On September 11, 2020, Governor Newsom signed Assembly Bill 2143 (“AB 2143”), which adds further nuances to last year’s AB 749 regarding no-rehire clauses in settlement agreements. AB 749 was part of the #MeToo inspired legislation, which prohibited no-rehire clauses in settlement agreements regarding employment disputes. Prior to AB 749,
Articles Discussing Restrictive Covenants And Unfair Competition In California.
On April 30, 2020, the Supreme Court of California issued its decision in Nationwide Biweekly Administration, Inc. v. Superior Court of Alameda County, a case that received a fair amount of attention in 2019 when it seemed possible the court might allow claims under California Business & Professions Code Sections
Yesterday, California Attorney General Xavier Becerra and Assemblymember Marc Levine (D-San Rafael)announced Assembly Bill 1130 which is intended to strengthen California’s existing data breach notification law. In short, AB 1130 would amend the existing law to include passport numbers and biometric information (e.g., fingerprint and retina scan data) in the definition of personal information, so that, if breached under the law, notification to consumers would be required.
On January 11, 2019, a California federal district court issued a decision bolstering the argument that employee non-solicitation clauses are unenforceable under California law. In Barker v. Insight Global, the judge declined to interpret narrowly another recent California state court of appeal decision finding that a clause restraining former employees from soliciting former co-workers constituted an unenforceable restraint on trade, and was therefore invalid. In light of these decisions, employers need to carefully consider eliminating such clauses from their employment contracts for employees located in California.
Executive Summary: Last month, California’s Fourth District Court of Appeal issued AMN Healthcare, Inc. v. Aya Healthcare Servs., Inc., 28 Cal. App. 5th 923 (Cal. Ct. App. 2018), a decision calling into question the validity of non-solicitation of employees a/k/a anti-piracy provisions in California. Prior to this decision, California’s Supreme Court had left open the issue of whether anti-piracy provisions were enforceable. Arguably, there now exists a split in authority in California with regard to the enforcement of these provisions, although this recent decision may be construed narrowly to its context: staffing companies.
Answering a question left from a previous appeal in the same case, a divided panel of the U.S. Court of Appeals for the Ninth Circuit has concluded that a settlement agreement provision between a physician and his former employer, the California Emergency Physicians Medical Group (“CEP”), constituted a “restraint of a substantial character” on the physician’s medical practice and therefore violated California’s non-compete provision, Cal. Bus. & Prof. Code § 16600. As a result, the entire settlement agreement was void and unenforceable. Golden v. California Emergency Physicians Med. Grp., No. 16-17354 (9th Cir. July 24, 2018).
A federal appeals court has held a forum selection clause in a non-disclosure agreement does not cover trade secret misappropriation and related claims that are not based on the agreement. In re Orange, S.A. v. United States District Court, 2016 U.S. Ap. LEXIS 648 (9th Cir. 2016).
On October 21, 2015, the California Supreme Court ordered the publication of SingerLewak LLP v. Gantman underscoring the importance of utilizing arbitration agreements to enforce what a California court might consider to be an unenforceable covenant-not-to compete.
A California appellate court recently affirmed the trial court’s ruling in Cypress Semiconductor Corporation v. Maxim Integrated Products, Inc. that the defendant (“Maxim”) was entitled to attorney’s fees under California Civil Code section 3426.4 even after the plaintiff (“Cypress”) voluntarily dismissed the action without prejudice. Section 3426.4 awards reasonable attorneys’ fees and costs to a prevailing party if a claim of misappropriation of trade secrets is made in bad faith. The appellate court supported its finding on the basis that: (1) Cypress accused Maxim of nothing more, and Maxim did nothing more, than attempt to recruit the employees of a competitor, which Maxim was entitled to do under California law, and (2) Maxim was the prevailing party after Cypress dismissed the suit to avoid an adverse determination on the merits.
The California Court of Appeal has upheld an award of monetary sanctions against a company that brought a lawsuit against its competitor that the court found was meritless and intended to stifle competition. Cypress Semiconductor Corp. v. Maxim Integrated Products, Inc., H038555 (Apr. 28, 2015). Cypress sued Maxim for trade secret misappropriation, alleging Maxim was attempting to hire its employees in violation of California law.
To resolve employment disputes, whether in litigation or at a separation, typically, the parties wish to go in separate directions and not cross paths in the future. Consequently, separation or settlement agreements provide compensation and employees often agree not to seek future employment with their former employer and agree that should they unexpectedly come to work for their former employer due to an acquisition, merger or other incident that cause will exist to terminate that employee. The viability of such "no future employment" provisions has been called into question by the Ninth Circuit’s decision earlier this week in Golden v. California Emergency Physicians. In Golden, the Ninth Circuit overturned a District Court’s order finding a "no future employment" provision enforceable. The Ninth Circuit extended the reach of Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (2008), and Cal. Bus. & Prof. Code § 16600, to settlement agreements in a case of first impression by a 2-1 decision over Judge Kozinski’s dissent. The Ninth Circuit was not moved by the fact that the plaintiff was being paid a large sum of money, in part, to move on and give up his right to work for or seek employment with his former employer. Nor was it convinced by Judge Kozinski’s dissenting conclusion that the California Supreme Court would uphold such an agreement. The Court directed the lower court to re-examine the agreement to make a determination as to whether the provision constitutes a substantial restraint on the plaintiff’s trade, in order to determine whether the provision was enforceable. California employers should continue to monitor this case on remand before the district court and consider the impact of this decision in conjunction with preparing separation and settlement agreements arising out of employment to make every effort to ensure enforceability of any "no future employment" provision.
On October 15, 2013, California’s Fourth Appellate District held that claims for breach of contract, breach of fiduciary duty, unfair competition, interference with business relations, and conversion are not preempted by California’s Uniform Trade Secrets Act (UTSA). The case is in Angelica Textile Servs., Inc. v. Park et al.
A California federal court recently dismissed a lawsuit seeking a declaration that a non-compete agreement is unenforceable under California law, upholding the parties’ Washington forum selection clause. Meras Engineering, Inc. v. CH20, Inc., No. C-11-0389 EMC (N.D. Cal. Jan. 14, 2013). CH20 is a Washington corporation with its principal place of business in Washington. Meras Engineering, a competitor of CH20, is a California corporation with its principal place of business in California. Rich Bernier and Jay Sughroue are citizens of California who used to work for CH20 almost exclusively in California. Their employment agreements with CH20 each contained a non-compete clause, a Washington choice of law clause, and a forum selection clause designating Washington as the exclusive forum for lawsuits over their agreements.
California’s statutory ban on non-competes contains an exception for covenants given in connection with the sale of a business and its goodwill. The exception in California Business and Professions Code section 16601 (the “16601 exception”) was created to protect a buyer’s interest in enjoying the goodwill it purchased free from competition by the seller. With limited case law interpreting the exception, buyers often struggle with the question of how to best protect themselves against later competition from a seller who initially accepts post-closing employment with the buyer – must the restriction be tied to the closing date and the products and customers in place on that date or can it be tied to the employee’s later departure from the new entity and include post-closing products and customers? A recent decision from the California Court of Appeal, Fourth District, provides some guidance for those trying to draft enforceable covenants.
Affirming the dismissal of an employer’s claim for breach of a non-competition agreement, the California Court of Appeal has held that the agreement was void and unenforceable under California law although the parties entered into the agreement in connection with a business sale. Fillpoint, LLC v. Maas, No. G045057 (Cal. Ct. App. Aug. 24, 2012). Significantly, the Court found the agreement overbroad and not limited to protecting the buyer’s interest in the goodwill of the business.