Employment Archives - Page 2 of 3

In this latest installment, we revisit the topic of California non-competition agreements (also referred to as California non-compete agreements). This time the focus is on California Business and Professions Code 16600.

In the recent case of Golden v. Cal. Emergency Physicians (9th Cir. 12-16514 4/8/15), the 9th Circuit revisited California’s stark prohibition against non-competition agreements (aka non-compete agreements). In this case, the Court held that the district court “abused its discretion” in holding that California Business and Professions Code 16600 (prohibiting non-compete agreements) did not apply to a no-employment provision contained in the drafted settlement agreement.

In summary, Dr. Golden apparently filed a discrimination lawsuit against Cal. Emergency Physicians (CEP), and the parties ultimately drafted a settlement agreement. In such agreements, there is typically a routine no “re-employment” clause. Many employers obviously want closure, and want certainty that once they settle a claim with the employee, the employee is not going to re-apply for a job next week.

The particular clause at issue provided as follows: “that…Golden shall not be entitled to work or be reinstated at any CEP-contracted facility or at any facility owned or managed by CEP.” It went on to state “if CEP contracts to provide services to, or acquires rights in, a facility that is an emergency room…at which Golden is employed or rendering services, CEP has the right to AND WILL terminate Golden from any work in the emergency room without any liability whatsoever.”

In reaching its decision, the Court reasoned: “The courts of California have not clearly indicated the boundaries of section 16600’s stark prohibition but have nevertheless intimated that they extend to a considerable breadth. At the very least, we have no reason to believe that the State has drawn section 16600 simply to prohibit “covenants not to complete” and not also other contractual restraints on professional practice.”

While the big picture seems to be an affirmation of California clearly stated policy of “open competition and employee mobility”, the court left it to the district court to determine whether this language is in effect a “restraint of a substantial character to Dr. Golden’s medical practice.” In dissent, Judge Kozinski seemed to believe that it was impossible to determine at this point in time whether the provision was in fact a restraint on Dr. Golden’s ability to practice his profession, and that if it did work to that effect in the future, Dr. Golden could argue that the provision was void.

The case is not finished yet, however one implication is that a no re-employment provision drafted into a settlement agreement could perhaps be considered to be a violation of BPC 16600. Depending on other terms of the contract (i.e. whether or not there is a severability clause), either the entire agreement or just the restriction could be voided. If the settlement agreement is voided, then the employer will have paid the money and have no settlement. Of course, this would probably sort itself out, but it will cost (a) time and (b) money. Not a good square to land on. Alternatively, just that clause may be voided, in which case the employer will have paid the money and then the employee could re-apply, and claim retaliation if he or she is not hired. Again, not a place where an employer wants to be after settling a litigation.

Non-compete agreements remain a battleground issue in California, even with the strong language of BPC 16600 and accompanying California Supreme Court decisions, so we’re sure there will be more to follow on this topic…

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of December 2014, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 8 States outside of California and 9 foreign countries — in over 380 legal matters.

For more information about this topic or to speak with Chris Adishian:

Today the Division of Labor Standards Enforcement (“DLSE”) published a template that employers can use in order to comply with the new notice requirements set forth in Labor Code section 2810.5. A Word version can be downloaded here and a PDF version can be downloaded here. www.dir.ca.gov/DLSE

All California employers are required to provide a notice to all employees hired beginning on January 1, 2012 that complies with the requirements of section 2810.5. The new law required the Labor Commissioner to publish a template for employers to use in order to comply with the new law. For more information regarding the notice, and the new law, see my previous post.

I’ve only had a chance to do a quick review of the template, but one area of new information that the DLSE is apparently requiring on the notice is whether the “employment agreement” is oral or written in the wage information section of the template. The new Labor Code section 2810.5 did not require this to be on the notice to the employee, but the law does provide that there may be “[o]ther information added by the Labor Commissioner as material and necessary.” I am wondering if the fact that all employers are required to provide this information on the form necessary means that the “employment agreement” is therefore always going to be written.

In this article we review an unpaid bonus in the context of an MBO plan. An unpaid bonus claim is straightforward. The Company promised the employee a bonus for hitting certain targets. The employee hit the targets. The Company failed to pay, resulting in a claim for unpaid bonus. The unpaid bonus can run from low thousands to hundreds of thousands of dollars based on employee role and company size.

What is an MBO Compensation Plan?

Also known as a “bonus plan,” “quota plan,” “incentive compensation plan,” “performance based compensation plan” and an array of other terms, “MBO” literally means management by objective, and in practice refers to any compensation plan where total compensation is determined based on a “pre-set” formula tied to volume, gross margin, revenue or another objective metric or metrics. MBOs are commonly used for the employees working in sales, business development or the executive suite.

