Fair Pay Amid Today's Sexual Harassment Deluge

When two female comedians ran out of the room rather than endure Louis CK’s self-indulgent naughty nonsense, his manager told them to keep their mouths shut.  Funny, since Louis CK’s comedic genius often springs from telling stories that no one else talks about.  But they didn’t shut up.  I guess they decided they didn’t have to put up with it.

After I passed the California bar, I took a contract job with a small San Francisco firm, working on a class action wrongful termination.  A few months later, the firm interviewed for a second contract attorney to help with the increasing number of plaintiffs.  After one candidate left, I heard one partner crowing to the other: “this guy went to Duke (not to one-up, but I went to Dartmouth) and he’s willing to work for only $50 an hour (my hourly was $35).”

Hopping mad, I stormed into the office and asked why they offered the new guy more money.  Explanation: he spoke fluent German and in fact had a Ph.D in German literature.  Of course!  The ability to read Goethe in the original gave him a critical edge in preparing an employment action for trial in California.  So I shut up and trained this Siddhartha scholar to do the same thing as me.

Flash forward twenty years.  Last week a young woman signed a representation agreement with Louderback Law Group to file a complaint under the California Fair Pay Act.  At her former firm, she trained a new guy how to do her job.  After the firm canned her, she got wind of the fact that his salary exceeded hers by $100K.  Unlike the younger, quieter [Because I think the theme here is silence vs. speaking out) version of me, she won’t shut up.  And she knows the law is on her side.

AdobeStock_143188238.jpeg

On October 7, 2015, Governor Jerry Brown signed the strictest equal pay act in the United States.  California Labor Code section 1197.5 prohibits an employer from paying men less than woman for substantially similar work, when viewed as a composite of skill, effort and responsibility and performed under similar working conditions (barring certain specific exceptions),  even if the job titles are different or they work in different offices under the same employer. 

The employer has defenses available, of course.  Permitted difference in pay may be based on a seniority system, a merit system or a system that measures earnings by quantity or quality of production. But a bona fide factor other than sex will apply only if it is job related with respect to the position in question and is consistent with a “business necessity.”  In other words, a German literature degree, in most cases, won’t get the employer off the hook.

More and more women are deciding not to shut up and put up these days.  And thanks to Governor Brown, women seeking justice for being paid less than their male counterparts can also recover retroactive pay discrepancies, interest, costs and reasonable attorney fees.  It will take both men and women across society, as well as some necessary legal action, to change the culture of treating women as lesser than.  However, with the help of the Fair Pay Act and the tidal wave of women coming out against the behavior of many notable men across society, ultimately changing the dynamics of male entitlement going forward seems like a reality, finally. 

-Lynn Hollenbeck, Associate Attorney LLG

Business Valuation Disputes and Valuation Standards

Business valuation issues are often front and center in a wide variety of civil litigation matters.  For example, business valuation issues can arise when determining the value of a departing owner’s interest in a business entity or when dividing community property assets.  Whether attacking an opposing expert’s valuation methodology, advocating for a favorable remedy for a plaintiff, or persuading the Court in relation to the appropriate valuation standard to be applied, the nuances of business valuation concepts present a host of complex issues and pitfalls for the unwary practitioner.

A Continuum of Different Business Valuation Standards

There exists a wide continuum of different valuation standards.  At one end of the spectrum, is the liquidation valuation standard which assesses the value based on either an orderly sale or quick sale of the business assets.  At the other far end of the business valuation continuum, is synergistic value which takes into consideration the enhanced value from the combination of new assets which have a higher value than the sum of the individual assets. 

Photo by wildpixel/iStock / Getty Images
Photo by wildpixel/iStock / Getty Images

Between these two extremes, are other more common business valuation standards, such as fair market value, fair value and investment value.  The application of these valuation standards can yield considerably divergent valuation conclusions.  As such, it is imperative that a business valuation appraiser be given a clear valuation assignment that includes an identifiable business valuation standard.  As the example described below demonstrates, the absence of clear valuation assignment parameters can lead to ambiguity and ultimately to disputes about business valuation standards.

The Need for Certainty as to the Appropriate Valuation Standard to be Applied

The Louderback Law Group was recently involved in a dispute involving the valuation of a departing shareholder’s interest in a closely held corporation in the technology services industry.  The dispute centered around the interpretation of language in the corporation’s shareholder agreement which established a procedure triggered by the departure of a shareholder for appointed appraisers to ascertain the value of the departing shareholder’s ownership interest.  Here, the shareholder’s agreement was drafted in an ambiguous manner and failed to specify which valuation standard was to be applied.  Adding to this ambiguity, the definition of various standards of value can vary between jurisdictions and even between different professional accounting and valuation societies.  Accordingly, a contractual instrument that sets forth a mechanism for conducting a business valuation should identify the specific valuation standard to be applied with reference to a discernible authority for guidance. 

Without guidance as to the appropriate valuation standard to be applied, the two appointed appraisers applied different valuation standards which resulted in widely disparate valuation conclusions.  Notably, the appraisers’ divergent valuation conclusions were a result of the inconsistent application of minority and marketability discounts.  A minority discount is applied to compensate for a lack of control of the corporation and a marketability discount is intended to compensate for difficulties associated with liquidating the assets of private and closely held corporations.  The application of minority and marketability discounts to the valuation of a closely held corporation can have an enormous impact on the final valuation conclusions.

In this matter, the ambiguity and lack of guidance as to the appropriate standard of value to be applied in the shareholder’s agreement opened the door for various compelling arguments on behalf of our client.  First, we argued that at the time the shareholder’s agreement the parties did not intend for minority or marketability discounts to be applied, and the parties’ intent was controlling in the absence of clear guidance in the shareholder’s agreement.  We also highlighted the parties’ conduct after the shareholder’s agreement was executed as further proof that the parties had intended for an equal distribution of all assets. 

Further, we relied on California law to support our client’s position that the application of a minority or marketability discount was improper. California law has repeatedly rejected the application of a minority discount in the context of corporate dissolution proceedings involving closely held corporations because doing so could contribute to the oppression of a minority shareholder.  Additionally, California courts have found that a discount for lack of control is inapplicable when the shares are being purchased by someone who is already in control of the corporation or by the corporation itself.  We relied on these authorities to argue that the application of a minority or marketability discount would lead to an inequitable result.  In addition to these arguments, we were able to attack the opposing appraiser’s valuation report in relation to its input data, methodology and conclusions.

A Successful Result for Our Client

Ultimately, we were able to obtain an excellent result for our client.  As this example demonstrates, experienced legal counsel is critical to navigate the complexities and nuances of disputes involving business valuation issues.  A comprehensive understanding of these concepts can ultimately be the difference between a successful and unsuccessful result.

This content is made available by Louderback Law Group for informational purposes only, not to provide specific legal advice. This information contained herein should not be used as a substitute for competent legal advice from a licensed counsel.

What Does California’s Legalization of Marijuana Mean for Employers?

Photo by BruceStanfield/iStock / Getty Images
Photo by BruceStanfield/iStock / Getty Images

California Proposition 64 has passed and now recreational use of marijuana is legal in the state. However, the new legal status of marijuana is not expected to affect employer workplace drug policies.

Proposition 64 legalized the recreational use of marijuana for adults aged 21 years or older. Smoking is permitted in a private home or at a business licensed for on-site marijuana consumption. An individual is permitted to possess up to 28.5 grams of marijuana, and an individual is permitted to grow up to six plants within a private home.

The new law’s effect on the rights of employers is explicitly addressed in the statute itself. Proposition 64 provides that the intent of the new law is to permit “[a]ll public and private employers to enact and enforce workplace policies pertaining to marijuana.” The statute goes on to state that the legalization of marijuana use shall not affect:

-    the rights and obligations of public and private employers to maintain drug and alcohol free workplace, or
-    require an employer to permit or accommodate the use, consumption, possession, transfer, display, transportation, sale or growth of marijuana in the workplace, or
-    affect the ability of employers to have policies prohibiting the use of marijuana by employees and prospective employees, or
-    prevent employers from complying with state or federal law. 

Neither federal nor California law prohibit making employment decisions based on marijuana use. Employers will still have wide discretion to decline to hire, to discipline and even to terminate a job applicant or employee who tests positive for marijuana (subject to laws restricting an employer’s ability to require employee drug tests). Additionally, since marijuana is still illegal under federal law, employers are not obligated to permit a disabled employee to be under the influence of marijuana at work as a reasonable accommodation.  

This content is made available by Louderback Law Group for informational purposes only, not to provide specific legal advice. This information contained herein should not be used as a substitute for competent legal advice from a licensed counsel.

Reminder to San Diego Employers: Deadline to Issue Minimum Wage & Sick Leave Notice is October 1, 2016

The deadline to comply with the notice requirement of City of San Diego’s Earned Sick Leave and Minimum Wage Ordinance (“Ordinance”) is October 1, 2016. Employers subject to the Ordinance are required to issue existing employees a written notice of the employer’s name, address, and telephone number, the legal requirements under the Ordinance and information about how the employer satisfies the requirements of the Ordinance. Employers should ensure timely compliance with this notice requirement to avoid being exposed to the Ordinance’s civil penalties.

Photo by CoCam/iStock / Getty Images
Photo by CoCam/iStock / Getty Images

 Background of the Ordinance

The Ordinance became effective on July 11, 2016. It is applicable to employees who perform at least two (2) hours of work in one or more calendar weeks of the year within the geographic boundaries of San Diego. 

Pursuant to the Ordinance, all employers must pay each employee wages not less than $10.50 for each hour worked within the geographic boundaries of the City. The City of San Diego minimum wage will increase to $11.50 on January 1, 2017.

The Ordinance also requires that employers provide each employee earned sick leave. Employees must accrue no less than one (1) hour of earned sick leave for every thirty (30) hours worked within the geographic boundaries of the City. Employers may cap the total accrual of sick leave at eighty (80) hours. However, any unused accrued sick leave must be carried forward to the following benefit year.

Alternatively, employers may satisfy the accrual and carry over requirements if no less than forty (40) hours of earned sick leave are awarded to an employee at the beginning of each benefit year. Employees may use earned sick leave for reasons described in the Ordinance, including but not limited to, time for their own medical care or medical care of a family member or for specified purposes in cases of domestic violence or for specified purposes in cases of facility closures in events of public health emergencies.

