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.

 

In 2002, Metropolitan Government of Nashville and Davidson County, Tennessee (Metro), began looking into rumors of sexual harassment by one of its employees, Gene Hughes. A member of Metro’s human resources department asked plaintiff Vicky Crawford (a 30-year Metro employee) whether she had witnessed any of Hughes’ “inappropriate behavior.” Crawford, who was not the subject of the investigation and who had not previously complained of sexual harassment by Hughes, responded that Hughes had actually engaged in inappropriate behavior with her, which she described in detail. A few months after the investigation was completed, Crawford was terminated allegedly for embezzlement.

Crawford filed suit against Metro, alleging that Metro retaliated against her in violation of Title VII for her participation in the sexual harassment investigation. To state a prima facie claim for retaliation under Title VII, an employee must show that she either “opposed” a discriminatory employment practice or “participated” in a statutorily covered activity under Title VII. Metro moved for summary judgment arguing that Crawford could not sustain a claim for retaliation because she neither “opposed” a discriminatory employment practice (since she had never complained about Hughes’ conduct) nor had she “participated” in a statutorily covered activity under Title VII. Crawford argued that although she never reported Hughes’ conduct, her response to Metro’s human resources employee during the investigation constituted “protected activity” under Title VII’s prohibition against retaliation because she “opposed” the harassment by describing it in response to her employer’s questions.

The United States District Court for the Middle District of Tennessee entered summary judgment in favor of Metro and the Six Circuit Court of Appeal affirmed. The Supreme Court granted certiorari.

In finding for Crawford, the Supreme Court found that the primary objective of the anti-retaliation provision under Title VII is avoiding harm to employees. The Court held that for the purposes of Title VII’s anti-retaliation provision, an employee can “oppose” discrimination in the workplace by responding to an employer’s question about the discrimination at issue. The Court made clear that in order to “oppose” a discriminatory act, an employee need not engage in “active” or “consistent” resistance to it. In fact, Justice Souter who wrote for the majority, said that the required opposition would encompass “someone who has taken no action at all to advance a position beyond disclosing it.”

Justice Alito wrote a separate concurring opinion emphasizing his understanding that “the Court’s holding does not and should not extend beyond employees who testify in internal investigations or engage in analogous purposive behavior.” Justice Alito stressed that the Court’s holding should not extend Title VII protection to an employee’s “silent opposition” to harassment or to mere conversations with a co-worker “at the proverbial water cooler” that may be subsequently relayed to the employer.
WHAT IS EXPECTED FROM THE RULING?

It is anticipated that the Supreme Court’s holding in Crawford will now open the door for retaliation claims by investigation participants claiming they were “retaliated” against during or after an investigation. The lesson for employers is to treat all information it receives from employees (whether through a report/complaint, or in response to questions during an investigation) seriously and act upon it appropriately. Employees who participate in a workplace investigation should not suffer any adverse employment action because of such participation.

The recent economic lull has lead to increased layoffs across different industries. Employers may be required to give advance notice to affected employees and certain government entities. There are Federal and State laws which discuss the issue of notice owed to employees before large layoffs. The Federal law is known as the Worker Adjustment and Retraining Notification or ‘WARN’ Act. California’s version of the WARN act (AB 2957, the ‘baby’ WARN Act) contains additional provisions employers should be aware of. The baby WARN Act applies to “mass layoffs”, “terminations” and “relocations” at “covered” establishments. There are no regulations interpreting the California version which makes it difficult to understand.

Continue Reading California ‘Baby’ WARN Act may Surface During Recession