court has thrown conventional wisdom a curve.

Michael Cusack and Peter Arkley were former Aon executives. They left Aon on June 13, 2011 to pursue lucrative opportunities with a competitor, Alliant Insurance Services. The same day, 38 other Aon employees also left, and 22 more followed shortly thereafter. Aon’s clients came too, with over $20 million in client revenue allegedly flowing from Aon to Alliant.

Arkley and Cusak, along with Alliant, following the familiar formula, filed for a declaratory judgment to invalidate their restrictive covenant agreements in California federal court on the same day they resigned. Arkley’s chances of success in California seemed particularly good because, although his employment agreement was governed by Illinois law, he both lived and worked in California, and he planned to continue to do so with Alliant.

Aon responded by filing suits in Illinois and New York state courts, and found success in New York in particular. The New York trial judge, undeterred by the action in California and Arkley’s California connections, enjoined him soliciting business from, and entering into any business relationship with, any of Aon’s clients whom he either procured or whose accounts he worked on in the 24 months prior to his departure. She also enjoined him from soliciting any Aon employees to work for Alliant.

In January, a New York appellate court affirmed. The court rejected Arkley’s calls to defer to the first-filed California action, calling it “a preemptive measure undertaken to gain a tactical advantage so as to negate the force and effect of the restrictive covenants, which the parties had freely agreed upon.” The New York court seized upon the fact that the parties’ agreement had selected Illinois law to govern and held that Illinois law provided for enforcement.

Although the outcome was arguably an unusual one insofar as a New York court entered an injunction against someone who lived and worked in California and intended to do so in his new employment, so too were the facts involved, on many levels. First, the conduct at issue was particularly egregious in that it involved, among other things, former employees allegedly taking the equivalent of hundreds of thousands of printed pages of documents, including highly-sensitive documents; a coordinated departure strategy that included filing a declaratory judgment action in California within an hour of the key executives’ resignations; a mass exodus of both employees and clients; and alleged violations of an earlier-issued temporary restraining order. Second, the executives involved were high-level employees, who received seven-figure compensation from Aon, at least in part in consideration of the very restrictions they sought to avoid. Third, the restrictive covenants at issue were not blanket non-competes, but rather restricted the executives from disclosing confidential information, from calling on the customers that they serviced for Aon, and from soliciting other Aon employees for employment. In different circumstances, involving lower-level employees, who are alleged to have engaged in less egregious conduct and/or who are subject to broader restrictive covenants, the former employer may not fare as well.

Still, the takeaways are unmistakable. First, choice of law is critical, and an employer loses a tactical advantage when it fails to select a state law that, if not favorable to it, at least gives it a fair shot. Second, living and working in California is not the end all be all, and racing into a California court does not guarantee the former employee and his new employer freedom from the employee’s post-separation obligations. Solid facts and a solid agreement, presented in a jurisdiction that follows a more traditional approach to restrictive covenants, can still result in success for the former employer.

New Year, New Laws for California Employers – Deposition Limits, San Francisco Ordinances and Meal Periods

In the final part of our series, “New Year, New Laws for California Employers,” we take a look at new deposition limits, San Francisco ordinances and meal periods. Prepared by Mark Terman, partner in the Los Angeles office, this series looks at some of the significant new regulations becoming law in 2013 affecting private employers doing business in California.

Deposition Limits

AB 1875 limits a deposition of any person to seven hours of total testimony, similar to the requirement in federal courts. Excepted from this limitation are depositions in employment and complex cases, and of expert witnesses.

San Francisco City Ordinances

For an employer who directly or indirectly employs or exercises control over an employee’s wages, hours and working conditions in the city of San Francisco, Minimum Wage, Health Care Security (HCS) and Paid Sick Leave (PSL) Ordinances benefit those employees (http://sfgsa.org/index.aspx?page=430).

For 2013, hourly minimum wage for employees in San Francisco increases to $10.55 from $10.22, while the statewide minimum wage outside San Francisco remains at $8. The required 2013 “spend per employee,” under the HCS Ordinance for employers with 100 or more employees increases to $2.33 from $2.20 per hour. For employers of 20-99 employees, spend increases to $1.55 from $1.46. Exempt from the HCS Ordinance are employers with 19 or fewer employees, managers and supervisors salaried at $86,593 or more and nonprofit employers of less than 50 employees. So far, there is no change in the PSL Ordinance.

Meal Periods

Of the many court decisions this year affecting employers, perhaps none impact as many employers as the California Supreme Court’s meal period directive in Brinker Restaurant Corp. v. Superior Court.

Before Brinker, California employers were relegated to policing and disciplining employees to ensure they took at least one, 30-minute nonworking meal periods and, if employers did not, they stood to risk class-action and single-plaintiff litigation over regular wages, overtime wages, wage premium (an extra hour of pay for each meal period lost), interest and attorneys’ fees.

By contrast, Brinker ruled that an employer’s obligation is to relieve its employees of all duty, with employees then at liberty to use the meal period for whatever purpose, but the employer need not ensure that no work is done during the meal period. Likewise, an employee may not capitalize on premium pay by intentionally working through provided meal periods, and an employer may not “impede or discourage” a full, uninterrupted meal period. Finally, the court held that an employer must provide a reasonable opportunity to take meal periods of at least 30 uninterrupted minutes, within the proper time frame, and relieve employees of all duties.

While this case is welcome news, employee claims may still surface. For example, some employees may contend that they were impeded or discouraged from taking lunch or leaving their work area, thus triggering premium pay. Some employees may habitually decline to take a meal period to try to consume “regular rate” working time midday and assure that some overtime is worked, forcing the employer to pay overtime rates for those hours. Consequently, some employers may still prefer to require by their own policies that meal periods are actually taken, rather than made available.

Links to the other posts from this series are below.

New Year, New Laws for California Employers – Employer Access to Social Media

New Year, New Laws for California Employers – Religious Dress and Grooming Protected and Breastfeeding Further Protected

New Year, New Laws for California Employers – Added Whistle-blower Protections, With Whom Will the EDD Share Employer Reports and Contracts with Commission Employees

New Year, New Laws for California Employers – Right to Inspect and Receive Employment Records and Right to Inspect and Copy Wage Records

Next in our series, “New Year, New Laws for California Employers,” we take a look at the rights of the right to inspect and receive employment records and the right to inspect and copy wage records. Prepared by Mark Terman, partner in the Los Angeles office, this series looks at some of the significant new regulations becoming law in 2013 affecting private employers doing business in California.

Right to Inspect and Receive Employment Records

Under existing law, an employee has the right to inspect the personnel records relating to the employee’s performance or to any grievance concerning the employee, and has a right to copies of documents the employee has signed. AB 2674 requires employers to provide a current or former employee—or the employee’s representative authorized by the employee in writing—an opportunity to inspect and receive a copy of those records at reasonable intervals and at reasonable times. Deliverance of these papers is not to exceed 30 days of a written request, except during the pendency of a lawsuit filed by the employee or former employer relating to a personnel matter.

Employers are also required to create a records request form, but information requestors are not required to use it. Current and former employees can bring legal action to recover a $750 penalty from the employer and their attorney’s fees, and obtain court orders compelling compliance.

This new law also adds some employer protections. Employers are not required to comply with more than 50 requests from a representative in one calendar month, may redact names of non-supervisory employees before producing records, and may charge no more than the actual cost of reproduction and, if mailed, postage. The new law generally does not apply to employees covered by a valid collective bargaining agreement. And it does not apply to: “(1) Records relating to the investigation of a possible criminal offense. (2) Letters of reference. (3) Ratings, reports or records that were: (A) Obtained prior to the employee’s employment; (B) Prepared by identifiable examination committee members; (C) Obtained in connection with a promotional examination.”

Right to Inspect and Copy Wage Records

Labor Code Sec. 226(a) continues to require employers to provide an itemized statement or paystub with timely wage payment that states gross wages, total hours worked and rates of pay for the hours of a nonexempt employee, all deductions, net wages earned, payroll period dates and other mandatory information. (See, paystub requirements: http://leginfo.legislature.ca.gov/faces/codes.xhtml, click on “LAB” and “226”).

Employers are required to keep a copy of these wage records for at least three years at the place of employment, or at a central location within California. Current or former employees may inspect or copy these records upon 21 days written or oral notice. An employee suffering injury as a result of a knowing and intentional failure by an employer to comply with its Labor Code Sec. 226(a) paystub requirements is entitled to recover the greater of all actual damages or a specified sum, not exceeding an aggregate penalty of $4,000, and is entitled to an award of costs and reasonable attorney’s fees.

AB 2674 clarifies that the term “copy,” for purposes of wage record retention, includes a duplicate of the itemized statement provided to an employee or a computer-generated record that accurately shows all of the information existing law requires to be included in the itemized statement.

SB 1255 makes it easier to pursue penalties against employers by presuming injury when wage statements do not have all required information. Under the new law, an employee is deemed to suffer injury if the employer fails to provide:

1. A wage statement; or

2. Accurate and complete information required (the employee cannot promptly and easily determine from the wage statement alone the amount of the gross or net wages paid to the employee during the pay period or other specified information, the deductions the employer made from the gross wages to determine the net wages paid to the employee during the pay period, the name and address of the employer or legal entity that secured the services of the employer and other specified information).

Links to the other posts from this series are below.

New Year, New Laws for California Employers – Employer Access to Social Media

New Year, New Laws for California Employers – Religious Dress and Grooming Protected and Breastfeeding Further Protected

New Year, New Laws for California Employers – Added Whistle-blower Protections, With Whom Will the EDD Share Employer Reports and Contracts with Commission Employees

Continuing with our series “New Year, New Laws for California Employers,” we take a look at newly added whistle-blower protections, with whom the EDD will share employer reports and contracts with commission employees. Prepared by Mark Terman, partner in the Los Angeles office, this series looks at some of the significant new regulations becoming law in 2013 affecting private employers doing business in California.

Added Whistle-blower Protections

The California False Claims Act prohibits submission to the government of a false claim for money, property or services, and authorizes actions for treble damages and penalties. An example could be charging a government entity for goods or services that were not provided.

Employees, as “relators,” can inform the government or law enforcement, participate in these actions after satisfying certain requirements and share in the recovery. Employers cannot prevent employees from disclosing information to the government or law enforcement agency, or from acting in furtherance of a false claims action. There are similar statutes under federal law.

AB 2492 provides that contractors and agents can also be whistle-blowers under Cal-FCA. The new law also makes clear that retaliation for trying to prevent a false claim is prohibited, and that relief in a whistleblower or “Qui Tam” action can include reinstatement, double back-pay, interest on the back pay, special damages, punitive damages and attorneys’ fees.

With Whom Will the EDD Share Employer Reports?

Existing law requires employers to provide employee wage information, new employee information and new independent contractor information to the Employment Development Department for use in the administration of tax and unemployment insurance.

We are entering an era of enhanced information sharing designed to make government agencies more effective in enforcing tax and other laws, including billions of dollars that state agencies believe are lost in tax revenue due to improper classification of independent contractors. AB 1794 now permits the EDD to share employer and employee information with the Joint Enforcement Strike Force on the Underground Economy for the purposes of auditing, investigating and prosecuting violations of tax and cash-pay reporting laws and other agencies.

The strike force includes the EDD; Department of Industrial Relations, Division of Labor Standards Enforcement and Division of Occupational Safety and Health; Contractors’ State License Board; Department of Insurance, State Compensation Insurance Fund; and Department of Justice (see www.edd.ca.gov/payroll_taxes). Information sharing is also permitted with the California Department of Health Care Services, the California Health Benefit Exchange, the Managed Risk Medical Insurance Board, county departments and agencies, the Agricultural Labor Relations Board, the Franchise Tax Board and the State Board of Equalization.

Contracts with Commission Employees

Enacted in 2011, Labor Code Sec. 2751 becomes effective Jan. 1, 2013. It requires an employer, when entering into a contract of employment calling for commissions as a method of payment, to create a contract that must be in writing and that describes the method of computation and payment of commissions. The employer must give a signed copy of the contract to the employee and obtain a signed receipt for the contract from the employee. If the contract expires and the parties nevertheless continue to work under the terms of the expired contract, the contract terms are presumed to remain in full force and effect until the contract is superseded or employment is terminated by either party.