 The Ordinance’s Posting and Notice Requirements

 Employers must post in a conspicuous place at the workplace, the minimum wage notice and earned sick leave notice published each year by the City of San Diego.  Additionally, every employer must also provide each employee, at the time of hire or by October 1, 2016, whichever is later, written notice of the employer's legal name, any fictitious business name, address, telephone number, the employer's requirements under the Ordinance, and information on how the employer satisfies these requirements including the employer's method of earned sick leave accrual. 

 To satisfy the notice requirement, employers may use a template published by the City of San Diego. That template can be found here: https://www.sandiego.gov/sites/default/files/tr_final_esl_mwo_employer_notice_to_employee_9-2-16.pdf

 An employer who fails to comply with the posting and notice requirements of the Ordinance is subject to a civil penalty of $500 for each employee who was not given appropriate notice, up to a maximum of $2,000.

This content is made available by Louderback Law Group for informational purposes only, not to provide specific legal advice. This information contained herein should not be used as a substitute for competent legal advice from a licensed counsel.

The California Fair Pay Act: What Businesses Can Do to Prepare and Comply

On October 6, 2015 the California Fair Pay Act (SB 358) was signed into law to much fanfare. Politicians from both sides of the aisle lauded the new law as a bold step towards the noble goal of eliminating gender income inequality. In a signing ceremony, Governor Brown celebrated California for leading the nation on this important issue and national media outlets praised California for enacting the toughest gender pay law in the Country. Despite the undeniable importance of the gender income equality issue, the California Fair Pay Act is not without its critics who suggest that new law would create an unpredictable environment for business and incentivize companies to move their operations out of California. This critique is not without merit as there exists a tremendous degree of uncertainty as to how California Courts will ultimately interpret and apply the new Fair Pay Act.

Photo by Gutzemberg/iStock / Getty Images
Photo by Gutzemberg/iStock / Getty Images


California has had a gender wage protection law on the books since 1949 in the form of the California Equal Pay Act (Cal. Lab. Code § 1197.5). Unfortunately, this law has significant limitations and consequently was seldom used by victims of gender based wage discrimination. One limitation that was addressed by the new Fair Pay Act was the expansion to the “substantially similar work” standard. The former Equal Pay Act prohibited gender based wage discrimination for employees for “equal work.” The new law expands this concept to apply to “substantially similar work.” This expansion will seemingly eliminate the distinctions that employers could rely on to justify differences of salary between employees with comparable, but not identical job duties. In a further expansion, the Fair Pay Act eliminated the “same establishment” language that confided the former Equal Pay Act to a comparison of the employees within a single physical location to include employees spread across a company with multiple locations.


The Fair Pay Act also sets forth an affirmative duty for the employer to establish that a gender wage differential is based on a seniority system, a merit system, a system that measures earning by the quantity or quality of employee production or a “bona fide factor other than sex.” The “bona fide factor other than sex” analysis is only available when there is an overriding “business necessity”. Further, the “bona fide factor other than sex” defense is not available to an employer when there exists an alternative business practice that would serve the same function without contributing to the gender wage differential.


Perhaps the most powerful component of the new Fair Pay Act, lies in the Legislature’s attempt to pull back the veil of pay secrecy to shed light on wage gender inequality. The Fair Pay Act explicitly protects an employee who discloses, discusses, or inquiries about the wages of their co-workers for the purpose of enforcing their rights under the Fair Pay Act from retaliation or discrimination. Proponents hope that this will empower employees to inquire about wage discrepancies and get the information they need to assert their rights under the Fair Pay Act.


There are important steps that California businesses can take to minimize their exposure to litigation under the Fair Pay Act. At the outset, California business should conduct a comprehensive organizational audit. The purpose of this audit is to identify all “substantially similar” positions by assessing the various commonalities that exist between positions, including but not limited to, skill, working conditions and responsibilities. These findings should be compiled and incorporated into a detailed salary survey and written wage setting program. If a gender wage discrepancy is discovered, an examination of all systems and “bona fide factors other than sex” that contribute to the discrepancy should be conducted and documented.


Employee handbooks should be modified to inform employees and management of the provisions of the new Fair Pay Act. Specifically, all employees should be informed in writing of their right to inquire as to the compensation of their co-workers without fear of retaliation or discrimination. Procedures must also be put in place to ensure that company document retention policies comply with the Fair Pay’s Act requirement that job descriptions, wage reports and compensation records are maintained for at least three years.


Given the lack of definitions included within the new Fair Pay act for terms such as “substantially similar work” and “similar working conditions”, business owners and employment attorneys will be navigating unchartered waters after the Fair Pay Act takes effect on January 1, 2016. Time will tell how California Courts apply the new law. However, California business owners can protect themselves by proactively taking steps to comply with the Fair Pay Act and establish systems that minimize their potential exposure to litigation.

If I Get Sued because of Something that Happened at Work Does My Employer Have to Pay for My Defense?

If an employee is sued for acts that were done within the course and scope of their employment, their employer is required to pay for any reasonable and necessary legal fees incurred in defending the lawsuit. This also includes the paying of a judgment if one is entered against the employee. (Cassady v. Morgan, Lewis & Bockius (2006) 145 Cal. App. 4th 220, 230.)

“California has a strong public policy that favors the indemnification (and defense) of employees by their employers for claims and liabilities resulting from the employees' acts within the course and scope of their employment.’ [Citation.] ... [S]ection 2802 codifies this policy and gives an employee a right to indemnification from his or her employer.” (Nicholas Laboratories, LLC v. Chen (2011) 199 Cal.App.4th 1240, 1247 quoting Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 952.)

Photo by zest_marina/iStock / Getty Images
Photo by zest_marina/iStock / Getty Images

This policy is codified in California Labor Code section 2802 which provides a basis for an employee to recover “necessary expenditures or losses” incurred in the course and scope of their employment. (a) An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful...(c) For purposes of this section, the term “necessary expenditures or losses” shall include all reasonable costs, including, but not limited to, attorney's fees incurred by the employee enforcing the rights granted by this section. (Cal. Lab. Code § 2802) The employee has a burden of establishing that law with is based on conduct that occurred within the course of employment. (Cassady, supra, 145 Cal. App 4th at 224-225.)

Any activity that is found to be incidental to the employment enterprise is generally found to have been within the course of scope of employment. In determining whether an activity was in the course and scope of employment, California courts will determine if the conduct was foreseeable form the employee’s duties. (See Lisa M. V. Henry Mayo Newhall Memorial Hospital (1995) 12 Cal. 4th 291, 298-299.)

If you, or one of your employees, are faced with a lawsuit as a result of actions taken in the course of employment, call the Louderback Law Group today for a free consultation with one of our experienced employment attorneys.

Is Insurance Coverage Available for Trade Secret Litigation?

An accomplished employee leaves to start her own business, and rapidly succeeds in attracting customers.  Although California favors employee mobility, she and her new company are sued by her former employee for trade secret misappropriation.  As the employee and her company face the immediate threat of a motion for preliminary injunction and temporary restraining order, the potential of insurance coverage to defend against the action may be overlooked. 

The existence of coverage for matters involving trade secret violations rests on the express language of the particular insurer’s policy form.  Coverage for trade secret litigation has developed over the last twenty years through interpretation of the “advertising injury” coverage found in a comprehensive general liability policy.  Traditionally, such policies have defined “advertising injury” as injury other than property damage or bodily injury that arises out of several enumerated offenses.  Amongst these offenses is “misappropriation of advertising ideas or style of doing business.”  Such policies also require that the misappropriation occur “in the course of advertising activities.”  As the terms “advertising ideas” and “style of doing business” were usually not defined in the policy, over the years, the courts have interpreted these terms with varying results in examining the availability of coverage for trade secret misappropriation claims. 

In Syntex Systems, Inc. v. Hartford Accident & Indemnity Co., 93 F.3d 578 (9th Cir. 1996), the Ninth Circuit held that allegations that Syntex’s key sales representative used its trade secrets (customer lists, marketing techniques and billing methods) to solicit Syntex’s former customers while working for a competitor fell within the scope of“misappropriation of advertising ideas.”  While the insurer argued that the term “advertising ideas” had to involve the theft of the actual words or form of an advertisement, the court disagreed, concluding that “advertising cannot be limited to written sales materials, and the concept of marketing includes a wide variety of direct and indirect advertising strategies.”  (93 F.3d at 580.)

In the case of Hameid v. National Fire Insurance, 31 Cal. 4th 16 (2003), the California Supreme Court was faced with the issue of advertising injury coverage for a case also involving use of a competitor’s customer list to solicit customers.  Again, the term “advertising” was undefined.  Here, the Court seized on the term “advertising” and held that there had to be “widespread promotion to the public such that one on one solicitation of a few customers does not give rise to the insurer’s duty to defend the underlying lawsuit.”  Since there were only one-on-one solicitations of customers involved in the alleged misappropriation, the Court concluded that there was no duty to defend.

Photo by guvendemir/iStock / Getty Images
Photo by guvendemir/iStock / Getty Images

In We Do Graphics, Inc. v. Mercury Casualty Company, 124 Cal. App. 4th 131 (2004), another case involving undefined terms, the court similarly concluded that the use of stolen customer information to solicit a former employer’s customers did not constitute “advertising injury.”  It further concluded that the stolen customer information did not qualify as “advertising ideas.”

In recent years, some insurers have modified their policy forms to define the term “advertisement” more explicitly to encompass both traditional and developing means of advertising communications.  Others also now define the terms “advertising injury,” and “advertising ideas”, which has had the effect of narrowing the scope of coverage for trade secret and related claims. 

At issue in The Oglio Entertainment Group, Inc. v. Hartford Casualty Insurance Company, 200 Cal. App. 4th 573 (2012) was a newer policy form that defined “advertising injury” as injury arising out of “[c]opying, in your ‘advertisement’ a person’s or organization’s ‘advertising idea’ or style of ‘advertisement.’”  Borrowing language from the Hameid decision, the term “advertisement” was defined to mean “the widespread public dissemination of information or images that has the purpose of inducing the sale of goods, products or services through radio, television, billboard, magazine, or newspaper, as well as “[t]he internet, but only that part of a web site that is about goods, products or services for the purpose of inducing the sale of goods, products, or services” and “[a]ny other publication that is given widespread public distribution.”  The policy also defined “[a]dvertising idea” as any idea for an advertisement.  (200 Cal. App. 4th at 582-583.)

