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Meal and Rest Breaks, Remand

Employees Entitled to 2 Hours Per Day for Meal & Rest Break Violations

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Judge George H. King of the Central District denied plaintiff’s remand motion in Lara v. Trimac Transportation Services (Western) Inc., No. CV 10-4280-GHK (JCx), 2010 WL 3119366 (C.D. Cal. Aug. 6, 2010).

Plaintiff Miguel Lara’s (“Plaintiff”) brought a motion to remand on the grounds that Defendant Trimac Transportation Services (Western) Inc. (“Defendant”) failed to satisfy the amount in controversy requirement for diversity jurisdiction. The court stated the amount in controversy requirement as follows: Continue reading →

Tagged Break (work), California, Cause of action, Food and Drug Administration, George H. King, Law, United States, USS Yorktown (CV-10)

Federal Question Jurisdiction, FLSA, Remand

Basing a UCL Claim Partially on FLSA Violation Does Not Confer Federal Question Jurisdiction

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Judge Percy Anderson of the Central District of California faced the question of whether basing a UCL claim partially on a violation of the FSLA creates federal jurisdiction. The Court held that it did not. The case is Williams, et al. v. Wells Fargo Bank, N.A., No. CV 10-4761 PA (PJWx), 2010 WL 3184248 (C.D. Cal. Aug. 9, 2010).

Plaintiffs’ alleged that defendant Wells Fargo Bank, N.A. (“Defendant”) misclassified them as exempt from overtime and failed to pay wages for overtime compensation.

Plaintiffs were employed by Defendant as “Home Mortgage Consultants” sometime between February 10, 2001 and the present. During that time, Plaintiffs were paid on a commission sales basis and were never paid any overtime or premium pay. On May 30, 2010, Plaintiffs brought this action against Defendant in the Superior Court for the County of Los Angeles, alleging (1) violation California Labor Code §§ 510 and 1198 for unpaid overtime; (2) violation of California Labor Code §§ 2800 and 2802 for unpaid business expenses; (3) violation California Labor Code §§ 201 and 202 for wages not timely paid upon termination; (4) violation California Labor Code § 204 for wages not timely paid during employment; (5) violation California Labor Code § 226(a) for non-compliant wage statements; and (6) violation of California Business & Professions Code §§ 17200, et seq.

Defendant filed a Notice of Removal on June 28, 2010, alleging federal question jurisdiction. Plaintiffs filed a motion to remand, maintaining that they have only alleged state law claims, and thus there is no basis for subject matter jurisdiction.

Defendant contended that Plaintiffs have effectively alleged a separate federal claim by alleging violation of the UCL based on violation of the FLSA.

Defendant is asking that this Court treat UCL claims and the violations upon which they are based as one in the same. However, Defendant has not cited, and the Court has not found, any authority which supports this position. Indeed, Defendant’s view seems to directly contradict the California Supreme Court‘s characterization of the UCL as a statute that “borrows” violations of other laws and makes them “independently actionable.” Accordingly, the Court does not find that Plaintiffs have somehow alleged a federal cause of action by basing their UCL claim in part on Defendant’s alleged violation of FLSA.

Defendant also contended that because most of Plaintiffs’ claims stem from their allegations that Defendant misclassified them as exempt from overtime compensation, and Plaintiffs’ overtime claim is entirely dependent on an interpretation of the FLSA, the resolution of Plaintiffs’ claims depends upon the resolution of whether Defendant violated the FLSA. The court was not persuaded.

Although Defendant is correct in noting that most of Plaintiffs’ claims stem from allegations that Defendant improperly classified them as exempt, there is no indication in the complaint that this misclassification is based on exemptions set forth in federal law, as opposed to California law. . . . Where a plaintiff has alleged a UCL claim based on both the violation of state and federal law, courts have found that federal question jurisdiction does not exist. See, e.g., Holliman v. Kaiser Foundation Health Plan, 2006 U.S. Dist. LEXIS 14627 at *13 (N.D. Cal. March 14, 2006) (finding no federal question jurisdiction where UCL claim was based on violations of California Labor Code and FLSA); Roskind v. Morgan Stanley Dean Witter & Co. 165 F. Supp. 2d 1059, 1067 (N.D. Cal. April 11, 2001) (finding no federal question jurisdiction where UCL claim was based on “unfair” misrepresentations and violation of the National Association of Securities Dealers rules); Castro v. Providian Nat’l Bank, 2000 U.S. Dist. LEXIS 19062 at *8-9 (N.D. Cal. Dec. 29, 2000) (finding that even if plaintiffs were basing UCL claim on violation of federal Truth in Lending Act (“TILA”) in addition to violations of California law, claim did not depend on question of federal law because jury could find violation of section 17200 without finding violation of TILA).

