By:  Chuck Post

In Vance v. Ball State University, the Supreme Court clarified a long open question, “Who is a supervisor under Title VII?” The question is important because employers are directly responsible for employee harassment by a supervisor. In the case of worker harassment of a co-worker, however, employer liability is less direct. In the last 15 years, a split has developed in lower courts. One group of courts has held that a supervisor is someone who directs and oversees an employee’s daily work, while other courts have held that a supervisor is someone who has the authority, on behalf of the employer, to hire, fire, demote, transfer or discipline the employee.

The Supreme Court has clarified that split, finding in favor of those who define supervisor as someone who is “empowered by the employer to take tangible employment actions” against a complaining employee. Practically speaking, that means that a supervisor (for purposes of Title VII) is someone who has the power to hire, fire or discipline an employee. This is good news for employers.

By:  Chuck Post

In University of Texas Southwestern Medical Center v. Nassar, the Supreme Court held that employees must show that “but for” the employer’s desire to retaliate, the employee would not have suffered an adverse action (demotion, termination, etc.) against him/her. Lower courts had been split over whether the “but for” standard was the correct one or whether employees could prove retaliation under a “mixed motive” standard that would require proof only that the improper motive was one of several reasons for the employer’s adverse action against the employee.

That ambiguity is now resolved. In order to prevail on a retaliation claim under federal discrimination statutes, a plaintiff must demonstrate that, absent his or her protected activity, the adverse employment action would not have occurred. This is good news for employers.

Section 16601 of the California Business and Professions Code provides a well-known exception to California’s statutory refusal to enforce contractual commitments not to compete.  Under that section, Courts will enforce “reasonable” restrictions on the seller of a business to engage in competition against the buyer of that business.  This is a commonsense approach: a buyer of goodwill should be able to protect the value of what it has purchased from future competition from the seller  – even when the seller of the business goes to work for the buyer as an employee.

Here, a routine situation is:  A company buys a business and employs the seller to assist in a smooth transition of customers and operations.  Sometimes the employment will last months and sometimes it lasts for decades.  That variability can confuse buyer/employers:  they know that, once they employ the seller, they have effectively prevented the seller from competing while the buyer employs him/her (both self-interest and the duty of loyalty that employees owe their employer usually prevent that).

But the seller wants something to protect it after the employment ends.  For that reason it is common for buyers to place covenants not to compete in both the purchase agreement and the documents reflecting the employment.  The covenant not to compete in the purchase agreement runs from the closing of the sale, and the covenant not to compete in the employment agreement runs from the termination of employment.

But buyers who employ a seller should be aware of the limits on their ability to restrict the seller employee’s future competition. Some years ago, the Court in Strategix, Ltd. v. Infocrossing West, Inc.  (2006) 142 Cal.App.4th 1068, made clear that the 16601 exception will only permit restriction of the seller’s ability to solicit his/her former customers. If the seller goes to work for the buyer and then leaves, the Court will not enforce a restriction against solicitation of customers that were not part of the business sold by the seller employee.  The buyer cannot bootstrap its existing or later acquired customers into the exception.

More recently, the Court in Fillpoint, LLC v. Maas (2012) 208 Cal. App.4th 1170 found that a second, separate covenant not to compete contained in an employment agreement was unenforceable. The first covenant had been contained in the sale document but it had expired by the time the seller terminated his employment.

Attorneys drafting such agreements (and the parties they represent) should pay attention to the rules articulated in these and other cases.  Properly drafted to fit within these limits (to only limit competition that would diminish the value of the business sold), a covenant not to compete can last for a substantial period of time after the seller leaves the employment of the buyer.

Strategix and Fillpoint teach us, however, that the difference between an enforceable and unenforceable restrictive covenant often lies in the drafting.

By:   Duyen T. Nguyen

Civil Code §52.6 requires specified businesses and other establishments, as of April 1, 2013, to post a notice informing the public and victims of human trafficking of telephone hotline numbers to seek help or report unlawful activity. There are specific posting mandates, language requirements, and penalties for failure to post.

Continue Reading Certain Businesses Must Post Public Notices Regarding Rights of Victims of Human Trafficking

Everybody who cares probably knows that, in California, covenants not to compete (agreements that restrain an individual from pursuing a lawful trade of profession) are generally unenforceable.  There are only five “exceptions” to this rule.  I put “exceptions” in quotes because two of them really aren’t exceptions at all. They are independent legal doctrines that run parallel to and (sometimes) trump California’s rule against covenants not to compete. The rules prohibiting these covenants are codified at section 16600 of California’s Business and Professions Code.

The statutory exceptions to that rule are found in the next three sections of the code and allow restrictions when: 1) the goodwill (or the entirety of someone’s interest) in a business is sold; 2) a partner leaves a partnership; or 3) a member leaves a Limited Liability Company.  The two other “exceptions” are restrictions on competition that arise from a legitimate effort to protect bona fide trade secrets and when, on rare occasions (due to the terms of a contract and the interaction of state and federal law), California must enforce an injunction against competition obtained in another jurisdiction.

These five paths to an enforceable covenant not to compete are each worth a long chapter in a fat book.  They are all the subject of substantial case law and legal commentary.  In many cases, the outer limits of these exceptions have not been fully defined.   When obtaining an enforceable covenant not to compete is important, these “exceptions” should be carefully considered.

At the outset of a business transaction, or when an enterprise is formed, there is a lot that knowledgeable actors can do to make a business fit within the sometimes murky limits of these exceptions.  While California law is filled with examples of judicial hostility to sham business arrangements designed to evade section 16600, California courts will and do enforce covenants that meet the requirements of a recognized exception.

To be sure, restraining employees against future competition in California isn’t easy.   But it is not impossible.