The underlying case in Oglio involved a recording artist’s complaint that his former record label sought out other recording artists to record “lounge-style” versions of popular music and released competitive versions which diverted sales away from the plaintiff’s own album.  The plaintiff sued for breach of contract, violation of his right of publicity, and intentional interference with prospective economic advantage.  Although no trade secrets were at issue in this case, the case is instructive for its application of the newer version advertising injury coverage language.  In Oglio, the court concluded that no advertising coverage was available insofar as there was no allegation that Oglio had copied, in an advertisement, the plaintiff’s advertisement or style of advertisement, only that Oglio had solicited other artists to copy the plaintiff’s product, and later sold a competing product.  Notably, the court observed that there would have been a better argument in favor of coverage under the earlier Hartford policies, which did not define “advertising,” on the grounds that infringement of trade dress qualified as “misappropriation of advertising ideas or style of doing business.  (200 Cal. App. 4th at 585, fn. 7.)

In the case of S.B.C.C, Inc. v. St. Paul Fire & Marine Insurance Company, 186 Cal. App. 4th 383 (2010), not only was “advertising” defined, but also “advertising injury” and “advertising idea.”  Moreover, the policy had what the court termed a “controversial” exclusion that precluded coverage for injury or damage that result from any actual or alleged violation of trade secret laws, amongst other intellectual property violations, and precluded coverage for “any other injury or damage that’s alleged in any claim or suit which also alleges any such infringement or violation.” The underlying suit alleged that a project manager had taken confidential information about his construction company employer’s existing customers to a competitor, including details about ongoing “design build” contracts, and had used the information to solicit customers.  At issue were claims for misappropriation of trade secrets, intentional interference with prospective economic advantage and unfair competition. (186 Cal. App. 4th 383, at 386.)

The definition of “advertising” required the insured to have been “attracting the attention of others” with a purpose of “seeking customers or supporters” or “increasing sales or business.”  In finding that there was no coverage, the court observed that because the customers were already doing business with the project manager at his former employer, there was no need to be “attracting the attention of others,” and his solicitation of them did not constitute “advertising.”  (186 Cal. App. 4th at 393.)  The court also concluded that there was no information that the customer information and project details were being used in any advertising.  Moreover, the court concluded that no “[u]nauthorized use of any advertising idea” was implicated under this policy where the advertising idea consists of “information used to identify or record customers or supporters, such as a list of customers or supporters.”  Because the project manager was personally soliciting customers through use of lists and project details that the company had developed with developers and subcontractors, the project manager was not using his former employer’s advertising ideas or its advertising material.  (Id. at 394.)  Finally, the court upheld the intellectual property exclusion as clear and explicit, and precluding coverage for all claims asserted in the litigation.  (Id. at 396-397.)

These recent cases illustrate the means by which insurers have sought to narrow availability of insurance coverage for trade secret litigation.  Nonetheless, these cases also underscore the importance of examining the insurance policy in question for the specific language pertaining to “advertising injury” at the outset of the litigation, and promptly tendering the defense of the matter to the carrier.  If the carrier initially denies a defense for the litigation, extrinsic evidence may yet develop that shows that the misappropriation in question falls within the scope of the policy’s “advertising injury.”  Because the potential for coverage can arise out of the facts that develop after the complaint is filed, an understanding of the coverage issues will assist in better positioning the case for potential coverage down the line. 

 

Social Media as Evidence: Why You Want it, How You Can Use it, and How to Get it

Photo by Rawpixel/iStock / Getty Images
Photo by Rawpixel/iStock / Getty Images

Thursday May 7, 2015

With over one billion members, Facebook is a public information repository for individuals and companies around the globe.  For many individuals, Facebook is where they post information about events happening in their lives, their thoughts about topical issues, pictures and videos.  In this new age of social media prevalence, the content stored on sites, such as Facebook, should be coveted by litigants as sources of information that might pertain to the issues in their lawsuit. This article will discuss examples of how social media content is being used and admitted as evidence in litigation and some useful archiving tools that will help lawyers discover social media data.

 

Relevance and Admissibility

A person’s social media content and activities can be probative of important issues in a lawsuit.  For example, where a plaintiff puts his or her emotional well-being at issue when asserting claims of sexual harassment or discrimination, some courts have found that “Facebook usage depicts a snapshot of the user's relationships and state of mind at the time of the content’s posting.”  (Reid v. Ingerman Smith LLP, CV 2012-0307 ILG MDG, 2012 WL 6720752 (E.D.N.Y. Dec. 27, 2012.)  “Whether electronically stored and dissipated on the Internet or not, ‘anything that a person says or does might in some theoretical sense be reflective of [his or her] emotional state.’”  (Id.)

In a case involving emotional distress, photographs posted on a social media site were relevant to damages regarding pain and suffering, both physical and emotional. In Quagliarello v. Dewees, the court ruled that the defendants could show up to three pictures of the plaintiff from a social media website if she testified on direct examination regarding her emotional distress after the incident alleged in the lawsuit.  (CIV.A. 09-4870, 2011 WL 3438090 (E.D. PA. Aug. 4, 2011.) The plaintiff then would have the opportunity to rebut the photographic evidence duringredirect examination by introducing up to three additional social media photographs from the same time period.  

For purposes of admissibility into evidence, social media evidence can be authenticated without testimony from the author of the content.  In People v. Valdez, the trial court admitted evidence of a Myspace page that was asserted to belong to the defendant.  (Cal. App. 4th 1429, 1434-37 (2011).)  On appeal, the appellate court stated “like any other material fact, the authenticity of a document may be established by circumstantial evidence.”  (Id. at 1435.)  Despite not having testimony from defendant authenticating the Myspace page, the appellate court found that a reasonable trier of fact could conclude from postings of personal photographs, communications and details, that the social media profile belonged to the defendant.  (Id. at 1437.)

 

Discovery

When making discovery requests for social media data, attorneys may be faced with objections from the responding party on the grounds that the information is “not reasonably accessible.”  The responding party may presume that such an objection is proper because social media content is voluminous and scattered throughout a third-party website.  The responding party may have sound legal basis for making such an objection since California Code of Civil Procedure § 2031.210(d) provides that aresponding party may object to discovery of electronically-stored information (ESI) on the ground that the source is “not reasonably accessible” because of “undue burden or expense.”  However, free archiving tools are now available on Facebook and Twitter that assist in the collecting and compiling of social media content.  Pointing out the existence of this archiving software to the responding party can undercut their objections to produce such information based on undue burden or undue expense.

 

Facebook

After years of spending valuable resources to respond to requests for copies of information contained in Facebook profiles, the company now allows its users to download their entire profile – including an activity log, timeline postings, comments and other interactions. The process begins with going to the Facebook Account Settings page and then clicking on a link labeled “Download a copy of your Facebook data.”  Next, you will be taken to a new page where you click a button labeled “Download Archive.” Facebook then begins the automated process of gathering and packaging the information. Detailed instructions on downloading information from Facebook can be found on the Facebook website at https://www.facebook.com/help/212802592074644.  Once the archiving process is complete, Facebook sends an email to the email address registered with the account. The email includes a link to download the package of data, and now your discovery gun is loaded!

 

Twitter

Like Facebook, Twitter now provides a process for any user to download her entire archive of Tweets.  This is available by going to the Settings page and scrolling down to the bottom to the subheading “Your Twitter archive.”  Click on the button “Request your archive,” and like Facebook, an email will be sent to the account holder’s email address with a link to download your archive from Twitter.  Once you have the Twitter archive, you can view the Tweets by month, or search the archive to find Tweets with certain words, phrases, hashtags or @usernames.

With knowledge of these archiving resources, you should have more ammunition for rebutting objections that requests for production of Facebook and Twitter content creates an undue burden or undue expense. Then, you are off to the races to procure social media evidence that can be used for motions and at trial.

Choice Of Law Issues That Arise When Non-Compete Provisions Cross State Lines

Thursday April 9, 2015

With an increase in employee mobility and the prevalence of both employers and employees operating across state lines, courts are frequently faced with a choice of law analysis when analyzing the enforceability of non-competition agreements. 

 

A Recent Decision from the Eastern District of North Carolina

 

A recent decision from the Eastern District of North Carolina exemplifies the complexities that are involved with the enforcement of a non-compete provision across state lines.  (Domtar AI Inc. v. J.D. Irving, Ltd. (E.D.N.C., Aug. 20, 2014) 2014 WL 4162440.)  Domtar involved an employee who had signed an employment agreement which included a non-competition clause.  Several years later, the employee resigned and left to work for a competing company. 

In Domtar, the employment agreement had been prepared in Georgia by the employer, presented to the employee in Georgia, and executed in Georgia.  The agreement was silent as to the choice of law.  The court sitting in diversity applied the choice of law rules of North Carolina, which apply the law of the place where the contract was formed unless an express or implied contrary intent rebuts that presumption.  Accordingly, the Domtar court held that the breach of contract claim relating to the non-compete provision would be analyzed under the laws of Georgia.  Under Georgia law, the court considers the reasonableness of the duration and territorial scope when deciding on the enforceability of a non-compete clause.  This approach is in stark contrast to California, where non-compete clauses are deemed to be unenforceable except under certain limited circumstances.

 

Choice of Law Considerations Involved in Reforming Non-Compete Clauses

 

In Domtar the choice of law analysis was also critical as to whether the court could reform the clause to make it reasonable and enforceable.  The so-called “blue-pencil” approach is a judicial doctrine where a court will strike out unreasonable provisions of a contract and then enforce it as deemed reasonable by the court.  After finding that Georgia law applied, the Domtar court noted that “blue-penciling” was not permitted under Georgia law and “therefore, if any restriction is unenforceable, all restrictions are unenforceable.” 

Other states, through case law or statute, take the “blue-pencil” approach even further and allow for “equitable reformation” wherein the court is permitted to rewrite the non-compete restriction to make it reasonable, even when it is necessary to do more than striking certain words from the agreement.  Neither the “blue-pencil” or “equitable reformation” approaches are relevant in California where only a discrete subset of non-compete clauses are enforceable.