Everybody Wins, Right?

Employers like MBO plans because if the employee does not perform, then typically no additional compensation is due under the MBO plan, which helps the Employer match revenue and expenses. Employees love MBO plans because there is theoretically no limit on how much money they can make. These plans appeal to the enterprising, self-starter who wants to work hard, and get a clear, direct reward for his or her performance.

Where It Goes Wrong

It all seems so easy, how can there be any problems? Issues arise when the performance period (whether quarter or year) comes to a close, performance has been delivered and it is time to measure performance and deliver on payment promises. For the employee, there is an obvious motivation to get as many transactions as possible to count towards their totals. For the employer, there is an opposing motivation to lower it payment obligations either by (1) aggressively applying the MBO by using any ambiguities to disqualify deals or (2) retro-actively revising the MBO outright (when management wishes to revise the MBO plan retroactively for any number of reasons — these revisions only mean one thing, compensation paid to the employees covered by the MBO plans, in general and in specific, is going DOWN.).

This situation occurs frequently across companies of all shapes and sizes and can quickly cause the employment relationship to deteriorate. In many cases, the employee will claim that the employer has received all the benefits (i.e. new revenue), and is now failing to deliver on it payment promises. Likewise, in such cases the employer will claim that the employee is counting improper deals, claiming credit for the performance of other employees and/or even engaging in unethical behavior!

If you find that your compensation plan has been retroactively revised, or if your employer has failed to pay bonuses or other compensation that is owed to you, we recommend that you consult with an attorney immediately.

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

In this article we tackle the question: “Are stock options wages under California law?”

The Definition of Wages in California

Under California Labor Code §200 wages are defined to include “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” Further, California courts have specifically held that a “bonus” constitutes wages. See Ralphs Grocery Co. v. Sup. Ct. (Swanson) (2003) 112 Cal. 4th1090, 1103, 5 Cal. Rptr. 3d 687, 697 International Business Machines Corp v Bajorek. Pursuant to California Labor Code §201 et. seq., if an employer discharges an employee, the wages earned and unpaid at the time of discharge are due and payable immediately. The California Labor Code goes on to provide for waiting time penalties, interest and attorneys’ fees should an employer fail to timely page wages in whole or in part.

Traditional Rule: The “Fixed or Ascertainable” Test

In 1999, stock options were held to not fall within Labor Code § 200 because they are not “amounts” of money, and their value cannot be ‘fixed or ascertainable.’ Int’l Bus. Machines Corp. v. Bajorek (191 F3d 1033, 1039-1040). The Court in IBM wrote:

“The statute does not apply because its words read literally and in light of its purposes do not apply — stock options are not “wages.” Wages are defined by the statute as “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” *fn17 Stock options are not “amounts.” They are not money at all. They are contractual rights to buy shares of stock. . . . The amount of money for which the shares can be sold on the market varies unpredictably from time to time, so it is not “fixed or ascertainable” by any method of calculation when the agreements are made or exercised. . . . they ordinarily do not give rise to an expectation of a calculable sum of money. *fn18. The value of the stock awarded in options may be as much affected by the fortuities of stock market behavior as by the profitability of the company.”

Does the IBM decision still make sense?

Int’l Bus. Machines Corp. v. Bajorek was decided in 1999, three years before Sarbanes-Oxley and about six years before US GAAP adopted the standard practice of “expensing” the value of stock options.

If stock options can in fact be “expensed” — then it must be that Companies are capable of assigning options a “fixed or ascertainable” value (either through Black-Scholes, the binomial model or some other methodology). Thus, if stock options are “fixed or ascertainable”, then it would seem to follow naturally that they are wages and subject to all the protections afforded to employees under the California Labor Code.

Examining the contrary position, saying that stock options are “fixed or ascertainable” for financial reporting purposes but not “fixed or ascertainable” for the purposes of calculating wages under law would seem to contort reason. In fact, to our understanding, that is the very purpose of “expensing” options — so that the shareholders know how much the Company is paying in wages via stock options!

Implications for Employees with Stock Option Compensation

It is well settled that California public policy requires the prompt payment of wages. With the development of significant secondary markets for securities in privately held Companies, we believe that the recognition of stock options as wages has potentially significant impact for owners and employees in start-up companies in Silicon Valley and elsewhere where compensation packages are typically well-below market in salary and heavily weighted with stock options. We also believe that this issue is significant for Senior Executives of publicly-traded Company whose compensation consists of significant stock option grants. Some questions to consider:

What if your stock options are vested but unexercised and you are terminated?
What if you are terminated just prior to your first block of stock options vesting (e.g. cliff vesting)
What if you are terminated just prior to additional stock options becoming vested?
What if your vested stock options expire after your termination?

