On March 20, 2014, my colleagues Meagan Christiansen, Chelcey Lieber and I will be presenting a seminar called “The Ins and Outs of Preparing the Right Employee Handbook for Your Business.”  In preparing for the seminar, we reviewed some examples of the increasingly popular prepackaged, one-size-fits-all employee handbooks that we have heard about or have been asked to review.  These templates are floating around the internet at attractive prices.  The quiz attached contains actual text taken from the more odious samples, highlighting some of the traps for the unwary: seemingly complete templates may not be up-to-date, might not be compliant with the law in your state, and, by definition, are never tailored to the employer’s business needs, industry, or size.   To see the quiz and review the results, please click here.

We are not suggesting that employers who have relied on these templates need to immediately have a handbook bonfire. However, be advised that your handbook may need some minor revisions or a total overhaul.

For employers who do rely on handbook templates, who have and outdated handbook, or who have no handbook at all, we encourage you to attend our low-cost handbook workshop on March 20. For a minimal cost, we’ll bring our model verbiage, list of must-have policies, experience, and the most current laws and practical tips and work with you to draft or update your handbook to fit your company’s needs. More importantly, you will gain the comfort of knowing your company has a current and compliant handbook and a powerful tool in combating today’s litigious environment.

For more information on this and other upcoming seminars, please click here.

Under California law, non-compete provisions with an employee are generally unenforceable.  Statutory exceptions to this rule include the seller of a business’s goodwill or a membership interest in an LLC.  Courts have also recognized a judicial exception to this rule: where the non-compete is necessary to protect an employer’s trade secret information.  This judicial exception seeks to balance the tension that exists between an employee’s right to mobility versus the employer’s need to protect its valuable business information.

A recent decision from a federal district court in the Northern District of California shows what a fine line it is between permissible and impermissible non-competes.  In Sunbelt Rentals, Inc. v. Victor, 2014 U.S. Dist. LEXIS 14416, a company that operated rental centers sought a preliminary injunction against one of its former employees who had joined a competing company.  In addition to alleging a claim for trade secret misappropriation, Sunbelt accused Victor of breaching his employment agreement which contained a non-compete/non-solicitation provision.  The provision at issue was an agreement by the employee that he would not solicit any customer “who purchased or leased products or services from [Sunbelt] at any time during the 12 calendar months immediately preceding the termination of this agreement for any reason and for or with whom employee had contact, responsibility or access to confidential information related to” the customer.  Sunbelt argued that Victor had breached this provision of his agreement and thus, was entitled to injunctive relief against Victor.

Victor opposed the motion for preliminary injunction by arguing that the “non-compete” provision in his employment agreement was unenforceable under section 16600 of the California Business and Professions Code.  The Court began by recognizing that under this section “covenants not to compete are generally unenforceable” and that this section “represents a strong public policy” of California.  The Court continued by recognizing the three statutory exceptions to 16600 as well as the judicially-created rule that such provisions are not necessarily invalid when “necessary to protect trade secrets.”

Sunbelt attempted to argue that the “non-compete” was enforceable because it only sought to prevent its former employees “from using Sunbelt’s confidential information to solicit Sunbelt’s customers.”  The Court rejected this argument finding that the subject provision was much broader.  The Court noted that it prevented the solicitation of any customers who had done business with Sunbelt during the preceding 12 months, even if that customer was no longer doing business with Sunbelt.  Further, the Court found that the provision would apply if Sunbelt could show that its former employee merely had access to confidential information, not that the former employee had used such information to make the solicitation.

Given this, the Court found that the subject “non-compete” provision went too far and was thus unenforceable under section 16600.  (The Court did find that a contractual provision preventing the former employee from soliciting his former coworkers was, at least at the preliminary injunction stage, valid.)

The Sunbelt opinion once again demonstrates the high level of scrutiny courts apply when an employer accuses a former employee of violating a non-compete contractual provision.  Great care must be exercised in preparing such provisions to ensure that they do not run afoul of section 16600.  Should a court invalidate such a provision, the employer may be left with having to carry a heavier burden to establish that the employee has misappropriated trade secret information in order to prevent the unfair competition.

By:  Brendan J. Begley

A number of recent California appellate decisions reveal hidden traps that may ensnare employers in administrative proceedings involving employee claims for unemployment or workers-compensation benefits. Such proceedings typically appear routine and uncomplicated. Nonetheless, missteps in handling those routine and relatively low-risk claims can greatly increase an employer’s exposure to liability in a separate civil action alleging wrongful termination, harassment, discrimination, retaliation, or similar claims.

Continue Reading Traps for Employers in Routine Unemployment and Workers Comp Proceedings

Sometimes a defendant accused of trade secret misappropriation can defend on the basis that it has “reversed engineered” the alleged trade secret information and therefore did not misappropriate it.  For instance, a defendant may be able to establish that it examined plaintiff’s product and then using its own know-how, time, energy and independent resources was able to recreate, i.e., reverse engineer, the trade secret information at issue such as a manufacturing process, software code, recipe or other trade secret.  It will then be up to the jury to determine whether a plaintiff has in fact proven that the defendant misappropriated its trade secret information or whether the defendant lawfully engaged in reverse engineering.   But what about a trade secret defense on the basis the alleged trade secret information is susceptible to reverse engineering?

In PQ Labs, Inc. v. Yang Qui, et al. (N.D. Cal.), the Court was recently faced with this issue on defendants’ motion for summary judgment to a trade secret misappropriation claim.  PQ Labs manufactures and develops hardware/software for computer touch screen products.  The individual defendants either worked with its sales force or with its manufacturing facility.  The individual defendants later formed a competing touch screen technology company in China and were alleged to have used confidential and trade secret information from PQ Labs to unlawfully compete with it.

The defendants moved for summary judgment as to the trade secret misappropriation claim arguing that the plaintiff had not taken reasonable efforts to maintain the secrecy of its trade secret information.  The plaintiff submitted evidence that it had: (1) instructed the individual defendants not to disclose the subject information; (2) had all of its employees enter into confidentiality agreements; and (3) taken steps to restrict access to the subject information as well as to their facilities.  The defendants argued, however, that plaintiff had not taken steps to prevent the possibility of having its trade secret information “reversed engineered.”  Essentially, the defendants argued that plaintiff’s trade secrets were “susceptible to reverse engineering” and therefore the trade secret claim failed as a matter of law.

Defendants did not offer any evidence that they had in fact “reversed engineered” the information at issue.  Rather, they offered deposition testimony during which one of the defendants opined that: “if you have billions of dollars, you can reverse engineer possibly everything.”

The Court found that this “belief” was insufficient to warrant summary judgment in the defendants’ favor, especially in light of the evidence plaintiff offered as to the steps it had taken to protect the information at issue.  Thus, a defendant in a trade secret case cannot avoid liability merely by arguing that the trade secret information at issue is “susceptible” to reverse engineering.  Rather, a defendant should try to establish that he or she in fact did reverse engineer the trade secret at issue if possible, including being able to demonstrate the steps he or she took, the independent source of information he or she used or referred to, as well as any knowledge unrelated to the claimed trade secret information that may have been utilized.  This could help persuade the finder of fact that no trade secrets were misappropriated.

The San Francisco’s Board of Supervisors has now prohibited the widely used criminal history check box for employment applications. Unless the Mayor vetoes it, the “ban the box” ordinance will become law no later than Thursday, February 13, 2014. In addition to banning the box, the new San Francisco legislation imposes a host of additional new restrictions on the use of criminal history for employment purposes. These restrictions are in addition to those already imposed by the federal Fair Credit Reporting Act (FCRA).

Click here to read the full article.