 

Enforcement of a Choice of Law or Choice of Forum Agreement in California

 

Although, contractual choice of law clauses are commonplace in employment agreements, the contract at issue in Domtar did not include a choice of law provision.  In California, the inclusion of a choice of law provision does not necessarily mean that it will be enforced.  California courts will generally apply the designated choice of law unless the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice, or application of the law of the chosen state would be contrary to a fundamental policy of the state. 

 

The Race to the Court House

 

The enforceability of non-compete provisions may be dictated by the party that elects the forum by filing first.  For example, inGoogle Incv. Microsoft Corp. (N.D. Cal. 2005) 415 F.Supp.2d 1018, a Microsoft employee based in Washington signed an employment agreement which included a non-compete clause. This clause contained a Washington choice of law and choice of venue provision.  Immediately after being notified that the employee was leaving to join Google, Microsoft filed suit in Superior Court in Washington.  Shortly thereafter the employee and Google filed suit in Santa Clara Superior Court for a declaration that the covenant to not compete was invalid.  After Microsoft removed the case to federal court, the court elected to stay the action and let the Washington court sort out the choice of law issues.

Although the race to the California courthouse to seek declaratory judgment invalidating a non-compete clause is commonplace, the law may be changing in this regard.  In an unpublished opinion from the Northern District of California, the court dismissed a declaratory action finding a choice of law and choice of forum clause enforceable despite the California action being filed first.  In Meras Engineering, Inc. v. CH2O, Inc. (N.D. Cal., Jan. 14, 2013, C-11-0389 EMC) 2013 WL 14634, two employees had signed an employment agreement which contained a non-compete clause as well as a Washington choice of law and choice of forum provision.  After the employees left to work with a competitor, they filed in California for declaratory judgment that the non-compete provisions were void.  Shortly after, the employer filed suit in Washington state court seeking enforcement of the non-compete provisions.  The court ultimately dismissed the California action without leave to amend and found that applying the Washington forum selection clause would not contravene California public policy because courts in both states would perform the same choice of law analysis. 

Conclusion

Given the complexities associated with the enforcement of non-compete clauses across state lines, it is imperative to consult with an experienced employee mobility lawyer to help navigate these nuanced issues.

 

The Value Of Trial Experience In Trade Secret Litigation

Thursday April 9, 2015

A recent victory by the Louderback Law Group exemplifies the importance of trial experience.  It bears mentioning that while our trial experience was instrumental in achieving an excellent result for our clients, this matter never proceeded to trial. 

 

Background

 

Our clients were professionals in the burgeoning marketing research industry.  They had left their employer to start a competing company.  Shortly after their departure, they were sued by their previous employer for breach of contract, negligence and violation of the California Uniform Trade Secrets Act (“CUTSA”).  This lawsuit had the devastating potential to bankrupt our clients’ new venture and prevent them from competing in the industry. 

While the litigation of this matter had been initiated over a year prior to our involvement, our firm was contacted by our clients less than two weeks before the trial date.  We were retained because our clients wanted the confidence that a seasoned trial team provides when facing the uncertainties and complexities of an impending jury trial. 

 

Trial Preparation

 

Immediately after being retained, our firm began the onerous task of familiarizing ourselves with this complex matter on an accelerated timetable.  With the trial set to begin in a matter of days, our trial team burned the midnight oil to quickly gain command and understanding of the multitude of critical documents, discovery responses and deposition transcripts. 

Through our trial experience, our firm has developed an in depth understanding of the nuances of California civil procedure and motion practice.  We routinely rely on this expertise to further our clients’ interests.  Here, we successfully motioned the court to continue the impending trial date and to re-open discovery. 

The re-opening of discovery changed the entire momentum of the litigation.  With leave to conduct discovery, we developed a robust defense strategy that centered on challenging the protectability of the purported trade secrets.  We also deposed numerous customers of our clients who had ceased their business relationship with the plaintiff in favor of working with our clients’ new company.  We elicited testimony to establish that these customers’ decision to follow our clients stemmed from their positive working relationship with our clients and our clients’ expertise.   

Our opponent began to recognize that the tides of the litigation were turning as we pursued important avenues of discovery that had been previously overlooked.  It became readily apparent to our opponent that we were methodically developing a strong defense.  Accordingly, our opponent’s confidence in their trial presentation quickly dissipated.

 

An Excellent Settlement

On the eve of the date set for trial, we engaged opposing counsel in settlement negotiations.  Their previous settlement demands had included an enormous sum of money.  Additionally, they had demanded royalties and a prohibition of our clients’ ability to work with any of the plaintiff’s customers.   These unacceptable settlement terms would have effectively resulted in bankruptcy for our clients. 

With our trial experience as leverage, we were able to negotiate an outstanding settlement for our clients.  While the terms of the settlement are confidential, we are pleased to report that our clients were ecstatic when we were able to obtain their dismissal in exchange for a nuisance value settlement.

As demonstrated in this case, trial experience is a powerful tool both inside and outside of the courtroom.  Attorneys are keenly aware of their opponents’ trial experience and the Louderback Law Group’s thirty years of trial experience speaks for itself.  We consistently use our trial experience as leverage to get highly favorable settlements for our clients.  

The California Evidence Code and Trade Secrets

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The important relationship between the California Uniform Trade Secrets Act and the California Evidence Code may not be readily apparent to parties engaged in trade secret litigation.  When an employee leaves their employment, the subsequent lawsuit by a former employer often involves issues relating to nondisclosure agreements, noncompetition clauses, non-solicitation provisions and injunctive relief, all of which are covered in the California Uniform Trade Secrets Act at Civil Code Sections 3426 et seq.  By contrast, the California Evidence Code is normally associated with setting forth the rules for the admission and exclusion of evidence at trial.  However, a recent victory by the Louderback Law Group on the behalf of its clients in a Temporary Restraining Order (“TRO”) hearing illustrates that the two code sections can be closely intertwined in the context of a meritless trade secret lawsuit.
 

After many years of experience in the high-tech industry, our clients joined the plaintiff corporation and its marketing department thereby substantially enhancing the capacity of their employer to market its products.  A number of years later, when it became apparent that our clients could improve upon the customer service that was being provided, they formed their own corporation.  Unfortunately, they were then immediately hit with an application for a TRO from their former employer, which significantly disrupted their fledgling business.  The purpose of the TRO filing was to prevent our clients from competing in California in violation of Business & Professions Code Section 16600.
 

If the TRO had been granted against our clients, it would have had a devastating effect and most likely would have closed down their business.  Additionally, the plaintiff’s employment contract had a provision prohibiting an employee from engaging in any competitive activity for a period of 365 days after leaving the plaintiff’s employment.  This contractual provision was directly contrary to California Business & Professions Code Section 16600 which provides as follows: “... [e]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”  This statute has been reinforced through a long history of California case law supporting the strong public policy in favor of allowing free competition within the borders of California.


The plaintiff’s TRO application made numerous inflammatory and derogatory comments, recited legal arguments and presented misleading facts that were purported to be true.  In opposing the TRO on behalf of our clients, we used the Evidence Code to demonstrate that the plaintiff’s declarations in support of the TRO were fraught with hearsay and in some instances multiple layers of hearsay.  The case law interpreting the Uniform Trade Secrets Act requires that a plaintiff demonstrate that it is likely to prevail at trial based upon the evidence and law set forth in the TRO application

The Louderback Law Group, relying on the California Evidence Code and its hearsay provisions was able to demonstrate to the court that the only evidence before the court in the temporary restraining application was inadmissible and therefore the plaintiff could not meet its burden of proof to show that it would prevail at trial.  The court agreed and denied the injunction.


We effectively utilized the principles set forth in the Court of Appeals decision of Perlan Therapeutics, Inc. v. Superior Court of San Diego County (2009) 178 Cal.App.4th 1333, requiring specificity in the identification of disputed trade secrets to prevent plaintiffs from using the discovery process as a means to obtain a defendant’s trade secrets.


This victory is an excellent illustration of how the California Evidence Code can be utilized to protect an employer from a meritless trade secret claim designed to punish the departing employee.  The statutory authorities, related case law, and the public policy of the state of California are supportive of an employer who wishes to engage in fair and open competition.

 

Do You Own Your Social Media Account?

As social media continues to permeate our everyday lives, more and more businesses have created social media accounts on websites such as LinkedIn, Twitter and Facebook in order to promote their brand.  Does the singular act of creating a social media account by a business establish ownership, or should a business do more to establish actual ownership of the social media account?  As the emerging laws dealing with social media continue to develop, businesses should be proactive in ensuring that they actually own the social media accounts that promote their brands. 

First, let us imagine a scenario where the employer had a pre-existing social media account that it permitted an employee to use as part of the employee’s job duties.  Is this enough to conclusively demonstrate that the business owns this account?  The California case of PhoneDog v. Kravitz, No. C 11-03474 MEJ, 2011 U.S. Dist. LEXIS 129229 (N.D. Cal. Nov. 8, 2011) provides some insight into what employers can do to ensure ownership of pre-existing social media accounts.  This dispute arose when a former employee, who was given use of a Twitter account as part of his job duties, did not relinquish control of the Twitter account after he left his employment.  The employee went so far as to change the Twitter handle of this account.  With respect to PhoneDog’sallegation that it owned the Twitter account, the court’s analysis suggests that factors establishing ownership of a social media include: (1) who originated and set up the social media account? (2) did the social media account exist prior to the start of the employee’s employment? and (3) Did the employer place restrictions on the use of the social media account?

