On February 17, 2009 President Obama signed the American Recovery and Reinvestment Act of 2009 (“ARRA” or “Recovery Act”) which contains a number of entitlements and obligations affecting the workplace. In order to comply with their new obligations and understand the benefits available to employees or former employees, employers should familiarize themselves with the ARRA promptly. Below is a summary of some of the various employment-related provisions from the ARRA

1.      COBRA Subsidy.

 a.     What is it?

The ARRA provides for a 65% COBRA premium subsidy for certain “assistance eligible individuals.” An “assistance eligible individual” is a COBRA “qualified beneficiary” who meets all of the following requirements:

a.      Is eligible for COBRA continuation coverage at any time during the period between September 1, 2008 and December 31, 2009;

b.      Elects COBRA coverage (when first offered or during the additional election period provided for under the ARRA); and

c.      Has a qualifying event for COBRA coverage that is the employee’s involuntary termination during the period of September 1, 2008 and December 31, 2009.

Continue Reading THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 AND ITS IMPACT ON THE WORKPLACE

In VL Systems, Inc. v. Unison, Inc., the Court of Appeal struck down a “no hire” provision contained in a consulting agreement as violating section 16600 of California’s Business and Professions Code. Section 16600 provides “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.” This past summer, the California Supreme Court in Edwards v. Arthur Andersen used the same reasoning to strike down a “non-competition” provision in an employment agreement.

Raymond Edwards was hired by Arthur Andersen as a tax manager in January 1997. His employment by Andersen was made contingent upon his signing a non-competition agreement which prohibited him from working for or soliciting certain clients for a limited period of time following the termination of his employment. The agreement also prohibited Edwards from soliciting Andersen’s employees who he worked with for an 18 month period following the termination of his employment.

During the next five years, Edwards worked for Andersen and moved into the firm’s private client services group where he serviced the accounts for large income/net worth individuals and entities. However, the U.S. government indicted Andersen in connection with the collapse of Enron in March 2002. Andersen announced in June 2002 that it would cease its accounting practices in the United States. Andersen then sold a portion of its tax practice, including Edwards’ Group, to HSBC. Before hiring of any of Andersen’s employees, HSBC required them to execute a “Termination of Non-Compete Agreement” (“TONC”) in order to gain employment with HSBC. The TONC contained a release of any claims that the employee may have against Andersen and was required to be signed by every employee before the deal with HSBC/Andersen went through. Edwards signed his HSBC employment offer letter but declined to sign the TONC. As a result, Andersen terminated Edwards’ employment and HSBC withdrew its employment offer.

In April 2003, Edwards sued Andersen and others for intentional interference with prospective economic advantage and anti-competitive business practices under the Cartwright Act. After Edwards settled with all parties except Andersen, the Court dismissed all but one of the claims against Andersen and later entered judgment in Andersen’s favor on the remaining intentional interference claim. The trial court found that the non-competition agreement did not violate section 16600 because it was narrowly tailored and did not deprive Edwards of his right to pursue his profession.

 

 

Continue Reading Edwards v. Arthur Andersen LLP: The Death of Non-Competition Agreements?

Businesses, especially consultants, frequently include a no-hire provision in connection with service or consulting agreements. These provisions are usually intended to prevent the client from soliciting or hiring away the consulting company’s employees. No-hire provisions have two primary goals: First, to protect the employees of one business from being recruited away by the companies they provided services to. The second goal is to help retain customers, i.e., if the client business is able to recruit a consulting business’s employees, there would be no further need for the consulting company’s services.
On June 25, 2007, the Court of Appeals for the Fourth Appellate District struck down a “no- hire” provision in VL Systems, Inc. v. Unisen, Inc. (Case No. G037334). Though the VL Systems Court emphasized that there were limitations on the extent of its holding, companies that rely on “no-hire” provisions, and the attorneys who advise them, should take heed of some of the concerns raised by the VL Systems Court.

