Category Archives: California Questions

Multistate Non-solicitation Agreements: Does One Size Fit All?

Many employers have offices in multiple states, but want to have one form of employee agreement prohibiting solicitation of employees and customers. Since some state laws, namely California, may be too different to reconcile with other states, what sort of non-solicitation agreements work in California?

In California, non-solicitation agreements are reviewed as contracts which prevent a person from engaging in a profession, trade or occupation which, with limited exceptions, are void under Business and Professions Code section 16600. Thus, recent cases have held that an agreement between an employer and employee prohibiting the solicitation of customers is not enforceable unless tied to the employee’s use of trade secrets or some other legal duty owed by the employee.

Employers have tried to draft enforceable non-solicitation clauses by characterizing customer and employee information as trade secrets. In late 2018, in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. the Court of Appeal upheld summary judgment in favor of the former employee defendants and their new employer. The former and new employer were competitors providing temporary travel nurses to medical facilities across the U.S.

The employee defendants were recruiters who signed agreements that “during employee’s employment with the Company and for a period of one year after the termination employee shall not directly or indirectly solicit or induce, or cause others to solicitor or induce, any employee of the Company . . . to leave the service of the Company.” AMN claimed that the travel nurses names and contact information were trade secrets. The court concluded that the nurses had applied to AMN years before and that the information was already in AMN’s possession or could have been obtained from other sources such as a public media group network, the Gypsy Nurse Group. For this reason, and because the employee’s profession was the recruitment of other employees, the Court found the non-solicitation agreement unenforceable.

Employers in California must therefore normally tailor any non-solicitation agreements and carefully consider if the employee truly possesses confidential/trade secret information that could be used to solicit customers. To the extent the information the employee would use to solicit is a trade secret, courts have considered the agreement to be valid. Other states may allow broader non-solicitation agreements, therefore you should use different forms to receive the maximum protection in those states.

In a Common Sense Decision, Appellate Court Clarifies Deadline for Employers to Issue Wage Statements under Labor Code Section 226

It’s a situation any Human Resources professional might find themselves in – circumstances require you to effectuate a termination in short order and you have to scramble to calculate the employees’ correct final pay and prepare a paycheck. But what if the wage statement is not ready? Does the law require employers to provide a wage statement to a terminated employee simultaneously with their final paycheck? Thanks to a recent decision from the California Court of Appeal, you have a little breathing room.

In Canales v. Wells Fargo Bank, 23 Cal. App. 5th 1262 (2018), Wells Fargo had a practice of paying certain terminated employees final wages via cashier’s checks – which were prepared in the bank branch – and then mailing the wage statements to the employees from another location, either that same day, or the following day. The plaintiff complained that the wage statements should have been provided simultaneously with the paychecks, and that Wells Fargo’s practice of mailing them constituted a violation of California Labor Code section 226, which provides:

“…[e]very employer should semimonthly or at the time of each payment of wages, furnish each of his or her employees, either as a detachable part of the check, draft, or voucher paying the employee’s wages, or separately when wages are paid by personal check or cash, an accurate itemized statement in writing…”

Wells Fargo responded that it was in compliance with the statute because:

1) The statute does not require simultaneous delivery of wage statements and specifically allows employers the option to provide wage statements “semimonthly;” and

2) It was permitted to mail the wage statements, because the statute provides that wage statements can be delivered “separately” in the case of a cashier’s check, which is analogous to cash.

The court agreed, holding, “…if an employer furnishes an employee’s wage statement before or by the semimonthly deadline, the employer is in compliance.” The court explained that it interpreted the phrase ‘“semimonthly or at the time of each payment of wages’ as representing the outermost deadlines by which an employer is required to furnish the wage statement.” The court provided the following example:

[S]uppose an employer furnishes wage statements on the first and 15th of each month. The employer discharges an employee on the second of the month. Per the statute’s plain language, if an employer pays the final wages by personal check or cash, it has the option of furnishing the discharged employee with the wage statement.

We find it illogical to conclude an employer violated section 226 by furnishing a wage statement before the semimonthly date has been reached. If the employer furnishes the wage statement to the discharged employee of the fifth of the month, the employer has complied with the requirement that it furnish the wage statement to the employee “semimonthly” because the employee would have ostensibly been furnished with the wage statement by the semimonthly date.

The court also rejected the plaintiff’s reliance on the California DLSE (Division of Labor Standards Enforcement) Enforcement Policies and Interpretations Manual, which provides, “[a] California employer must furnish a statement showing the following information to each employee at the time of payment of wages (or at least semi-monthly, whichever occurs first),” holding that the Manual is not entitled to deference as an agency regulation because it was not promulgated in accordance with the Administrative Procedure Act. The court also did not find the agency’s interpretation persuasive, finding that the term “whichever occurs first” appears nowhere in the statute, and simply does not make sense given that the statute specifically provides employers a choice of two separate timeframes to issue wage statements:

1) “semimonthly” or

2)“at the time of each payment of wages.”

The Canales decision is certainly one where common sense prevailed. Keep it in mind next time next time you have the final pay, but not the wage statement, ready at the time of termination.

Quirky Question #281: Deploying the DTSA

Question: We believe our former employee recently stole some of our trade secrets and went to a competitor.  Can we rely on the Defend Trade Secrets Act to bring suit in federal court?

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Question #275: Can We Take A Stand On Employees Sitting?

Question: Some of our retail company’s employees in California are demanding chairs to sit in while they work. Management thinks it appears unprofessional to have workers sitting, but I hear the employees might have a legal right to sit down. Should management take a stand?

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Question #272: Competing in California

Question: One of our company’s employees recently left to start a competing business. We think he started this process while he was still employed by us, and that he is probably using information he learned from us.  We’re in California, so I know we don’t have a non-compete agreement with him.  Do we have any other recourse?

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