Photo by {artist}/{collectionName} / Getty Images

Photo by {artist}/{collectionName} / Getty Images

Now, let us imagine a scenario where an employee created a social media account for her employer on her own initiative.  The employer knows about this and is happy to let the employee continue to post on behalf of the company.  Does the employer own this account since it is being used to promote the company?  What happens to the social media account after the employee leaves?  While the answers to these questions are not set in stone, an employer in this position may have a more difficult time establishing ownership of the social media account.  For example, in Eagle v. Morgan, No. 11-4303, 2013 U.S. Dist. LEXIS 34220 (E.D. Penn. March 12, 2013), the court held that plaintiff’s former employer could not establish that it owned the LinkedIn account that plaintiff created because: (1) LinkedIn’s User Agreement stated that the account belonged to plaintiff; (2) plaintiff’s former employer had no official policy stating it owned the LinkedIn account; and (3) plaintiff’s former employer encouraged her to use the LinkedIn account as a marketing tool

When dealing with issues of ownership of a social media account, businesses should also be aware that California Labor Code Section 980(b) prevents them from requiring or requesting that an employee disclose a username or password for the purpose of accessing personal social media.  Businesses may therefore wish to consider undertaking the following steps to ensure that they own their social media accounts:


• The employer should originate and set up an official social media account;

• The employer’s policies and procedures should clearly state that the employer, not the employee, owns the social media account;

• The employer should establish clearly defined policies regarding what an employee can and cannot do with the social media account;

• The employer should monitor use of its social media account to ensure it is being used within the scope of the employee’s job duties

• Prior to an employee’s departure, the employer should ensure that it can access the social media account, and it should change the password to prevent unauthorized access by the former employee.

While undertaking these steps will not be a guarantee against litigation, they should help mitigate any potential disputes over who owns the social media account.

 

My Business Partner Left to Start a Competing Business!

How California Law Provides Recourse

The Hollywood movie The Social Network portrays a young Mark Zuckerberg, founder of Facebook, on his first endeavor to create a social networking website.  Zuckerberg joins forces with twins, Cameron and Tyler Winklevoss, to create a website, Harvard Connection. As the movie goes, and according to the Winklevoss twins, Zuckerberg became a part of the Harvard Connection development team, and presumably a partner in the business venture. 

Then, according to the Winklevoss twins, they were robbed!  Their business partner, Zuckerberg, took their business idea and created a competing social networking website – Facebook.  The Winklevoss twins were outraged and sued Zuckerberg.  The complaint entailed numerous claims against Zuckerberg including a claim for breach of fiduciary duty under Massachusetts common law. It has beenwell-publicized that Zuckerberg eventually settled with the Winklevoss twins for a whopping $65 million. 

While the Winklevoss-Zuckerberg dispute was governed by Massachusetts law, let’s discuss how California law treats those same set of circumstances – when a partner leaves the partnership to pursue a competing business venture. 

California Partnership Law
After the business partnership is formed, the partners have certain duties and obligations to each other and to the partnership itself. These obligations can include contractual obligations if the partners enter into agreements with each other. The partners also owe fiduciary duties to the partnership and each other.  See Leff v. Gunter (1983) 33 Cal.3d 508, 514.

California’s Uniform Partnership Act provides that a partner owes not only a duty of care to the partnership and the partners, but also owes a duty of loyalty to the partnership and the partners.  According to California Corporations Code Section 16404, a partner’s duty of loyalty includes the following duties.   

To account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property or information, including the appropriation of a partnership opportunity.  To refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.

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Photo by {artist}/{collectionName} / Getty Images

This statute creates clear duties that the partners owe each other and the partnership during the operation of the partnership business and during the winding up process. The common law takes these fiduciary duties one big step further.  California case law imputes to a partner that withdraws from the partnership, a fiduciary duty that persists even after the partner withdraws.

Partners, as fiduciaries, cannot pursue the object of the venture to the exclusion of the other partners.  Leff, 33 Cal. 3d at 514.  In Leff, the partners sought to submit a bid on a government construction project.  Defendant-partner secretly began working with a third party to submit a bid that would compete with the partnership’s bid that the partnership was preparing.  Months later, defendant-partner withdrew from the partnership. Plaintiff-partner went forward with submitting the bid alone, but defendant-partner and its new third party partner submitted a separate bid and were awarded the project.  Plaintiff-partner sued defendant-partner for breach of fiduciary duty and received a jury award of 1/6 of the profits that would have been earned through the original partnership’s procurement and execution of the project.  In Leff, the California Supreme Court stated that “where one partner secretly enters into a contract sought to be contracted by the partnership which another partner is negotiating on behalf of the partnership such partner is in violation of his fiduciary duty to the excluded partner.” Leff, 33 Cal. 3d at 513. 

In Page, the California Supreme Court held that “a partner may not dissolve a partnership to gain the benefits of the business for himself, unless he fully compensates his co-partner for his share of the prospective business opportunity.”  Page v. Page (1961) 55 Cal. 2d 192 

More recently, the United States District Court of the Northern District of California recognized a similar rule for fiduciaries in a co-venture (a business entity, which from a legal standpoint,  is treated virtually the same as a partnership).  In Interserve, Inc. v. Fusion Garage PTE. LTD. (N.D. Cal. Aug. 24, 2010) No. C09-5812 RS PVT, 2010 WL 3339520, plaintiff and defendant started a collaborative effort to develop a computer tablet. Before the parties finished the product development, defendant left the venture.  Afterward, defendant brought its own computer tablet product to market.  Plaintiff sued defendant for breach of fiduciary duty among other claims. 

The court denied the plaintiff’s preliminary injunction on the grounds that the requested relief was not warranted.  However, the court found that plaintiff was likely to succeed on the merits of showing the existence of a co-venture and accordingly, there were grounds for finding that defendant may have breached a fiduciary duty to the co-venture and to the other co-venturers.  As such, the court in Interserve recognized a rule of law similar to the one articulated in Leff and Page: that a partner may not withdraw from the partnership to gain the benefits of the business for himself, unless he fully compensates his co-partner for his share of the prospective business opportunity. 

Cutting Ties with a Partnership 

If a partner seeks to withdraw from a partnership to pursue a new venture that may use the partnership’s assets or opportunities, then the partner runs the risk of breaching a fiduciary duty to the former partners. To protect against potential liability, the withdrawing partner could solicit a written waiver from the partnership and other partners whereby they waive their interest to any of the profits of the withdrawing partner’s new business venture.  Unfortunately, the feasibility of this protective measure presumes that a withdrawing partner is amicably splitting ways from the other partners to start a competing business.  In most cases, the other partners are not going to be thrilled and will consider doing their best impression of a Winklevoss triplet.

Senate Bill 400: Employment Protections for Stalking Victims

Employment Discrimination Protections Expanded to Include Victims of Stalking


Effective January 1, 2014, Senate Bill 400 (“SB 400”) amended California Labor Code Sections 230 and 230.1 to extend the protections afforded to victims of domestic violence and sexual assault against discharge, discrimination, and retaliation, to employees who are the victims of stalking.  Before this amendment, Labor Code Section 230 prohibited employers from threatening to discharge, discharging, discriminating against, or retaliating against an employee who was the victim of domestic violence or sexual assault for taking time off from work to get court relief “to help ensure the health, safety or welfare of the [employee] or his or her child.”  Similarly, in the case of employers with 25 or more employees, Labor Code Section 230.1 prohibited the employer from threatening to discharge, discharging, discriminating against, or retaliating against employees who are victims of sexual assault or domestic violence.  These prohibitions now also extend to victims of stalking.

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Photo by {artist}/{collectionName} / Getty Images


Labor Code Section 230, as amended, defines “stalking” as it is defined by either California Penal Code Section 646.9 or Civil Code Section 1708.7:   Any person who willfully, maliciously and repeatedly follows or willfully and maliciously harasses another person and who makes a credible threat with the intent to place that person in reasonable fear for his or her safety, or the safety of his or her immediate family…. or any person “engaged in a pattern of conduct the intent of which was to follow, alarm, or harass the plaintiff.” 

The prohibitions against discrimination, retaliation, harassment and discharge will apply where the employee has given notice to the employer of his or her status as a victim, or the employer has “actual knowledge of the status.”  (Labor Code § 230(e).)

Reasonable Accommodations for Workplace Safety Now Required

Another significant aspect of the new law is that it now requires employers who become aware of an employee’s status as a victim of stalking, domestic violence or sexual assault, to engage in a “timely, good faith, and interactive process to determine the effective reasonable accommodations” when that employee requests a reasonable workplace safety accommodation..  (Labor Code § 230(f)(1), (3)-(4).)  To trigger the interactive process, the employee must disclose her or her status as a victim of stalking, domestic violence or sexual assault.  Subsequently, the employer must treat as confidential and not disclose any verbal or written statements or records provided to the employer as evidence of the employee’s victim status.  These materials cannot be disclosed except as required by state or federal law, or as necessary to protect the employee’s safety in the workplace.  Further, the employee must be notified prior to any authorized disclosure. 


The reasonable accommodations that may be made are set forth in the statute, and may include safety measures such as transfer, reassignment, modified work schedule, changes in workstation and work telephone, “installed lock,” assistance in documenting the violation, new safety procedures, changes to job structure and workplace facility, or referral to a victim assistance organization.  (Labor Code §230(f)(2).)  As this list is not exhaustive, what accommodations are reasonable under each particular circumstance will necessarily differ.  Moreover, the new law contains vague references to “safety measures” and changes to “job structure” which could be interpreted widely depending on the nature of the workplace, and the severity of the incident.  The law provides that, “[i]n determining whether the accommodation is reasonable, the employer shall consider an exigent circumstance or danger facing the employee.”  (Labor Code § 230(f)(5).)  Further, the law retains the “undue hardship” defense under Government Code section 12926, and also states that undue hardship also includes “action that would violate an employer’s duty to furnish and maintain a place of employment that is safe and healthful for all employees as required by Section 6400 of the Labor Code.”  (Labor Code § 230(f)(6).)


Labor Code Section 230, as amended, further provides that an employer shall not retaliate against an employee who is the victim of stalking, domestic violence or sexual assault because that person has requested an accommodation, regardless of whether or not that request was granted.  (Labor Code § 230(f)(8).)


What does this change in the law mean for employers and their employees?  The law creates an additional protected category for purposes of discrimination, harassment and retaliation: victims of stalking.  Employers should be aware that they could face liability should they discharge, harass or retaliate against an employee who has disclosed his or her status as a victim of stalking, domestic violence or sexual assault.  The new law permits an employee to file a complaint with the California Department of Labor Standards and Enforcement based on the claim that the employer has violated the new law.  The employer’s anti-discrimination and anti-harassment policies should now reflect the expansion of employment protections to victims of stalking, in addition to victims of domestic violence and sexual assault.  Employers should train their human resources personnel and managers regarding this additional protection and establish policies and procedures for employees who may be victims of stalking, domestic violence, or sexual assault to request reasonable accommodations in the workplace.  This training should include proper maintenance of confidentiality as required by the statute, along with a procedure to provide proper notice to the employee for authorized disclosures.  Until there is clarification through case law on what constitutes a reasonable accommodation in this context, employers should work with any employees through the interactive process to determine what safety measures are reasonable under the circumstances, while maintaining the confidentiality of the process within the confines of the law.

