By:  Lizbeth V. West, Esq.

On June 10, 2013, the Seattle City Council unanimously passed a new city ordinance called the “Job Assistance Bill.” The new ordinance applies to employers of all sizes, including temporary and staffing agencies.

Continue Reading Seattle Employers Beware: Use of Arrest and Conviction Records In Employment Decisions May Violate the City’s New Job Assistance Bill

Join Weintraub Tobin’s attorney Beth West who will be speaking at the Yuba/Sutter/Colusa EAC’s seminar on Friday, June 21, 2013.

The Topic:
Labor Law, Hiring and Firing, and Conflict Management

Time:
8:00 a.m. – 12:00 p.m.

Location:
Peachtree Golf & Country Club
2043 Simpson Dantoni Road
Marysville, CA 95901

For additional information and to register, click here.
 

The Cruel Lessons of Wanke, Industrial, Commercial, Residential, Inc. v. Keck  (2012) 209 Cal.App.4th 1151

By:      Charles L. Post

Defendants in trade secret and unfair competition cases often have fewer resources than the plaintiff companies that bring them.  This is often the case in “classic” trade secret misappropriation scenarios: former employees form a new company to compete against their former employer.  The former employer sues alleging that the new company is unfairly using the former employer’s customer information.  The former employer runs to court seeking injunctive relief and burdening the new company with enormous legal fees.   Faced with such a threat, many defendants are tempted to agree to almost anything to get rid of the lawyers.  Often those settlements include stipulated injunctions that prohibit the defendants from doing business with the former employer’s customers.  These are settlements that defendants can later come to regret.

In Wanke v. Keck, a water proofing systems company sued two former employees and their new company WP Solutions for misappropriation of trade secrets and unfair competition.  The defendant settled, agreeing to pay the plaintiff $38,000 and stipulating to the issuance of an injunction which prohibited the defendants from “contacting or soliciting any person, entity, project owner or representative” on a customer list attached to the stipulation.  The Court entered the injunctive relief order and the case settled.  Several years later, Wanke moved to enforce the settlement agreement and hold the defendant in contempt for violation of the stipulated injunction.  At the hearing on these applications in the trial court, Keck and the other defendants defended on the grounds that the stipulated injunction was invalid, constituting an invalid agreement not to compete in violation of California’s Business and Professions Code section 16600.  Keck had a point.  In California, except where based on use of trade secret information, agreements between competitors not to compete or solicit particular customers are generally invalid.  Based on that reasoning, the Court found that Keck and the other defendants were not in contempt of violating the stipulated injunction.

The Wanke case contains many interesting holdings (including a fascinating conclusion that a trial court’s “acquittal” of a person accused of criminal contempt can never be reviewed by a court of appeal without violating the U.S. Constitution’s prohibition against double jeopardy).  Most important, however, is the Court’s decision that a stipulated injunction will be binding absent a showing that the Court lacked jurisdiction to issue the injunction in the first instance.

Among other things, the Court held that a party may successfully defend against the enforcement of an injunction on the ground the injunction is invalid only in the narrow circumstance in which the party can demonstrate that the injunction was beyond the trial court’s jurisdiction to issue it.  Thus, even an injunction which is offensive to California law, when issued by force of the parties’ stipulation to its issuance, will remain enforceable unless the issuing court lacked subject matter jurisdiction to issue the injunction in the first place.  In plainer language, what this means is that if you stipulated to an injunction, even if that injunction is overbroad or subject to numerous legal challenges as to its scope and enforceability, those objections will be waived forever once the party stipulates to it.

Defendants eager to escape the costs and pressures of a trade secret misappropriation or unfair competition lawsuit should think carefully about entering into a stipulated injunction in order to end a lawsuit.  It is all too easy for a defendant in that circumstance to rapidly agree “not to use anything of theirs” without realizing that the issuance of a stipulated injunction is a hammer that the former employer may hold over the head of the former employee for the term of the injunction.  Defendants are well advised to think long and hard about giving their enemies such a weapon.

In a little publicized letter of interpretation, dated April 5, 2013, the Occupational Safety and Health Administration (OSHA) announced for the first time that during an OSHA inspection of non-union worksites, employees can be represented by anyone selected by the employees including outside union agents. In so doing, the letter, issued to the Steelworkers Union earlier this year, OSHA Deputy Assistant Secretary Richard Fairfax gave the green light to allowing union officials and community organizers to serve as the “employee representative” and thus accompany OSHA inspectors when doing inspections of non-union workplaces. This development provides a welcoming open door to many union organizers in those industries sought after by labor organizations.

For a more detailed discussion of OSHA’s new interpretation, as well as some suggestions for employers dealing with this change, click here.

Courts are reluctant to protect customer lists when they consist of information from public sources (such as business directories).  (Morelife, Inc. v. Perry (1997) 56 Cal.App.4th 1514, 1521-1527.)  On the other hand, where the employer has expended time and effort identifying customers with particular needs or characteristics, courts will prohibit former employees from using this information to capture a share of the market.  Such lists are to be distinguished from mere identities and locations of customers where anyone could easily identify the entities as potential customers.  As a general rule, the more difficult information is to obtain, the more time and resources expended by an employer in gathering it, the more likely a court will find such information constitutes a trade secret.  The requirement that a customer list must have economic value to qualify as a trade secret has been interpreted to mean that the secrecy of this information provides a business with a “substantial business advantage.”  (Morelife, supra, at 1521-22.)

In sum, not all customer lists are trade secret.  Lists maintained as secret, however, that would give a competitor a “head start” in identifying potential customers likely constitute a trade secret under California law.