On July 1, 2014, California’s minimum hourly wage will increase from $8.00 to $9.00 per hour.  The minimum wage will increase again on January 1, 2016 to $10.00 per hour.  Most employers are aware of the increase and are prepared to comply by paying their minimum wage workers $9.00 per hour starting July 1, 2014.  However, what many employers have overlooked is that the increase affects their minimum salary obligations for their white collar exempt employees.

Under California law, if an employer classifies an employee as exempt under the “executive,” “administrative,” or “professional” exemption (“white collar” exemptions), they must meet certain exemption requirements.  One requirement is that the employee earns a set weekly salary of no less than two times the state minimum wage for a full-time employee.  Currently that wage is $640.00 per week (or $33,280 per year).  On July 1, 2014, the set salary requirement will increase to $720 per week (or $37,440 per year).

As a result, in addition to increasing the hourly rate of pay for minimum wage employees, employers should evaluate the compensation paid to their white collar exempt employees and ensure it meets the minimum salary requirement.   Failure to pay the minimum salary requirement can result in the loss of the exemption which can open a whole host of potential liability – e.g. failure to pay overtime.

Finally, the California Department of Industrial Relations (aka Labor Commissioner) has updated all Wage Orders to reflect the new minimum wage (see section 4).  Employers should post the updated Wage Order applicable to their industry or business along with their other employment law posters.  Wage Orders can be obtained at the Labor Commissioner’s website – www.dir.ca.gov.

What do yoga instructors, event planners and exterminators have in common?  These are fields that are reportedly witnessing an increase in the use of noncompete provisions in employment agreements.  Details of this increase in the use of noncompete provisions were reported in a New York Times article this Sunday.  Click here to view article.

While the article makes clear that such provisions are generally illegal in California, it observes that there is a large variation between other states’ laws, from states having some restrictions on the use of noncompetes to Texas and Florida which place relatively few limits on them.  These variations can raise significant issues for California employers who are in the process of hiring or recruiting employees who either work outside California or work for non-California based companies.  In making such decisions, employers are advised to determine whether potential employees are subject to a noncompete provision and obtain legal advice as to the enforceability of such provision under the applicable state law.

Summary of Program

There is no universal way to prepare for a governmental audit, investigation or inspection. The employment laws governing your workplace have different compliance requirements and governmental agencies have different agendas and degrees of power. This webinar will include tips on whether, and how to, conduct a self-audit; understanding the do’s and don’ts of compliance; and best practices.

Program Highlights

  • Labor Commissioner Claims and Audits — Conduct Regular Self Audits to Avoid and/or Be Prepared for Claims and Agency Audits
  • EEOC/DFEH Investigations—Responding to Claims
  • EDD Audits — Misclassification Issues
  • USCIS/ICE Investigations—Complying with I-9 Requirements
  • CalOSHA—Steps to Take to Be Prepared for an Audit
  • Tips re: Government Audits and Physical Site Inspections
  • Policy Compliance Audit
  • HR Legal Compliance Audit

Date:    June 19, 2014

Time:  12:00 p.m. – 1:30 p.m.

To register for this webinar, please email Ramona Carrillo at rcarrillo@weintraub.com.  For additional information, visit our website at www.weintraub.com and click on the News and Events tab.

 

We periodically discuss California law regarding non-compete provisions in this Blog. The California Supreme Court has made clear that non-compete provisions are unenforceable unless they fall within one of the statutory exceptions set out in sections 16601 et seq. (i.e., in connection with the sale of a business, goodwill, etc.).  Over the years, courts have observed a so-called “trade secret exception” to the general rule that non-competes are unenforceable, holding that non-compete provisions may be enforced to the extent necessary to protect a company’s trade secret information.  The U.S. District Court for the Northern District of California recently revisited this issue in, Arthur J. Gallagher & Co. v. Lang.  Its ruling suggests that the “trade secret exception” is on shakier ground.

Arthur J. Gallagher & Co. (“Gallagher”) is an insurance brokerage firm headquartered in Illinois that acquired a California insurance broker in September 2008.  The employees of the California agency signed employment agreements in connection with the acquisition that contained various non-compete and non-solicitation provisions.  These provisions included: (1) a provision barring employees from soliciting any “insurance related business with any individual partnership, corporation, association or other entity … about which [the employee] received trade secrets of [Gallagher] or any of its affiliates;” and (2) a provision that the employees would not “directly solicit, induce or recruit any employee of [Gallagher] or its affiliates to leave the employ of [Gallagher] or its affiliates.”

Defendant Lang submitted his resignation in January 2014 so that he could start a new insurance brokerage firm with two of his former coworkers.  Shortly thereafter, Gallagher clients began taking their business to Lang’s new company.   Gallagher sued Lang and claimed he breached the non-competition and non-solicitation provisions of his employment agreement, among other claims. Long moved to dismiss the breach of contract claims.  Although the employment contract had a choice of law provision identifying Illinois law as applying, the Court agreed with Lang that California law would apply to the interpretation of the non-competition provisions because of California’s “strong interest in protecting its employees from non-competition agreements under [Business and Professions Code] section 16600.”

The Court next recognized the well-established rule that “[u]nder California law, to the extent that the provisions of the agreement preclude Lang from soliciting business from Gallagher’s clients, they are void,” citing the California Supreme Court’s decision in Edwards v. Arthur Andersen, LLP.  During argument on Lang’s motion to dismiss, Gallagher argued that the non-compete provision should be enforceable because it protected its trade secret information.  The court seemingly rejected this argument and noted that the so-called “trade secret exception” to section 16600 was of doubtful “continued viability.”  The Court concluded that even if the exception was viable, it would not save the provision at issue  because it was simply too broad because it barred Lang from soliciting Gallagher’s customers regardless of whether or not he used Gallagher’s trade secret information.

Although the Court concluded that the non-compete provision was unenforceable under section 16600, it held that the non-solicitation of former employee’s provision was enforceable.  The Court reasoned: “Although California courts recognize that an employer may not prohibit its former employee’s from hiring the employer’s current employees, an employer may lawfully prohibit its former employees from actively recruiting or soliciting its current employees.”

The Court granted Lang’s motion to dismiss in part but allowed Gallagher to file an amended complaint to see if it could allege facts that Lang breached the non-compete provision in a manner consistent with section 16600 [unlikely given the fact pattern] and assert a trade secret misappropriation claim if possible.

The Gallagher decision is a reminder to employers that non-compete provisions will be heavily scrutinized by courts and likely to be struck down unless they fall within the narrow confines of the statutory exceptions.  Although the Gallagher Court was leery of the so-called “trade secret exception” to section 16600, it is possible that had the employment agreement been more narrowly drafted to tie the solicitation to the actual use of Gallagher’s trade secrets, it is possible the Court could have been persuaded to reach a different conclusion.  Employers should consult with legal counsel to see whether a non-compete provision can be crafted in a manner to comply with California law.