Here, Plaintiffs have alleged a UCL claim based on a number of “unlawful” acts, which include two FLSA violations in addition to nine violations of the California Labor Code. Because a single unlawful business practice may give rise to liability under the UCL, a jury could very well find that Defendant violated section 17200 without also finding that it violated the FLSA. As such, Plaintiffs’ UCL claim does not depend upon the resolution of a question of federal law.

Id. **3-4.

Tagged California, California Supreme Court, Fair Labor Standard Act, FLSA, Law, Morgan Stanley, United States, University College London

Preemption

Eastern District of California Rejects UTSA Preemption of Contractual Nondisclosure Claim

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Since the opinion in Court of Appeal decision in K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc., 171 Cal. App. 4th 939, 954 (2009), defendants have successfully demurred to common law-based causes of action, arguing that the UTSA preempts them. In this next case, Removable Media Solutions v. AAR Mobility Systems, 2010 WL 3034219 (E.D. Cal. July 28, 2010) (slip op.), defense counsel takes it one step further, arguing that the statute preempts a contract claim. This is despite the language of the statute that expressly excludes preemption of “contractual remedies, whether or not based upon misappropriation of a trade secret“.

Plaintiff Removable Media Solutions, Inc. (“RMSI”) previously sought to sell a telecommunications device to the California National Guard. RMSI sought the assistance of defendant AAR Manufacturing, Inc., (“AAR”) in this endeavor. The California National Guard eventually elected to retain the services of AAR but not RMSI in producing the device, and AAR subsequently sold similar devices to other states.

RMSI’s claims alleged that AAR breached a non-disclosure agreement. AAR sought summary judgment on both. The court denied the motion as to the non-disclosure agreement.

AAR’s sole argument for summary judgment on this claim was that it was preempted by the Uniform Trade Secrets Act, as by California, and in particular by Cal. Civ. Code § 3426.7. In pertinent part, this statute provides that:

(a) Except as otherwise expressly provided, this title does not supersede any statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secrets.

(b) This title does not affect

(1) contractual remedies, whether or not based upon misappropriation of a trade secret,

(2) other civil remedies that are not based upon misappropriation of a trade secret, or

(3) criminal remedies, whether or not based upon misappropriation of a trade secret.

“Undaunted by the statute’s explicit statement that it does not affect contractual remedies, AAR argues that the statute preempts for breach of the non-disclosure agreement. This assault on the plain language of the statute fails.”

The Court wrote:

Courts have held that except for the three exemptions noted in subsection (b), the statute implicitly “preempts common law claims that are based on misappropriation of a trade secret.” Ali v. Fasteners for Retail, Inc., 544 F.Supp.2d 1064, 1070 (E.D.Cal.2008) (internal quotation marks omitted); see also K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc., 171 Cal.App. 4th 939, 954 (2009), Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F.Supp.2d 941, 954 (N.D.Cal.2003) (holding that this interpretation was implied by Cadence Design Systems, Inc. v. Avant! Corp., 29 Cal.4th 215, 224 (2002)).

AAR’s argument that this implicit preemption extends to contract claims invokes a gross misreading of the caselaw. AAR quotes the statement from Digital Envoy, Inc. v. Google, Inc., 370 F.Supp.2d 1025 (N.D.Cal.2005) that “all state law claims based on the same nucleus of facts as the trade secrets claim are preempted under California’s UTSA.” Id. at 1034.FN4 AAR argues that notwithstanding the statute’s explicit saving of contract claims, courts have stated that “common law claims” arising out of the same operative facts as a trade secret claims are preempted, and that contract claims are common law claims, so contract claims must be preempted.