In 2004, VLS entered into an agreement with Star Trac (a Unisen dba) to provide computer consulting services with regarding a new computer server. The contract was not large and estimated only 16 hours of work by VLS’ consultants. The contract, however, included a 12-month no-hire provision which stated: “BUYER WILL NOT ATTEMPT TO HIRE SELLER’S PERSONNEL. Any hiring or offer of employment entitles but does not require VL Systems, Inc. to immediately cancel the performance period of this agreement.” The “no-hire” provision also contained a liquidated damages clause.

Continue Reading Caution Regarding “No-Hire” Provisions

A California appellate court was recently faced with the issue of when the statute of limitations runs on a claim for trade secret misappropriation against a third party when the plaintiff’s trade secrets are stolen and sold to that third party. On May 30, 2008, the appellate court issued its opinion in Cypress Semiconductor Corporation v. Superior Court (Silvaco Data Systems) and held that the statute of limitations on a cause of action for trade secret misappropriation begins to run when the plaintiff has reason to suspect that the third party knows or reasonably should know that the information in its possession is a trade secret. The appellate court held that the third party’s actual state of mind did not matter for purposes of the running of the statute of limitations.

Silvaco develops and licenses electronic design automation software. This software allows its customers to design their own software products. Silvaco created a software product known as SmartSpice and maintained that its source code was a trade secret.

In late 1998, a former employee working for a competitor incorporated the SmartSpice trade secrets into a product called DynaSpice. Silvaco began to suspect in 2000 that its trade secrets had been misappropriated and sued both the former employee and the competitor. However, Silvaco did not take any action to notify any of its competitor’s customers who had licensed DynaSpice for their own use.

In August 2003, Silvaco and the competitor entered into a settlement agreement and stipulated judgment. The competitor agreed to stop licensing DynaSpice and to inform its customers that the DynaSpice software contained Silvaco’s trade secrets and that they should terminate their use of DynaSpice. Cypress Semiconductor, one of the competitor’s customers, learned of the judgment in late August 2003.
 

Continue Reading Third Party Trade Secret Misappropriation and the Statute of Limitations

In his first significant act as President in the labor and employment arena, President Obama effectively overturned the United States Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co. by signing the Lilly Ledbetter Fair Pay Act (“Ledbetter Act”) into law this Thursday. The main thrust of the Ledbetter Act is that it “resets” the statute of limitations for wage claims based on discrimination each time an employee receives a paycheck affected by the alleged discriminatory practice.

Background
Lilly Ledbetter worked for her employer, Goodyear, for 19 years. She accused Goodyear of gender discrimination under Title VII on the grounds that, throughout her almost 20 career, she was consistently paid less than male employees who were similarly situated. The Supreme Court found that Ledbetter’s Title VII action was time-barred; holding that the statute of limitations starts running under Title VII when the employer makes the original discriminatory pay decision. The Court rejected Ledbetter’s argument that her claim was “refreshed” each time she received a paycheck affected by Goodyear’s discrimination.

The Ledbetter Act

The Ledbetter Act “resets” the statute of limitations for wage claims based on discrimination (in any form recognized by federal law) each time an employee receives a paycheck affected by the alleged discriminatory practice. Moreover, the Act defines “unlawful employment practices” broadly to encompass any practice that affects an employee’s compensation.

Bottom Line

Given the speed of which this new administration was able to push through this fairly substantial legislation, employers should anticipate continued robust efforts from Washington to further bolster employee protections in the coming months.

What Steps Should Employers Take?

While it will likely take some time for the courts to interpret the new law and provide guidance for employers to take steps to avoid litigation, there are a few initial steps employers should consider taking now:

  • Examine compensation policies to ensure they do not discriminate on the basis of a protected class or protected activity.
  • Work with employment counsel to structure and conduct a self-audit of compensation practices and discuss best practices for retention and destruction of compensation records.
  • Train supervisors and managers regarding proper and improper considerations when making discretionary compensation decisions.