“Commissions” generally mean the same as in Labor Code Sec. 204.1: “Compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.”

Commissions do not include: short-term productivity bonuses (such as are paid to retail clerks) and bonus and profit-sharing plans— unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed. AB 2675 adds that temporary, variable incentive payments that increase commissions but do not decrease payment are not covered.

Links to the other posts from this series are below.

New Year, New Laws for California Employers – Employer Access to Social Media

New Year, New Laws for California Employers – Religious Dress and Grooming Protected and Breastfeeding Further Protected

Next in our series, “New Year, New Laws for California Employers,” we take a look at new protections given to Religious Dress and Grooming and Breastfeeding under the California Fair Employment and Housing Act. Prepared by Mark Terman, partner in the Los Angeles office, this series looks at some of the significant new regulations becoming law in 2013 affecting private employers doing business in California.

Religious Dress and Grooming Protected

California employers should know that the Fair Employment and Housing Act protects the right of individuals to seek, obtain and hold employment without discrimination on account of religions creed, observance and belief. Similarly, employers are required to reasonably accommodate religious belief or observance of an individual unless the accommodation would be an undue hardship to the employer.

AB 1964 extends these protections to “religious dress practice” and “religious grooming practice.” Religious dress practice includes the wearing or carrying of religious clothing, head or face coverings, jewelry, artifacts and any other item that is part of the individual’s observance of his or her religious creed. Religious grooming practice includes all forms of head, facial and body hair that are part of the individual’s religious observance.

This law may cause some employers to act with more tolerance of religious practices than in the past. For example, the law also states that an accommodation is not reasonable if it requires segregation of the employee from the public or other employees. As such, employees who interface with clients or customers may not be disqualified from those positions based upon their religious dress or grooming. Because the bill does not state that it supersedes existing health and safety laws and regulations, workplace safety rules—such as dress and grooming required of employees who operate machinery—should not be affected by the new law.

Breastfeeding Further Protected

The FEHA also protects against discrimination in employment on the basis of sex, which includes gender, pregnancy, childbirth and medical conditions related to pregnancy and childbirth. AB 2386 adds breastfeeding and medical conditions related to breastfeeding to the FEHA’s definition of “sex.” This clarification in the law, also dovetails with Labor Code secs. 1030-1033, which require reasonable amounts of break time and an adequate private place for mothers to express breast milk at work.

See our earlier post in this series here.

New Year, New Laws for California Employers – Employer Access to Social Media

California employers received more attention in 2012 with 554 bills introduced in the legislature mentioning “employer,” compared to 346 in 2011. Fortunately, most bills do not become law. However, those that do bring with them new challenges for California employers. As 2013 draws near we begin our series, “New Year, New Laws for California Employers. Prepared by Mark Terman, partner in the Los Angeles office, this series will take a look at some of the significant new regulations affecting private employers doing business in California.

Employer Access to Social Media

Social media is everywhere. Facebook, for example, claims 1 billion users with more than 140 billion friend connections among them. For some employers, this may be too attractive a source of information about employees and job applicants. Balancing employee expectations of privacy against employer business protection needs, AB 1844 prohibits employers from requiring or requesting an employee or applicant to disclose a username or password for the purpose of accessing personal social media or to access personal social media in the presence of the employer or to divulge any personal social media.

It also prohibits employers from discharging, disciplining (or threatening to do so) or retaliating against an employee or applicant for refusing a demand or request by the employer that violates this law.

Excepted from this new law are employer requests to divulge personal social media reasonably believed to be relevant to an investigation of allegations of employee misconduct or employee violation of applicable laws and regulations, provided that the social media is used solely for purposes of that investigation or a related proceeding.

Nothing in this law limits an employer from requiring or requesting an employee to disclose a username, password or other method for the purpose of accessing an employer-issued electronic device.

At the same time, the National Labor Relations Board and its counsel continue to opine on when an employer’s policies

or actions regarding employee use of social media interfere with the protection of concerted activity of employees to, for example, discuss wages and working conditions, whether it involves union activity.

The NLRB general counsel’s third and most recent report, which may surprise nonunion employers, is at www.calcpa.org/ NLRBsocialmediapolicies.