To the extent that Digital Envoy held that “all claims” are preempted, it plainly referred to “all claims” argued to be preempted in that case, i.e., claims for unfair competition and unjust enrichment. Id. at 1035 (“California’s statute. preempts Digital’s claims for unfair competition and unjust enrichment.”). Digital Envoy and other cases have explicitly recognized that § 3426.7 does not preempt contract claims. Id. (§ 3426.7 “explicitly states that claims based upon breach of contract … are not preempted by the statute.”); see also First Advantage Background Servs. Corp. v. Private Eyes, Inc., 569 F.Supp.2d 929, 936 (N.D.Cal.2008), HiRel Connectors, Inc. v. United States, No. CV 01-11069, 2006 U.S. Dist. LEXIS 93332 (C.D.Cal. July 18, 2006) (“Plaintiff’s claim for breach of contract is not preempted by California’s Uniform Trade Secrets Act.”). While few California courts have spoken to the scope of this statute, at least one state court has allowed a claim for breach of a non-disclosure agreement to proceed in parallel with a claim for misappropriation of trade secrets. Glue-Fold, Inc. v. Slautterback Corp., 82 Cal.App. 4th 1018, 1021 (2000). Although Glue-Fold did not discuss possible preemption of the contract claim, this may well be because the issue was so clear as to require no discussion.

Although this conclusion should be obvious, the court has exhaustively searched cases citing § 3426.7, finding no cases providing even implicit support for AAR’s theory. AAR’s motion is therefore denied as to this claim.

Id. **4-5.

Senior District Judge Lawrence K. Karlton wrote the opinion.

Tagged California, California National Guard, Cause of action, Food and Drug Administration, Lawrence K. Karlton, Non-disclosure agreement, Uniform Trade Secrets Act, United States

23(b)(3) Class, Attorneys' Fees, Class Actions, Settlement

Northern District Approves 28.9% Fee Award in Wage and Hour Class Action Settlement

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Judge Jeffrey S. White approved a wage and hour class action settlement of a non-reversionary $1.8 million, inclusive of $520,000 in attorneys fees, in Ozga v. U.S. Remodelers, Inc., No. C 09-05112 JSW, 2010 WL 3186971 (N.D. Cal. Aug. 9, 2010).

Plaintiff filed a class action in the Alameda Superior Court on February 17, 2009, alleging that Defendant U.S. Remodelers Inc. violated the California Labor Code and violated California Industrial Welfare Commission Wage Orders by: (1) requiring its Installer employees to work substantial amounts of time without compensation; (2) regularly failing to provide Installers with meal and rest periods; and (3) refusing to reimburse expenses that Installers incurred in the performance of their work duties, including travel expenses and equipment costs.

Defendant removed the action to this Court, and Plaintiff subsequently moved to remand. But before the hearing on the motion to remand, the parties reached a settlement, which was facilitated, in part, by a mediation that occurred on October 1, 2009, before Michael Loeb. The parties also engaged in some discovery, and Class Counsel interviewed a number of Settlement Class members.

The Court finds that the terms of the Settlement are fair, adequate and reasonable. As noted, the settlement was reached after the parties engaged in discovery, conducted a meditation, and continued to engage in arms-length negotiations. The parties agreed to a Settlement payment of $1,800,000.00, none of which will revert to the Defendant. The overall reaction to the settlement has been positive. The Claims Administrator has received 156 claim forms from the 270 Class Members. (Id., ¶¶ 20-21.) Neither the Claims Administrator nor the Court received any objections to the Settlement. No Class Member appeared at the final approval hearing to object. According to the Claims Administrator, assuming the Court were to grant in full Plaintiff’s motion for attorneys’ fees and costs and service awards, approximately $1,108,917.72 would be available to distribute Class Members who submitted timely claim forms, for an average award of just over $7,000. (Id. ¶¶ 16-18.)

The Court approved costs to be paid to the Claims Administrator of $10,000.00 from the Settlement Fund.

Attorneys Fees, Costs, and Service Awards

Plaintiff brought an unopposed fee application, seeking $600,000.00 in attorneys’ fees, $11,274.89 in costs, and $10,000.00 in service awards to him and to class member Boris Moskovich.

Plaintiff’s counsel sought an award of attorneys’ fees based on the percentage method, asking for 33 1/3% of the Settlement Fund. The court agreed to depart from the 25% benchmark. See Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1047 (9th Cir. 2002) (noting that 25% is benchmark and “usual” range of awards is 20-30%); Hanlon v. Chrysler Corp., 150 F.3d 1011, 1029 (9th Cir. 1998) (stating that 25% is benchmark). But the court would not vary from the benchmark to the degree requested by counsel.

The Court concludes that counsel did achieve an excellent result for the class, that the reaction to the settlement has been overwhelmingly positive, and that Plaintiff faced significant risk in prosecuting this case given the uncertain state of California law in similar wage and hour cases. The Court also recognizes that other courts have awarded settlement fees of up to 33 1/3% in such cases. However, the parties reached this settlement quickly and did not engage in any motion practice. See, e.g., Navarro v. Servisair, 2010 WL 1729538 (N.D. Cal. Apr. 27, 2010) (finding that proposed award of 30% of settlement fund unjustifiably departed from benchmark based in part on speed with which parties reached a settlement). Moreover, the requested percentage would amount to award that is more than double the fees actually incurred by counsel. Compare Vasquez v. Coast Valley Roofing, Inc., 266 F.R.D. 482, 491 (E.D. Cal. 2010) (awarding 33 1/3% of settlement fund which was “significantly less” than asserted lodestar).

Thus the court found that an award of $520,000.00 was reasonable.

The court found counsels’ requests for costs in the amount of $11,274.89 reasonable.

The court also approved service awards in the amount of $10,000.00 for the lead plaintiff and for a class member.

Tagged Attorney's fee, California, California Labor Code, Class action, Google, Lawsuit, Settlement, United States District Court for the Northern District of California

Attorneys' Fees, Class Actions, Expense Reimbursement, Settlement

Northern District Approves $4.5 Million Settlement Against RadioShack in Expense Reimbursement Case, With $1.5 Million in Fees, and $5,000 Incentive Payments to Each Lead Plaintiff

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Magistrate Judge Edward M. Chen (whose confirmation to the Northern District of California bench has unfortunately been stalled for far too long) approved the class settlement and attorney fee application in Stuart v. RadioShack Corp., 2010 WL 3155645, No. C-07-4499 EMC (N.D. Cal. Aug. 9, 2010).

This class action was initiated in state court in June 2007, alleging that RadioShack had improperly failed to reimburse its employees for expenses they incurred in using their personal vehicles to perform inter-company transfers (“ICSTs”). Plaintiffs claimed for reimbursement pursuant to California Labor Code § 2802 and for a violation of California Business & Professions Code. Subsequently Plaintiffs added a claim for recovery of penalties under the California Labor Code Private Attorneys General Act (“PAGA”). The case was removed in August 2007. And in February 2009, Judge Chen granted the motion for class certification, certifying a class consisting of “all persons employed by RadioShack within the State of California, at any time from June 3, 2003, to the present, who drove their personal vehicles to and from RadioShack stores to carry out ICSTs and who were not reimbursed for mileage.” On October 1, 2009–nine days before trial was scheduled to begin–the parties reached a settlement.

Under the Settlement Agreement, RadioShack will pay a total of $4.5 million for the release by the class, as an all-inclusive sum (proceeds to be distributed to the class, attorney’s fees and litigation expenses, costs of claim administration, incentive payments to the class representatives, and the PAGA award to the state), without reversion of any of the $4.5 million to RadioShack.

After attorney’s fees, litigation expenses, costs of claim administration, incentive payments, and the PAGA award to the state have been deducted from the $4.5 million, the remainder for distribution to the class members and/or donation to charity is $2,796,563.31.

Each class member’s award “depends on the number of weeks that the class member worked.”

The Court found that, importantly, “the amount available to the class after deductions for, e.g., fees and costs–i.e., $2,796,563.31–is not far off what the class might be awarded if it were to prevail on the merits after a trial.” Id. *4.

Plaintiffs’ counsel asked for an award of $1.5 million (i.e., one-third of the total settlement amount), plus litigation expenses which total $78,436.69.

The Court has reviewed the expenses and determined that they are reasonable. The Court notes that the sum is not excessive given that this litigation has been ongoing for more than three years.

Attorneys Fees Application

The attorneys presented a fee application claiming $1.5 million as a lodestar for fees–excluding work performed in preparing for final approval and any post-judgment work that may be needed. The $1.5 million sum represents 2,116.69 hours of work over a period of more than three years, at hourly rates of the billing attorneys ranging from $600 to $1,000.

After reviewing the billing records submitted by counsel as well as the declarations regarding the hourly rates of counsel, the court found that the number of hours was reasonable given the length of the lawsuit and the vigorous disputes over the course of the litigation (e.g., regarding RadioShack’s defense that it had no duty to reimburse until an employee made a request for reimbursement).

The court did express some “concerns about the $1,000 hourly rate” claimed by one of the attorneys. “Based on the Court’s experience, this is an inordinately large hourly rate, even if the Court were to assume that [the attorney] has fifty years of experience.” But the Court concluded that “given the 2,116.69 hours incurred, the average hourly rate for a fee award of $1.5 million total is $708, an amount that the Court deems appropriate, particularly when no multiplier is being sought on top of the lodestar.”

Compared to the percentage of the fund, the court noted that “the total settlement amount to be paid by RadioShack (with no possibility of reversion), the fee award represents one-third of the settlement amount.” The court found that this was “well within the range of percentages which courts have upheld as reasonable in other class action lawsuits.”

The court also approved an incentive award of $5,000 for each of the two class representatives, for a total of $10,000. The Court concluded that the incentive payments were appropriate and reasonable. “Although the class representatives did not enter this litigation until late in the proceedings, due consideration must be given to the fact that they were willing and ready to go to trial.” The court noted that if the “class representatives had asked for a larger sum, the Court might well have reached a different conclusion, but the $5,000 sought for each representative was viewed as “relatively modest.”

Tagged Attorney's fee, California, Class action, Edward M. Chen, RadioShack, Settlement, Settlement Agreement, United States District Court for the Northern District of California

News

Judge Walker Lifts Stay

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Judge Vaughn R. Walker of the Northern District of California today lifted a stay on his decision where he ruled that Proposition 8 was unconstitutional. Judge Walker, however, delayed implementation of the order to lift his stay until August 18.

Defendant-intervenors Dennis Hollingsworth, Gail Knight, Martin Gutierrez, Mark Jansson and ProtectMarriage.com brought a motion to stay the court’s judgment last week to ensure that Proposition 8 remains in effect as they pursue their appeal in the Ninth Circuit. In the alternative, proponents sought a brief stay to allow the court of appeals to consider the matter.

San Francisco asked the court to deny the stay and order the injunction against Proposition 8 to take effect immediately. California’s Governor and Attorney General also opposed any stay.

The Court held that “[b]ecause proponents fail to satisfy any of the factors necessary to warrant a stay, the court denies a stay except for a limited time solely in order to permit the court of appeals to consider the issue in an orderly manner.”

Federal courts look to four factors in deciding whether a stay is appropriate:

(1) whether proponents have made a strong showing that they are likely to succeed on the merits;

(2) whether proponents will be irreparably injured absent a stay;

(3) whether the stay will substantially injure other interested parties; and

(4) whether the stay is in the public interest.

See Nken v. Holder, 556 U.S. —-, 129, S. Ct. 1749, 1761 (2009) (noting overlap with Winter v. Natural Resources Defense Council, Inc., 555 U.S. —-, 129 S. Ct. 365, 374 (2008)). The first two factors “are the most critical.” Nken, 129 S. Ct. at 1757.

The order reads:

None of the factors the court weighs in considering a motion to stay favors granting a stay. Accordingly, proponents’ motion for a stay is DENIED. Doc #705. The clerk is DIRECTED to enter judgment forthwith. That judgment shall be STAYED until August 18, 2010 at 5 PM PDT at which time defendants and all persons under their control or supervision shall cease to apply or enforce Proposition 8.

Tagged California, California Proposition 8 (2008), Dennis Hollingsworth, San Francisco, United States Court of Appeals for the Ninth Circuit, United States District Court for the Northern District of California, United States Supreme Court, Vaughn R. Walker

News, Private Rights of Action, Tip Pooling

California Supreme Court Rejects Private Right of Action for Plaintiffs in Tip Pooling Cases Under Labor Code section 351

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The California Supreme Court today issued its opinion in Lu v. Hawaiian Gardens Casino, Inc., an eagerly anticpiated decision where the issue was whether Labor Code section 351 provides a private cause of action for employees to recover any misappropriated tips from employers. The Court concluded that “section 351 does not contain a private right to sue.”

Labor Code section 351 prohibits employers from taking any gratuity patrons leave for their employees, and declares that such gratuity is “the sole property of the employee or employees to whom it was paid, given, or left for.” Several appellate opinions have held that this prohibition, at least in the restaurant context, does not extend to employer-mandated tip pooling, whereby employees must pool and share their tips with other employees. (See Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal. App. 3d 1062, 1067 (Leighton); see also Etheridge v. Reins Internat. California, Inc. (2009) 172 Cal. App. 4th 908, 921-922; Budrow v. Dave & Buster’s of California, Inc. (2009) 171 Cal.App.4th 875, 878-884; Jameson v. Five Feet Restaurant, Inc. (2003) 107 Cal.App.4th 138, 143.)

Plaintiff Louie Hung Kwei Lu (plaintiff) was employed as a card dealer at defendant Hawaiian Gardens Casino, Inc. (the Casino), from 1997 to 2003. The Casino had a written tip pooling policy. Plaintiff brought a class action against the Casino and its general manager. His complaint alleged that the Casino‟s tip pooling policy amounted to a conversion of his tips, and violated the employee protections under sections 221 (prohibiting wage kickbacks by employer), 351 (prohibiting employer from taking, collecting, or receiving employees‟ gratuities), 450 (prohibiting employer from compelling employees to patronize employer), 1197 (prohibiting payment of less than minimum wage), and 2802 (indemnifying employee for necessary expenditures). The complaint also alleged that the Casino‟s conduct giving rise to each statutory violation constituted an unfair business practice under the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.).

The trial court granted the Casino‟s motion for judgment on the pleadings on the causes of action based on sections 351 and 450. It agreed with the Casino that neither section contained a private right to sue. The court also granted the Casino‟s successive motions for summary adjudication on the remaining causes of action. Plaintiff appealed.

The Court of Appeal held, “pursuant to the analysis in Leighton, that tip pooling in the casino industry is not prohibited by Labor Code section 351.” However, it reversed the trial court‟s order granting summary adjudication of the UCL cause of action based on section 351. While section 351 itself contains no private right to sue, the Court of Appeal concluded this provision may nonetheless serve as a predicate for a UCL claim because plaintiff presented triable issues of fact as to whether section 351 prohibited certain employees who participated in the tip pool from doing so because they were “agents” of the Casino.

Less than two months later, another Court of Appeal expressly disagreed with the holding on section 351 of the appellate court below. (See Grodensky v. Artichoke Joe’s Casino (2009) 171 Cal.App.4th 1399, review granted June 24, 2009, S172237.) The Supreme Court granted review to resolve the conflict on this narrow issue.

The Court concluded that the statutory language does not “unmistakabl[y]” reveal a legislative intent to provide wronged employees a private right to sue. Based on a review of section 351‟s legislative history, the Court also concluded that there is no clear indication that the legislative history showed an intent to create a private cause of action under the statute.

Justice Chin wrote the opinion for the California Supreme Court, with all other Jusitices concurring. Judge David L. Minning of the Los Angeles Superior Court was the trial judge.

The attorneys for appellant were Spiro Moss, Dennis F. Moss, and Andrew Kopel.

David Arbogast submitted an amicus curiae brief for the Consumer Attorneys of California.

Respondents were represented by Tracey A. Kennedy and Michael St. Denis

Anna Segobia Masters and Jennifer Rappoport submitted an amicus curiae brief for the California Gaming Association on behalf of Defendants and Respondents.

Dennis F. Moss and Tracey A. Kennedy argued in front of the Court.

Tagged Amicus curiae, California, California Proposition 8, California Supreme Court, Imperial County California, Perry v. Schwarzenegger, United States, United States Court of Appeals for the Ninth Circuit

Employee Mobility, Wrongful Termination

Employee Has Viable Tameny Claim Against New Employer for Wrongful Termination in Violation of Public Policy When Terminated by New Employer, Who Cites Alleged “Understanding” Between Old and New Employer to Honor Old Employer’s Noncompetition Agreement

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While this next case doesn’t deal directly with trade secrets, it addresses a common fact pattern in the employee mobility arena. The Second District Court of Appeal in Silguero v. Creteguard, Inc., — Cal. Rptr. 3d —-, 2010 WL 2978222, *1 (Cal. Ct. App. 2d Dist. July 30, 2010) decided the issue of whether a terminated employee working in the area of sales has a viable claim for wrongful termination in violation of public policy under Tameny v. Atlantic Richfield Co., 27 Cal. 3d 167 (1980), against her subsequent employer when the employee’s former employer contacts the employee’s subsequent employer and informs it that the employee had signed an agreement with the former employer which prohibited the employee “from all sales activities for 18 months following either departure or termination,” and the subsequent employer terminated the employee’s employment out of “respect and understanding with colleagues in the same industry,” notwithstanding its belief that “non-compete clauses are not legally enforceable here in California .” Silguero, 2010 WL 2978222, *1.

Citing California Business and Professions Code section 16600’s legislative declaration of California’s “settled legislative policy in favor of open competition and employee mobility” (Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 946 ( Edwards )), we conclude that the employee has a viable Tameny claim.” Silguero, 2010 WL 2978222, *1.

The Court cited the alleged “understanding” between the old employer and the new employer to honor the old employers noncompetition agreement. The new employer Creteguard admitted in writing that it entered into this understanding with the old employer, “although [the new employer] believe[d] that non-compete clauses are not legally enforceable here in California,” because the new employer “would like to keep the same respect and understanding with colleagues in the same industry.”

The Court reasoned that this alleged understanding is “tantamount to a no-hire agreement.” Silguero, 2010 WL 2978222, *6. The Court concluded that such an “understanding” between the new and old employer “would be void and unenforceable under section 16600 because it ‘unfairly limit[s] the mobility of an employee’ and because [the old employer] ‘should not be ‘allowed to accomplish by indirection that which it cannot accomplish directly.’” Silguero, 2010 WL 2978222, *1 (citing VL Systems, Inc. v. Unisen, Inc., 152 Cal. App. 4th 708, 716-17 (2007).

[P]ermitting a Tameny claim against Creteguard under the circumstances of this case furthers the interest of employees in their own mobility and betterment, “‘deemed paramount to the competitive business interests of the employers, where neither the employee nor his new employer has committed any illegal act accompanying the employment change.’” (Dowell v. Biosense Webster, Inc. (2009) 179 Cal.App.4th 564, 575, quoting Diodes, Inc. v. Franzen, supra, 260 Cal.App.2d at p. 255 [in Dowell, both employees and their current employers sued a former employer to invalidate a noncompetition agreement].) For all of the foregoing reasons, we conclude that Silguero has pleaded a viable Tameny claim against Creteguard predicated on the public policy in section 16600.

Id. *6.

The Court created a new avenue of liability for employers, who must now carefully decide how to respond to cease and desist letters from old employers. Creteguard would almost certainly have fared better had it avoided the unnecessary editorializing in its termination letter.

Tagged Arthur Andersen, Business, California, Employment, Human resources, Labour law, Non-compete clause, Wrongful dismissal

Employee/Independent Contractor

Ninth Circuit Amends Narayan v. EGL, Weakening Language Re Effect of Contracts Acknowledging Independent Contractor Status

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Significantly, the Ninth Circuit Court of Appeals yesterday amended its opinion in Narayan v. EGL, Inc., — F.3d —-, 2010 WL 3035487 (9th Cir. July 13, 2010). The Court had written that “The fact that the Drivers here had contracts ‘expressly acknowledging that they were independent contractors‘ is simply not significant under California’s test of employment.”

The Court replaced this holding with “That the Drivers here had contracts ‘expressly acknowledging that they were independent contractors’ is simply not dispositive under California’s test of employment.”