What if we substitute the words “earned wages” for “stock options,” in the preceding questions? Does your answer change?

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

In this article we revisit the topic of California non-competition agreements (also referred to as California non-compete agreements).

In the recent Silguero case, the California Court of Appeal for the Second District was presented with a twist on a recurring issue….that is, the enforceability of non-compete agreements in California. (See this blog’s earlier post, California Non-Compete Agreements).

Summary Facts:

In Silguero, the Plaintiff was employed as a sales rep for Company A. During her employment with Company A, Silguero was required to sign an agreement which prohibited her “from all sales activities for 18 months following either her departure or termination.” Silguero was eventually terminated from Company A, and she subsequently found employment with Company B. Thereafter, Company A contacted Company B and informed Company B that Silguero had signed a confidentiality/noncompete agreement with Company A, which prohibited Sugiura from all sales activities for 18 months following her departure from Company A. As a result of this communication from Company A., Company B terminated Silguero. Silguero sued Company B under various theories, including a Tameny claim (termination in violation of California public policy). The lower court granted Company B’s demurrer without leave to amend and Silguero appealed.

Holding:

The Second District reversed and remanded as to the Tameny claims, holding that Silguero had a viable Tameny claim against a subsequent employer based on public policy violation of California BPC 16600.

We’ve seen this fact pattern prior to the Silguero ruling, and we believe that it is not an uncommon practice in California.

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

California overtime law is an area of constant confusion, tension and struggle with employers and employees.

Legislation which became effective on January 1, 2000 implemented significant changes to California’s labor laws. One major impact of this legislation is that California has since become a “daily overtime” state. What is the difference between a “daily” overtime paradigm and a “weekly” overtime paradigm?

Weekly v. Daily Overtime

In much of the U.S. an employee who works more than eight hours per day but less than forty hours per week is entitled to just their standard rate of pay (i.e. “straight” time). But in California, all non-exempt (i.e. “hourly”) employees who work in excess of eight hours per day must be compensated for their excess hours at one-and-a-half (1.5x) times their normal rate of pay — even if the employee works LESS than 40 hours that week. Moreover, employees who work in excess of twelve hours per day be compensated at twice (2x) their standard rate of pay for each additional hour worked.

Example: To illustrate the difference in these two approaches, consider an employee who works ten hours per day, four days per week at a straight rate of $10/hour.

Under California’s daily overtime law, this employee would be paid her standard $10/hour rate for the first eight hours worked each day, but would be paid $15/hour for each additional hour worked that same day. Total earnings would be: $460 = $320 (4 * $80 per day) + 120 (4 * $30 per day).

Under a weekly overtime law, this employee would be paid her standard $10/hour rate for all 40 hours. Total earnings would be: $400 = (4 * $100 per day).

Somewhat predictably, management/ownership tends to favor the weekly overtime approach, and labor/employees tend to favor the weekly approach.

Daily overtime works in concert with Weekly overtime

Of course, the daily overtime legislation does not affect the “weekly overtime” provisions which are foundational principles of labor law nationwide. Under California’s weekly overtime laws, any employee who works either (1) in excess of forty hours per week, or (2) more than six days per week, is entitled to overtime compensation. Such an employee will receive one-and-a-half times their normal pay for each hour worked in excess of forty hours, or each hour worked on the seventh day, respectively. Additionally, on the seventh day of work in a single week, each hour worked in excess of eight hours requires compensation at double the ordinary rate of pay.

If you are an hourly employee in California, and work more than eight hours per day, forty hours per week, or six days per week, you have the right to overtime and double time rates of compensation for those additional hours. If you believe you are not being compensated in accordance with California’s overtime laws, please contact our firm for a free consultation.

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

Unpaid wages, unpaid bonuses or unpaid commissions all refer to the same basic wrong, the employee was not paid! Litigation for unpaid wages, bonuses or commissions are among the most frequently filed lawsuits in America.

In an earlier blog post, we highlighted that under California statutory law, “wages” are broadly defined, and that case law has specifically included “bonuses” in the definition of wages.

Why it matters….

Pursuant to California Labor Code § 201 et. seq., if an employer discharges an employee, the wages earned and unpaid at the time of discharge are due and payable immediately. Simply put wages are due on the date of termination. If you are employer you should build that into your planning when conducting terminations or layoffs. If you are employee, you should make sure that you are paid all wages due on your date of termination, and certainly prior to signing any release. Failure to properly and timely pay wages can have consequences far in excess of the underlying amount due, including:

waiting time penalties;
interest and
attorney’s fees.