Independent Contractor: A Costly Misclassification

Businesses beware: there are serious risks for the company that misclassifies its employees as independent contractors.  The temptation to classify workers as independent contractors is high because of the potential cost savings for the business, but companies should carefully assess the nature of their relationships with their workers because misclassification can be an extremely expensive error.

With the enactment of recent legislation in California, how businesses classify their workers has come under increased scrutiny.  The Employment Development Department estimates that roughly thirty percent of workers identified as “independent contractors” have been misclassified.  The recent legislation was enacted to thwart this practice by imposing increased penalties on businesses that misclassify, particularly where the investigating agency finds that the misclassification was “willful.”

Pros & Cons of Retaining Independent Contractors
There are certain business advantages to using independent contractors instead of employees that increase the temptation to classify workers as independent contractors.  These advantages include: 1) cost savings from mandated contributions such as state and federal unemployment taxes and social security, 2) cost savings from discretionary fringe benefits such as medical insurance, life insurance, retirement plans, sick and vacation time, and 3) inapplicability of most labor laws, medical leave laws, and state and federal discrimination statutes.
However, there are numerous potential disadvantages as well, including: 1) loss of control over how the worker performs the services, and 2) independent contractors are not “at-will,” so terminating the relationship could lead to breach of contract claims.  A business would be well-advised to give careful thought to the decision to have employees or independent contractors, especially since the business bears the risk of potential misclassification, and the penalties can be severe.

Determining Whether a Worker has Been Misclassified
There is no definitive test to determine whether a worker must be labeled as an employee or if he or she can be identified as an independent contractor.  With no straightforward way to categorize a worker’s status, courts and various agencies have focused on a multitude of factors to establish whether an employee/employer relationship exists.  These factors culminate in a totality of circumstances test that requires a case-by-case analysis.

Different agencies employ different tests to determine if a worker is an independent contractor or an employee, but they all generally come to a determination based on some combination of the following factors: the extent of control that the principal may exercise over the work, the nature of the work and whether it is usually done by an employee, the skill required for the work (the more highly skilled, the more likely the worker can be an independent contractor), whether the company supplied the tools and instrumentalities for the work, and the parties’ agreement.  While these tests encourage the courts to weigh the totality of the circumstances, the most significance is given to the amount of control the company retains over the individual’s work.

If an agency determines that an employee has been wrongfully misclassified, it will next investigate whether the misclassification was “willful” when assessing the penalties it seeks to impose.  The Legislature has defined “willful misclassification” as “avoiding employee status for an individual by voluntarily and knowingly misclassifying the individual as an independent contractor.”  The penalties associated with this finding can be significant, so it is in a business’ best interest to carefully analyze whether there could be any doubt about whether the independent contractor is really an employee.

Enforcement & Penalties for Misclassification
There are numerous potential penalties that can be imposed on a business for misclassification, varying in degree based on whether the misclassification was intentional or not.  In 2011, new provisions were added to the Labor Code that created additional penalties for employers that wrongfully and willfully classify workers as independent contractors.  Labor Code sections 226.8 and 2753 impose potential penalties between $5,000 and $10,000 for each violation, and penalties between $10,000 and $25,000 if there is evidence of a “pattern and practice” of misclassification.


California Labor Code section 226.8(d) also imposes a “Scarlet Letter” provision that requires the employer to post a notice on its website for one year informing the public that it has violated the law and has changed its practices.  This public shaming provision is supposed to act as an additional deterrent.  Also, not just the business, but the “responsible person” may also be subject to personal liability and criminal penalties under the new provisions.  This means that third-party advisors such as human resource personnel or financial advisors can be held jointly and severally liable for the misclassification.


Aside from statutory penalties, a business that misclassifies faces other associated costs as well.  For example, an employer may also be required to pay benefits to workers who were erroneously misclassified.  (Vizcaino v. Microsoft Corp., 120 F.3d 1006, (9th Cir. 1997), modified by 173 F.3d 713 and 184 F.3d 1070.)  The employee can also seek reimbursement for business expenses under Labor Code section 2802 that he or she incurred.  Perhaps most catastrophic are the costs of litigation associated with defending the employer’s decision against the jilted employee (or even worse, employees, in a class action suit.)

Conclusion
Misclassification can be a costly mistake for a business. Statutory penalties, litigation costs, and the added embarrassment of the public shaming provision can be disastrous to company morale and the bottom line.  No business should rest assured if it has independent contractors on its payroll.  Before getting mired down in penalties and litigation, businesses should carefully review their workforce to identify any potential exposure resulting from misclassification.

categories: business risk assessment; employee mobility; employment litigation; litigation; trade secret; unfair competition

Avoiding the Trojan Horse When Onboarding Employees

Hiring a new employee who has outstanding work experience and qualifications, stellar performance in multiple interviews with management, and fits a critical part of the firm’s business is an exciting experience, indeed, like a gift.  While employers that retain promising new employees may not suffer the same fate as the Trojans did when they accepted the fateful gift from the Greeks in the Illiad, there are safeguards that an employer can utilize when accepting new hires in order to avoid taking on a “Trojan Horse.”


The Free Flow of Talent is Encouraged in California
When an employer hires a new employee, it potentially faces immense exposure to liability regarding issues of trade secrets and intellectual property.  There has been a great deal of litigation throughout the State of California involving employees who take trade secrets with them when they transition from one employer to another.  This litigation frequently stems from past employers’ claims of theft of trade secrets and unfair competition.  A trade secret is generally defined as confidential information that has a value by reason of it being confidential.


California’s legislature and courts have a long history of promoting the free flow of employee talent from one business to another, even when direct competition results.  In fact, California Business and Professions Code section 16600 specifically provides that any contract that restricts the free flow of employment is void as against public policy.  As a result, it is generally accepted that non-competition and non-solicitation clauses in employment contracts are not enforceable in California.

Photo by {artist}/{collectionName} / Getty Images

Photo by {artist}/{collectionName} / Getty Images


In contrast to California, the majority of states allow and enforce restrictive covenants.  Employers in New York, Massachusetts, and Texas, for example, regularly restrict employees’ ability to leave their employment to work for a direct competitor.  These restrictions can even prohibit an employee from working in the same industry if the job duties for the new employer are likely to compete with the previous employer.  In these states, non-competition and non-solicitation agreements are enforceable so long as they are “reasonable in time and place.” Protecting the employer’s investment in its employees is the highest priority.  The effect this has on employees is not surprising: once hired, an employee will often stay put because if she were to leave, the restrictive covenants in her employment contract could prohibit her from working in her chosen field for up to a year.

California’s Trade Secret Protections
While California employs very narrow exceptions to the prohibition against restrictive covenants, an employee’s ability to freely move between employers does have some limitations. Specifically, the Uniform Trade Secrets Act prohibits employees from taking a former employer’s trade secrets with them to a new employer.  (Cal. Civ. Code §§ 3426-3446).


California law seeks to protect confidential information the employer developed to compete with other entities.  Customer lists, price lists, specific marketing plans and product engineering have all been deemed trade secrets that are subject to protections from departing employees.  Employers that hire new employees who have absconded with trade secrets from their former employers may unwittingly take on a “Trojan Horse.”


Technology and similar industries are replete with litigation stemming from the theft of trade secrets.  It is not unusual for former employers who believe their valuable confidential information has been stolen to pursue extraordinary relief measures such as temporary restraining orders, followed by preliminary and permanent injunctions.  Such drastic measures often carry enormous legal costs because the motions are made on short notice and require fact intensive legal briefs, declarations and multiple depositions.  The litigation often results in bitter and acrimonious battles between competitors who in turn expend substantial financial resources and valuable work time.  The unwary employer who hired the promising new employee who seemed like a gift at the time, will likely regret accepting that gift when the employer is served with a temporary restraining order by an incensed competitor.


How Employers Can Avoid a Trojan Horse
In order to avoid the “Trojan Horse” scenario, employers who are onboarding new employees should follow these general procedures:
1.         The written application which initiates the interview process should specifically require the employee candidate to affirm that the candidate is not bringing any confidential information from the former employer.
2.         The company should have a standard statement reciting that it has discussed with all candidates the illegality of bringing in trade secrets, and specifically informing the candidates that bringing in confidential information from a former employer is strictly prohibited.
3.         If the company uses a written employment contract, it should have a specific provision that requires the new employee to affirm that the employee is not, and will not, bring confidential information or any form of trade secrets to the new employer.


Conclusion
A company’s most valuable capital is its employees. The hiring of highly-qualified and experienced employees can lead to the ultimate success of an operation.  However, the costs can be detrimental if the employee also comes with trade secrets.  The prudent employer will carefully screen and protect itself from potential litigation by implementing the preventative measures outlined above.

How to Win Your Case on Opening Statement

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Photo by {artist}/{collectionName} / Getty Images

Purpose of the Opening Statement

The opening statement is one of the most important aspects of trial.  It is one of only two opportunities counsel has to address the jury directly.  Narrowly speaking, the purpose of the opening statement is to deliver a clear recitation of the facts of the case in a simple and non-argumentative fashion.  But the opening statement is also a chance to persuade the jury (without crossing the line into argument) that the client should prevail at trial.  In fact, many trial attorneys maintain that, practically speaking, a case is over after voir dire and opening statements, as the members of the jury often have made up their minds at that point, before hearing any evidence.  While that is probably an overstatement, there is no question that the jurors’ viewpoint is profoundly influenced by the content of the opening statement and the manner in which it is delivered. 


The opening statement can be used to paint a sympathetic picture of the client, or to humanize the client, particularly if the client is a corporation.  It is also a chance to provide the jury with a road map for how the evidence will be presented, including introducing witnesses, both lay and expert, in a way that will make it easy for the jury to understand, especially in a complex or highly technical case.


As trial counsel, the goal is to communicate an opening statement in such a compelling and persuasive fashion that at its conclusion every juror thinks the following:  “If the statements you just made are supported by the evidence we are about to see, I will decide this case in favor of your client.”  Here, we will discuss three ways to achieve this goal:  1) communicating a compelling trial theme; 2) diffusing weaknesses in your case; and 3) preemptively attacking the opposition.

1)         Trial Themes
Your opening statement should be built around a trial theme.  An effective trial theme succinctly summarizes the essence of your case and resonates with the jury.  Of course, you must be able to support the theme with the evidence presented at trial, so the key is to find a trial theme that will be appealing and persuasive to the jury, while at the same time remaining true to the facts.  A trial theme often fills in the blank:  This case is about ______________.  Some examples of effective trial themes are:
         

a)Credibility   In defending a corporation against a claim of discrimination, where the plaintiff has been impeached in his deposition, an effective theme could be articulated as follows:

This case is about credibility.  You will see as the evidence develops that the plaintiff will swear to tell "the truth, the whole truth and nothing but the truth," and then proceed to not tell you the truth.  This will occur repeatedly through this trial, and you will have to decide whether or not the plaintiff is a person you can believe and trust.
       

b) Betrayal   In a case involving breach of a long-term partnership agreement, a theme of betrayal can be compelling:

This is a case of betrayal. My client placed her faith and trust in her business partner of many years only to discover that he had betrayed her by defrauding her of over twenty-five million dollars.

c) Corporate Greed and Fraud   In a products liability case involving a medical device that was inadequately tested, corporate greed and fraud is a theme that can resonate with a jury:

This case is about corporate greed and fraud.  The defendants represented to my client that the product was safe, had been thoroughly tested, and would last a lifetime, all of which turned out to be absolutely false.  My client was seriously injured when she relied upon these fraudulent statements and used the defendants’ product without knowing that it was toxic and potentially lethal.

The trial themes illustrated above are effective because they can be easily understood by, and will resonate with, most jurors.  It is important that an opening statement appeal to a jury's sense of fairness.  While jurors generally follow the law based on the jury instructions presented by the court, jurors also have a strong sense of fairness and will often view the facts and law through the prism of what they believe to be fair.  A strong theme expressed in an opening statement gives the jury an opportunity to apply this sense of fairness within the framework of the facts of the case and applicable law.

As noted above, a trial theme must accurately track the facts of the case.  Not only would doing otherwise be unethical, but a trial attorney will quickly lose his or her credibility by putting forth a trial theme that is not supported by the evidence subsequently received by the jury.  For example, if your theme is the plaintiff's lack of credibility, you must be able to prove from deposition testimony, documents, or other admitted evidence that the plaintiff has impeached himself.  Of course, if your client also has significant credibility problems, this is a trial theme you should avoid in spite of the opposing side's lack of credibility.  This brings us to the next purpose an opening statement can serve: to anticipate and diffuse weaknesses in your case.


2)         Diffuse Weaknesses
If you are going to trial, by definition your case has one or more weaknesses.  Otherwise, it would have been disposed of on summary judgment.  The opening statement is your opportunity to address your case's vulnerabilities on your terms, before any harmful facts are brought into evidence (and if you represent the plaintiff, before the other side can bring them to the jury's attention at all).  For instance, if your client has contradicted herself during the course of the case, the last thing you want is for the jury to first learn this when she is being examined on the witness stand.  In your opening statement you can give the jury a preview of the inconsistency and minimize its impact.  For example, you can explain that the perceived discrepancy was the result of your client being nervous, confused, or misled, or explain that the differences are trivial (in spite of the fact that opposing counsel will try to overstate their significance), and that the most important aspects of the case favor your client. 


Pretrial practice, including any dispositive motions or statements of the case, will help to clearly identify your case's weaknesses.  If you address these directly in your opening statement, you can often diffuse them and minimize the harm to your case.


3)         Preemptively Attack the Opposition
In conjunction with diffusing weaknesses, you should also preemptively attack the opposition in your opening statement.  This gives you the opportunity to undercut the opposition's known or anticipated positions when you address the jury directly.  It is also the part of an opening statement that can tread closest to the forbidden territory of argument, and therefore must be conducted with care.  Again, opposing counsel’s dispositive motions and statements of the case provide great insight into their positions that you can preemptively attack in your opening statement. 


An example is a strong expert witness that the opposition plans to have testify at trial.  Of course, you will have your own expert to testify to the contrary, but the two sides' experts may use different methods, and will certainly arrive at different conclusions.  If you expect that the "battle of the experts" will be crucial to the determination of the case, you will want to spend some time in your opening statement giving the jury a preview, including reasons why your expert and/or her methods are more reliable than those the opposing party will put forward. 


Another issue that trial counsel may want to preemptively attack in the opening statement is an anticipated statute of limitations defense.  For instance, in a legal malpractice case, a plaintiff typically has at most four years from the date of his attorney's wrongful act or omission to bring a lawsuit.  However, this period is tolled if the attorney willfully concealed the facts constituting the wrongful act or omission.  In the plaintiff's opening statement, counsel will want to describe to the jury the defendant's concealment of these facts, preemptively attacking an anticipated defense, and settling the issue, or at least planting the seed, in the minds of the jury. 

Conclusion

As counsel's first opportunity to address the jury directly for a sustained period and, generally, without interruption, the opening statement presents a chance to win your case when the trial has barely begun.  While argument is prohibited, a strategically-crafted opening statement can be extremely persuasive.  Employing the techniques described above can help you make the most of your opening statement, and give your client a possibly insurmountable head start at trial.

Categories: commercial litigation, employment litigation, trial practice, litigation

How Does the Brinker Decision Affect an Employer’s Obligation to Provide Meal and Rest Breaks?

In 2012, the California Supreme Court finally handed down its highly-anticipated decision in Brinker Restaurant Corporation v. Superior Court, 53 Cal. 4th 1004 (2012) (“Brinker”).  The case clarified what an employer’s duties are regarding its employees meal and rest breaks.  With review granted in 2008, the long-awaited decision resolved the substantial confusion surrounding employers’ obligations in this area.  Here, we will address some of employers’ most frequent questions as to how best to comply with the law.



What Obligation Do Employers Have to Give Employees a Meal Break?


To comply with California law and the applicable Wage Orders, employers are required to provide all non-exempt employees who work over five hours in a day with an uninterrupted 30-minute meal break.  To satisfy this obligation, employers must:

• Relieve the employee of all job duties;

• Relinquish control over the employee’s activities; and

• Permit employees a reasonable opportunity to take an uninterrupted 30-minute break.



When Do Employers Need to Provide the 30-Minute Meal Break?

The Brinker Court clarified that the first 30-minute break must occur no later than five hours after the employee begins work.  When the break is made available is entirely discretionary, just so long as it is provided within the first five hours of work.  If the employee is working less than six hours total, the employer and employee can agree in writing to waive the meal break.


The Court also held that employers are not required to provide a second 30-minute meal break within five hours of the first.  As the Court explained, this could easily lead to scenarios where an employee might take a 30-minute break only two hours into a shift, and then the employer would be required to provide another meal break before the end of an eight hour day.  Instead, the Court stated that the employer is only required to give a second 30-minute meal break if the employee works ten hours or more.



Do Employers Need to Police Employees to Ensure That they Take Their Breaks?


The Brinker decision clarified that while employers are required to “provide” a meal break, they are not required to “ensure” that the employee refrains from working during his or her break.  Once the 30-minute meal period begins, the employer relinquishes control over the employee and is not required to police the break room to guarantee that employees are not engaged in any work-related conduct.


Note that under Brinker, while employers are not required to police employees’ breaks, they will, however, be held liable if they have policies which discourage employees from taking their meal breaks.  Specifically, if the employer knew or should have known that employees missed breaks, they face liability.



What Obligations Do Employers Have to Give Employees Rest Breaks?


The Brinker Court also explained that employees are “permitted” to take a 10-minute rest period, every four hours of work, “or major fraction thereof.”  In layman’s terms, this means employees are entitled to one rest period for shifts of 3.5 to 6 hours, two rest periods for shifts of more than 6 hours and up to 10 hours, three rest periods for shifts of more than 10 hours up to 14 hours, and so on.  (After the 10 hour mark the employee is also eligible for another 30-minute meal break.)



What Are the Penalties For Not Complying With The Brinker Standards for Breaks?


When an employer does not provide an employee with a required meal break, it must pay the employee one hour of pay at the employee’s regular rate of compensation for each workday that the employee does not receive his or her meal break.



What Can Employers Do to Protect Themselves from Liability?


Noncompliance can be costly, especially if it is widespread across the company such that there is exposure to class action litigation.  With that in mind, there are a few things employers can do to limit their exposure.


First, employers should comply with the laws as explained above.  With so much litigation in this area, any potential loopholes should be regarded with trepidation.  Second, employers should have their meal and rest break policies in writing and easily accessible to employees.  Third, employers should provide an accurate time keeping mechanism that permits employees to record their breaks and note if they missed a meal break.  (For this reason, employers are advised against engaging in an auto-deduct practice whereby the employer assumes that employees have taken their breaks, and deducts 30 minutes from their time, thus placing the burden on the employees to report if they did not take a break.)  Finally, while Brinkerclarified that employers do not need to police their employees, a wise business practice would encourage employees to take their breaks in a separate room, or to leave the place of employment entirely in order to discourage employees from working through their breaks.

 

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litigation

employment litigation

business risk assessment

wage & hour

rest and meal breaks

The Pitfalls for Mandatory Arbitration for Employment Cases

Sunday September 1, 2013

For the past decade, employers have increasingly embraced mandatory arbitration to resolve employment cases.  The conventional wisdom was that an arbitrator would take the decision regarding an employee’s claims against the employer out of the hands of jurors who were viewed as hostile to the employer’s interests.  In addition, on the surface, arbitration seemed to offer the benefits of reduced litigation costs by limiting discovery such as depositions and interrogatories, and providing a shorter timeframe to obtain resolution of the employment dispute.  Finally, arbitration limited the ability of appellate review to the rare circumstance where the arbitrator engaged in fraud.

The High Cost of Arbitration

 


Despite the above, the touted benefits of arbitration have proven to be illusory in light of the fact that a great deal of employment cases do not settle.  In addition, the cost of arbitration has proven to be far more expensive than employers initially assumed because under California law the employer is required to pay all of the costs associated with the arbitration.  This includes the fees for the arbitrator, who is often an expensive retired judge or lawyer.

This firm recently defended a disability discrimination case at arbitration.  For a two-week arbitration, the client was presented with a $103,000 bill for the arbitrator’s fees!  This fee was in addition to the cost of discovery which included requests for production of documents, interrogatories, and more than ten depositions.

As a general rule, arbitration organizations only allow enough discovery for the parties to prepare their respective cases for the arbitration hearing.  However, in employment cases, which may involve a large number of potential witnesses, arbitrators are increasingly permitting parties to take greater numbers of depositions, thereby curtailing the perceived benefits of abbreviated discovery in arbitration.  Moreover, any discovery disputes that cannot be resolved between the parties are subject to something akin to law and motion practice, wherein the parties brief the arbitrator with points and authorities regarding the nature of the controversy and their respective positions.  Generally, arbitrators will charge an hourly fee to read and analyze the submissions, and render a decision on the discovery controversy.  Once again, the employer is obligated to bear the entire cost of the arbitrator’s fee in order to resolve the discovery dispute.



Procedural Concerns


The arbitration forum rewards the inexperienced trial attorney.  It also rewards the attorney who is either unfamiliar with, or unprepared to address, the often complex and daunting rules of evidence that are common in a jury trial.  Selecting a favorable jury, determining what evidence to include and exclude, and honing the content and delivery of the opening statement and closing argument is a complicated process that often determines the outcome of a case.  The unseasoned attorney who is not familiar with the strategy and process of jury selection, the complex interplay of evidence to be introduced and excluded, and the methods for persuading a jury, avoids these substantial hurdles to victory by engaging in the arbitration process.  Unlike a trial judge in state or federal court, arbitrators regularly allow evidence in that would be excluded in a jury trial such as hearsay, documents that would be inadmissible, and witness testimony that should be excluded.  The rationale is that it provides a more relaxed environment and the arbitrator will not be prejudiced by what would otherwise be inadmissible evidence in a jury trial.


Another major difference between a jury trial and arbitration is that impeaching a witness in a jury trial is much more powerful than it is in arbitration.  In trial, jurors are expected to follow their oath to be fair and impartial, wait until all of the evidence has been introduced before making a decision, and avoid any influences outside the evidence produced at trial.  Having taken this oath, jurors then justifiably demand that the witnesses presented by the parties, particularly the plaintiff who is asking for money, testify truthfully.  The consequence for a plaintiff who does not respect the oath to testify truthfully is often fatal.  For example, this practitioner has had a number of trials where a plaintiff, even in a liability situation, has fabricated testimony under oath regarding his damages.  As a result, the juries rendered defense verdicts and not only denied the plaintiff all claimed damages, but also refused to find liability.  Impeachment is a powerful tool for an employer defending its case before a jury.  On the other hand, maybe because of experience with numerous untruthful witnesses throughout their careers, retired judge and attorney arbitrators often give much less importance to the fact that a plaintiff has fabricated testimony under oath.


The intimidation value of a jury trial can also be used by employers when negotiating a settlement.  Plaintiff’s counsel who has little or no trial experience is likely to be intimidated by the prospect of going to trial and will be much more willing to settle the case on a reasonable basis.  On the other hand, an inexperienced attorney who knows that the arbitrator is likely to refrain from enforcing strict evidentiary rules and allow otherwise inadmissible evidence into the arbitration ‒ and generally be far more forgiving than a jury for serious miscues ‒ is much more likely to stick to an unreasonable settlement demand.



Arbitrators Award Plaintiffs Nominal Damages Where a Jury Might Not


Another important disadvantage for employers in arbitration is that arbitrators are generally known to “split the baby.”  The experience of this practitioner in defending numerous employers in jury trials involving race, sex, harassment and wrongful termination, is that jurors will not hesitate to deny compensation to an employee who has a meritless case, particularly when the plaintiff employee has been untruthful in a material aspect of the case.  While this practitioner believes that arbitrators strive to be fair and impartial, there is a natural inclination to give both parties some benefits.  Specifically, in a weak plaintiff’s case, arbitrators tend to provide what they believe to be nominal awards rather than render a defense verdict which would have been likely if the case was tried before a jury.  Given the choice of alienating a plaintiffs’ firm by rendering a defense verdict, arbitrators will often supply an award that effectively “splits the baby” between the plaintiff’s demand in closing arguments and the defendant’s suggested amount.



Nominal Damages Result in Cost-Shifting of Fees to the Employer


Discrimination cases under the DFEH or EEOC present a serious drawback for an employer in a case where an arbitrator “splits the baby.”  This is because a prevailing plaintiff’s counsel is then entitled to an award of attorney’s fees. The fees are awarded in a post-arbitration motion unless the parties agree to stipulate to the amount of fees.  Unlike a defense verdict in a jury trial where fees are completely denied plaintiff’s counsel, with even a nominal award, the arbitrator must award all the attorney’s fees relating to the discrimination claim without consideration of proportionality.  In other words, if the arbitrator awards a nominal sum of $25,000 and $30,000 after a two to three week arbitration, a plaintiff’s attorney presenting a $500,000 fee has an excellent chance of obtaining the entire amount, or a fee close to that sum.



Conclusion


Arbitration has not proven to be the panacea for employment cases originally envisioned.  Employers still face the costs of discovery and the time expenditure in preparing for arbitration, while at the same time paying all of the arbitrator’s fees.  The employer also loses an important playing card in the form of an “intimidation factor” for plaintiff’s attorneys who are inexperienced in the complexity and pressure of conducting a trial by jury.  Finally, the powerful tool of impeachment to drive a reasonable settlement or obtaining a defense verdict at trial is often lost at arbitration, and the arbitrator might still be inclined to award the plaintiff a nominal sum.  In light of the above, employers should carefully consider whether their employment policies and procedures that require binding arbitration to resolve employment disputes are truly in their best interest.

 

 

Categories

alternative dispute resolution

employment litigation

arbitration

litigation

What Effect Do the Recent Supreme Court Title VII Cases Have on California Employers?

On June 24, 2013, the U.S. Supreme Court handed down two opinions that were largely heralded as great victories for companies that are regularly sued under Title VII, the federal statute that prohibits: 1) discrimination on the basis of race, color, national origin, sex, and religion; and 2) retaliation against employees that complain of discrimination on one of these enumerated grounds.  In Vance v. Ball State University, 570 U.S. ___ (2013) (“Vance”) the Court defined “supervisor” for purposes of employer harassment liability.  In University of Texas Southwest Medical Center v. Nassar, 570 U.S. ___ (2013) (“Nassar”) the Court identified a strict “but/for” standard in retaliation cases, holding that an employer is not liable for retaliation under Title VII if it would have taken the same action even if the employee had not engaged in the protected conduct of complaining about discrimination.

When Vance and Nassar were handed down, employers emitted audible sighs of collective relief and plaintiff’s attorneys hung their heads in defeat.  But was this just a knee jerk response?  Both of these opinions were analyzed under the auspices of Title VII, a federal statute.  However, California employees generally raise their claims of discrimination, harassment and retaliation under the state’s Fair Employment and Housing Act (“FEHA”) because it provides much broader protections.  This poses the question of whether employers in California will experience any relief stemming from these decisions.

Who is a Supervisor?

In Vance, a controversial opinion delivered by Justice Alito, the Supreme Court resolved a Circuit Court split over the definition of a “supervisor” for Title VII liability in harassment cases.  Defining who qualifies as a supervisor is important because employers are vicariously liable for their supervisors’ discriminatory harassment.  The Court rejected a broader approach that defined a supervisor as a person who directed the plaintiff’s daily work activities.  Instead, the Court held that supervisors are only those with the authority to “take tangible employment actions against the victim … such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing significant change in benefits.”  In most states, employers and their attorneys rejoiced over the narrowly adopted definition, but employers in California would be well advised not to put much stock in the Court’s opinion.

For California employers, Vance’s impact on harassment cases based on FEHA is likely to be limited.  The FEHA imposes strict liability on employers for harassment committed by a supervisor and defines “supervisor” in a manner that resembles the EEOC standard that Vance rejected.  (See Cal. Gov’t Code § 12926(s).)  In fact, the definition of a supervisor under California’s FEHA specifically includes a person who has responsibility to direct other employees.  California courts have relied on this definition to hold that the authority to direct the plaintiff’s day-to-day work could be sufficient to establish supervisory status.  (See Chapman v. Enos, 116 Cal. App. 4th 920, 930-31 (2004) (holding that an employee having the authority to direct other employees’ day-to-day duties is a “supervisor” even if he or she does not have the power to make tangible employment actions, such as hiring, firing, or ordering transfers)).  Thus, California employers sued under the state’s FEHA are not likely to find much cause to celebrate the Vance decision.

What is the Standard to Establish Employer Retaliation?

The other big victory for employers sued under Title VII came in Nassar, 570 U.S. __ (2013).  The question in Nassar was whether the retaliation provision of Title VII requires a plaintiff to prove but-for causation (i.e., that an employer would not have taken the retaliatory employment action “but for” the plaintiff’s engaging in protected conduct) ‒ or instead, merely requires proof that the employee’s complaints were a “motivating factor” for the employer’s retaliation.  The Supreme Court adopted the strict but-for causation standard, making it much more difficult for employees to prevail on retaliation claims.

In contrast, the California Supreme Court recently adopted a broader causation standard for FEHA discrimination cases in Harris v. City of Santa Monica, 56 Cal. 4th 203 (2013) (“Harris”).  In Harris, the Court held that a plaintiff must prove that her protected status was a “substantial motivating factor” in the employer’s adverse employment action.  While this holding was specifically in the context of establishing discrimination, California’s FEHA uses the same language to define the causation standard for both retaliation and discrimination claims.  Some have speculated that because the Harris holding did not specifically address retaliation, California courts might still be influenced by Nassar when deciding retaliation claims.  However, since the FEHA uses the same language to articulate the causation standards for both causes of action, courts are more likely to apply the “substantial motivating factor” standard to retaliation claims.

Conclusion

Employers in California are subject to both federal and state law so employers that escape liability under Title VII can still be held liable under California’s FEHA.  Because of the broader protections provided under FEHA, employees are more likely to sue under the state law.  As a result, the recent Supreme Court Title VII cases are expected to have little, if any, effect on employers sued in California.