Waiting Time Penalties

California Labor Code § 203 “[i]f an employer willfully fails to pay, without abatement or reduction, in accordance with sections 201, 201.5, 202, and 205.5, any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefore is commenced.”

Interest

California Labor Code § 218.6 further provides that “[i]n any action brought for the nonpayment of wages, the court shall award interest on all due and unpaid wages at [an annual rate of 10 per cent] as mandated by subdivision (b) of § 3289[1] of the California Civil Code, which shall accrue from the date that the wages were due and payable as provided in Part 1 (commencing with § 200) of Division 2.”

Attorney’s Fees

“In any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions, the court shall award reasonable attorney’s fees and costs to the prevailing party…” Labor Code §218.5. With the cost to get to trial in high-stakes cases running well into six figures on the plaintiff’s side, there is substantial exposure to a defendant company that fails to properly pay wages.

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

What amounts are included in wages? We get variations on this question all the time including, “Is my bonus part of my wages?”

The Law

Wages are defined under California Labor Code § 200 to include “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” This is a very broad definition that includes virtually any form of compensation used in the modern economy, so long as it is “fixed or ascertainable” by some “method of calculation.”

Yes, under California law bonuses are wages. Ralphs Grocery Co. v. Sup. Ct. (Swanson) (2003) 112 Cal. 4th1090, 1103, 5 Cal. Rptr. 3d 687, 697.

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

If you are about to be fired (or just got fired)…What Should You Do?

Whether you see your own layoff on the horizon or think it could never happen to you, it is important to be prepared for a layoff in today’s economic climate. Lawrence Mishel, president of the Economic Policy Institute in Washington, D.C. recently told the New York Times, that the state of our economy right now is “indistinguishable from a recession.” Families are “losing jobs, and they’re getting a double bite as wage growth slows down and inflation kicks up. People are losing out on both ends.” Part of any economic downturn includes layoffs, as companies often look to cutting their payroll as a first option for eliminating costs.

Treading lightly around the office or storming out is the wrong move and could adversely affect your chances of a severance package or preserving your rights. Losing your job can be, and often is a traumatic experience (it ranks up there with divorce, death or bankruptcy for many people). Being prepared for a layoff and knowing your legal rights can help to minimize the negative aspects, and even turn it into a positive event for you and your career growth. So, what should you do?

1. Stay Calm, Don’t Take It Personally

The first reaction for most terminated employees is an emotional one. The pressures of financial and familial obligations can be overwhelming when you see your job and cash flow flash before your eyes. However, your last few hours in the workplace may be your best chance to get important information regarding your employment. If you can, obtain an electronic or hard copy of your personal files (including contact lists, photos), any performance reviews, customer/client commendations, or emails which you think may be important. [In California, you have the right to view your personnel file (California Labor Code §1198.5), which contains important information regarding your hiring, employment and possibly your termination. Ask human resources for a copy of your file before you leave on your last day.

2. Contact Our Firm

If you believe your termination was (or will be) wrongful, or if you simply are not sure please fill out our free wrongful termination submission form on our website for a free, no obligation review. You can also call us at 415.955.0888 or 310.726.0888. Many times these cases start with circumstantial evidence (i.e. it just seems like it was wrong, or something doesn’t seem right). Use our free case submission to organize your facts and submit it to us.

The law favors those who act on their rights. Undue delays result in a violation of a statute of limitations, causing you to lose your rights. Acting quickly also increases the likelihood that evidence (witnesses, documents, etc.) will be available.

3. Don’t Sign Away Your Rights

Do not let company management or human resources intimidate or coerce you into signing anything which you have not fully read or do not understand. Ask questions, ask for time to consult your own attorney – this is a reasonable request that any company should grant. Yes, you may be losing your job, but you don’t want to lose any of your legal rights. Most companies have form separation and release agreements on file for such an occasion which release the company of any and all liability. Do not take the word of a co-worker or superior as to the contents of any document you sign. Ensure you know what the consequences of signing are and consult an attorney.

4. Keep Detailed and Thorough Notes of Any Meetings and Events

Many times, we meet with clients to hear their stories and collect important information about their employment. More often than not, clients call us two, three, even ten days later to say, “I just remembered, there was that one time when . . .” Details can often slip your mind when you are being ushered out your office door, or rumors of layoffs have your head spinning. After conversations or meetings regarding your termination or related events, write down the date, time, and details of each. Ideally, you will already have a record of key workplace related evets written down in a personal notebook or on your home computer (not at the office).

Reliving the details of your layoff may be the last thing you want to do. However, writing down the details in an orderly chronology [date, time, event] will help you recall events to the best of your ability and better assist any attorney who tries to assess your situation or make an argument on your behalf. The smallest details can make the biggest of differences, and many times you may not recognize what those important details are until after consulting with an attorney.

It is perfectly acceptable to ask a friend, or co-worker, to sit in on the meeting and take notes. Having a more objective listener’s perspective can add more details to your timeline, bring a sense of calm to the proceeding and of course serve as a witness.

Apply for Unemployment Benefits

Lastly, apply for unemployment benefits. You can apply via the web at https://eapply4ui.edd.ca.gov/. It is important to do this as soon as possible after your termination. Some people, especially in the higher earning salary brackets (six figures and up) feel reluctant to apply for unemployment. Our position is: Apply for it. You pay into it while you are working, and it is another source (other than your personal savings) to help you bridge the gap economically until you land your next job.

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

California Non-Compete Agreements: It’s No Contest after Edwards

Long-term employment when companies quickly become aware the past for most American workers, especially in the technology forward California economy. Employers have benefited from these changes, by receiving the benefit of rapid flexibility in their employee base and hence cost structure. Employees have arguably benefited in some ways as well, by taking advantage of easy mobility within the workforce. Some employers have also gone one step further, by seeking to you protect themselves by adding “non-competition clauses” to their employee’s contracts.

What is a non-competition clause?

Generally speaking, a non-competition clause is any form of language in an employment contract that seeks to limit the employee’s ability to “compete” against his/her former employer once he is no longer employed by that employer.

Governing statutory law

California Business and Professions Code Section 16600 clearly forbids non-competition contracts and non-competition clauses, providing “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” In spite of the plain language of Section 16600, companies have continued to require that their employees sign non-competition agreements, asserting that these agreements somehow comply with Section 16600.

California Supreme Court Decision

In Edwards v. Arthur Andersen LLC 2008 DJDAR 12286, the California Supreme Court unambiguously held that non-competition agreements are void in California. In summary, this case arose out of the collapse of Arthur Andersen. Edwards had been an employee of Arthur Andersen, which was subsequently purchased by HSBC.

Before hiring any of Andersen’s employees, HSBC required them to execute a “Termination of Non-compete Agreement” (TONC) in order to obtain employment with HSBC. Among other things, the TONC required employees to, inter alia, (1) voluntarily resign from Andersen; (2) release Andersen from “any and all” claims, including “claims that in any way arise from or out of, are based upon or relate to Employee’s employment by, association with or compensation from” defendant; (3) continue indefinitely to preserve confidential information and trade secrets except as otherwise required by a court or governmental agency; (4) refrain from disparaging Andersen or its related entities or partners; and (5) cooperate with Andersen in connection with any investigation of, or litigation against, Andersen. Edwards signed the HSBC offer letter, but he did not sign the TONC. In response, Andersen terminated Edwards’s employment and withheld severance benefits. HSBC withdrew its offer of employment to Edwards. Litigation ensued.

At trial, the court “specifically decided that (1) the non-competition agreement did not violate section 16600 because it was narrowly tailored and did not deprive Edwards of his right to pursue his profession;…..” Edwards appealed. The Court of Appeal held that the non-competition agreement was invalid under section 16600. The decision was appealed and the California Supreme Court granted review.

In reaching its decision, a unanimous Court wrote: “We hold that the non-competition agreement here is invalid under section 16600, and we reject the narrow-restraint exception urged by Andersen. Non-competition agreements are invalid under section 16600 in California even if
narrowly drawn, unless they fall within the applicable statutory exceptions of
sections 16601, 16602, or 16602.5.” [J. Kennard and Werdeger concurred with respect to the non-competition issue, and dissented on a separate issue].

Lessons from Edwards

Clarity provided by this decision is significant especially in the California economy particularly Northern California, where high-tech job hopping is more common than not. This decision is also supported by some recent studies that concluded the constant shifting of resources and personal intellectual capital from one company to another was a major contributor to innovation and growth. See generally, The Legal Infrastructure of High Technology Industrial Districts: Silicon Valley, Route 128 and Covenants Not to Compete, 74 N.Y.U.L Rev. 575 (1999).

The lesson is that if a California employer asks you to sign a non-competition agreement it should be viewed as a cautionary sign. If you have already signed a non-competition agreement within California, you should feel comfortable that such an agreement is void, absent the agreement falling “within the applicable statutory exceptions of sections 16601, 16602, or 16602.5.”

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian: