Author Archives: Veronika Short

Legislature Closes a Loophole and Prohibits Out-Of-State Non-Competes in California

Effective January 1, 2017 the new law codified in Labor Code Section 925 prohibits employers from requiring employees who primarily reside and work in California to agree to adjudicate claims against employer somewhere other than California or agree to apply law other than California to their employment disputes. The new law reads:

(a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:

(1) Require the employee to adjudicate outside of California a claim arising in California.

(2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

(b) Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.

(c) In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing his or her rights under this section reasonable attorney’s fees.

(d) For purposes of this section, adjudication includes litigation and arbitration.

(e) This section shall not apply to a contract with an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.

(f) This section shall apply to a contract entered into, modified, or extended on or after January 1, 2017.

I have blogged previously on a common practice by out-of-state employers to require California employees to sign non-compete agreements that violate California law. Non-compete agreements are generally prohibited in California. See this blog post. A typical non-compete agreement was presented as a condition of employment or continued employment. It forced employee to agree to not work for employer’s competitors after leaving employer for a number of months or years, often without adequate compensation.

Over the years I counseled many California-based clients who faced a loss of an otherwise desirable job offer or promotion if they refused to sign a non-compete agreement, made “lawful” by the choice of law and forum provision in a State where non-competes were allowed, such as Washington, Florida or Massachusetts. Alternatively, having signed a non-compete, folks were deterred from accepting a new job with an employer’s competitor and moving forward in their career. Employers enforced these agreements with relative impunity by forcing employees to litigate in foreign states, usually using federal court to remove local disputes out of state, where legal costs and unfavorable laws would inevitably work against employees.

By passing the new law California legislature went a long way to stop these practices and ensure that California employees enjoy all of the rights and protections afforded to them by the home state. The new law provides that a contract that violates it is voidable by the employee, unless he or she negotiated the contract through counsel. The new law applies to contracts entered into, altered, modified, renewed, or extended on or after January 1, 2017. This means that many employment agreements, which were entered into prior to January 1, 2017 and contained out-of-state choice of law and forum provisions, will become voidable. The law adds some teeth to enforcement, by entitling employees to reasonable attorney fees and injunctive relief, as well as any other available remedies. By placing control to void an offending contract in the hands of employees and by providing an exception for the assistance of counsel, the law affords employees a stronger bargaining position, should they choose to accept an out-of-state choice of law and forum clause.

Same-Sex Harassment at Work

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California law prohibits sexual harassment and offers protection to workers against employment benefits being conditioned on submission to or tolerance of unwelcome sexual advances and a work environment that is hostile or abusive on the basis of sex.(1)

The topic of workplace sexual harassment typically comes up in the mixed gender environment, with the quintessential example of a male supervisor making unwanted sexual advances toward female subordinate.

Such conduct also occurs between members of the same sex, even if both employees are, ostensibly, heterosexual. A recent appellate decision dealt with this issue and allowed plaintiff, a heterosexual man, to proceed against his supervisor on a sexual harassment claim.(2)

Brian Lewis sued his former employer City of Benicia and two former supervisors. Lewis testified that his former supervisor Hickman showed him pornographic images on Hickman’s computer, told Lewis “risqué” jokes, gave Lewis about 30 different items as gifts, including “tuxedo underwear” and wine, frequently bought lunch for Lewis, invited Lewis to his home and on one occasion said: “[W]hy don’t you just kiss me[?]” Lewis testified also that he felt he had to participate in some of this activity to fit in, did not want any of the gifts and felt uncomfortable. The court found that an inference could be made that Hickman was pursuing a romantic relationship with Lewis and allowed Lewis to pursue a claim of sexual harassment against Hickman (who argued that his conduct was innocuous and a “mere banter as among male co-workers”).

An employee like Lewis does not have to prove that the person harassing him is a homosexual. The judge or jury may infer sexual motivation regardless of how people identify themselves. Ultimately, what matters is that the perpetrator harasses or discriminates because of sex. For example, a jury might find such discrimination when a woman is harassing a female victim, motivated by general hostility to the presence of women in the workplace.(3)

The law imposes a powerful penalty on those who engage in sexual harassment at work. Under California Fair Employment and Housing Act (FEHA), an employee who harasses another employee may be personally liable for any harassment even if their manager or company knew of the conduct or failed to take appropriate corrective action.(4)

  1. Miller v Department of Corrections (2005) 36 Cal. 4th 446, 461; Gov. Code § 12900 et seq)
  2. Brian Lewis v City of Benicia (2014) 224 Cal. App. 4th 1519
  3. See generally Oncale v Sundowner Offshore Services, Inc. (1998) 523 U.S. 75
  4. Gov. Code § 12940, subd. (j)(3)

Employers, be Careful with Your Promises

A new case from the Sixth Appellate District certified for publication on November 22, 2013, reiterates that an employer’s promises of bonuses and other benefits may be actionable even if the terms of such agreements are not perfectly spelled out or reduced to writing.

In Moncada v West Coast Quartz Corp., H03728 (Santa Clara County Sup. Court Case No. 110CV169097), the Court considered whether plaintiffs adequately stated a cause of action for breach of contract and others on the following facts.

Plaintiffs were three key employees of West Coast Quartz Corp.  They sued West Coast and its two individual shareholders, alleging that the company and its officers repeatedly promised plaintiffs that, if they stayed with the company, they would be paid bonuses sufficient for the employees to retire on, once the company was sold.  After five years and many promises to plaintiffs, the company sold for approximately $30 million.  Plaintiffs passed on many job offers and relocation opportunities based on the defendants’ promises, but no bonuses were paid.

The Court of Appeals held that plaintiffs sufficiently alleged a cause of action for a breach of contract, fraud, and promissory estoppel. The Court found that the terms of the contract as alleged were not so vague as to render the promise unenforceable, despite defendants’ argument to the contrary.  The Court quoted from the line of cases establishing principles of contract law, that “[i]n considering expressions of agreement, the court must not hold the parties to some impossible, ideal, or unusual standard.  It must take language as it is and people as they are.  All agreements have some degree of indefiniteness and some degree of uncertainty. …  Moreover, “the law leans against the destruction of contracts because of uncertainty and favors an interpretation which will carry into effect the reasonable intention of the parties if it can be ascertained.”1 The Court found that, in this case, a jury could easily determine (1) whether bonuses were paid at all and (2) what their amounts should be by “using standard formulae and actuarial tables.”2

This case is good news for employees and a reminder to employers that promises to employees may be legally enforceable as a valid contract, whether or not they’re expressed in writing, if the terms are reasonably certain, i.e. the terms provide a basis for (1) determining the existence of a breach and for (2) giving an appropriate remedy.3   This applies to promises of bonuses, stock and other reasonably certain and quantifiable benefits.  This case is also a cautionary tale for the shareholders, who may become personally liable for such promises, regardless of the corporate shield, for fraudulently inducing (lying to) employees to get them to work or suffer other detriment.

1. Moncada v West Coast Quartz Corp., California, 6th Appellate District, H03728, certified for publication 11/22/13, p. 8, 9;

2. Id at p. 10

3. Id at p. 8

When It Comes to Non-Competes, Not All California Employees Are Created Equal

Let’s start with a hypothetical.  You are a California resident, you work in California, and your customers are primarily in California.  Your employment contract provides that after you cease working for your employer, you will not work for any competing business of a similar nature to that of your employer for a period of three years.  You would like to quit and join a competitor of your employer in California.  Can you do that without violating your contract? Is this employment contract legal to begin with?

California is generally known as a “right-to-work” state due to its broad policy against restriction on trade, which is codified in the Business and Professions Code section 16600 et seq.  Subject to select exceptions that do not usually come up in the employment context, section 16600 reads: “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”  This law gives California its fantastic reputation as a state that espouses lively market competition and a mobile work force available for hire at the drop of a hat.  California courts have long applied section 16600 to invalidate contract clauses seeking to prevent employees from working in their profession post-termination.

Does this mean you can peacefully make a transition to a competitor and ignore the draconian three-year post-termination non-compete clause?  Unfortunately for California employees the answer appears to depend on whether the employer is an out-of-state company and the contract has an out-of-state forum and choice of law selection clause.  Let’s get back to the hypothetical.  It was borrowed from the facts of a case decided in the United States District Court, Northern District of California earlier this year, entitled Meras Engineering, Inc. v CH20, Inc., No. C-11-0389 EMC (N.D. Cal. Jan. 14, 2013.)  In that case, CH20, a Washington corporation, employed several sales individuals in California.  The employees were residents of California, worked for CH20 almost exclusively in California and had no clients in Washington.  In addition to the non-compete provisions, CH20’s contracts contained a forum selection provision requiring that any disputes be litigated exclusively in Washington, applying Washington law.  In contrast to California, Washington allows non-competes as long as they are reasonable.

The employees resigned from CH20 and joined Meras Engineering, a California corporation and a competitor of CH20.  The employees continued to live and work in California.  Meras and the employees sued in a California federal court to invalidate the non-compete clauses in the contracts with CH20 under California law.  CH20 sued in Washington seeking to enforce the non-compete clauses against the employees.  Washington federal court ruled that Washington law must apply to the dispute.  California federal court dismissed the California lawsuit, ruling that the forum selection clause determined that Washington is the jurisdiction in which the lawsuit must be resolved.  The court warned that a “forum selection clause cannot be conflated with choice-of-law analysis,” stating also that as “a general matter, the selection of a forum does not always dictate the choice of law.”1 The court appeared unimpressed that the suit in Washington was going to proceed under Washington law stating that “[w]hile Washington law does not categorically prohibit non-compete clauses as does California law, it does subject such clauses to a reasonableness test.”2, 3

Right or wrong, where does this leave California employees working for out-of-state companies?  When interviewing for a job with a company based elsewhere, read your employment agreements carefully.  Be wary of clauses that dictate that disagreements must be litigated elsewhere and limit where you may or may not work after you leave employment.   If you are interviewing with or thinking of leaving a foreign (non-California) employer, get legal advice before you act to prevent professional and legal hurdles down the line.

  1. 3:11-cv-00389-EMC Document 87 Filed 01/14/13 Page 18: 3, 8-9
  2. 3:11-cv-00389-EMC Document 87 Filed 01/14/13 Page 19: 28, Page 20: 1-2
  3. This finding echoes an earlier decision by a California federal court in Swenson v T-Mobile USA, Inc., 415 F. Supp. 2d 1101 (S.D. Cal. 2006) where the court found that enforcement of the forum selection clause (also in Washington) does not contravene a strong public policy of California against non-competes.

Veronika Short is an Employee Mobility Attorney and the owner of the Law Office of Veronika Short.

No Patent? No Problem!

The United States District Court, Northern District of California, recently issued a decision, which makes pleading trade secret protection for patent applications easier.  It also underscores the risk of liability to third parties receiving or using such information.

In Wang v Palo Alto Networks, Inc. (2013 WL 415615 (N.D.Cal.)), plaintiff Wang alleged the following in his complaint:  Wang invented a certain computer firewall technology and applied for a patent.  Wang entered into a joint venture with defendant Gong to commercialize his inventions.  Gong developed a thorough knowledge of the technology, understood that the information was confidential and agreed to maintain it in confidence.  Wang and Gong met with defendant Zuk and discussed potentially joining forces with Zuk’s company, defendant Palo Alto Networks, Inc. (PAN).  Wang and Gong told Zuk that Wang had a pending patent on his firewall technology.  Wang decided not to work with PAN.  Unbeknownst to Wang and without his consent, Gong disclosed Wang’s technology to Zuk.  Gong and Zuk replicated Wang’s ideas and patented them without naming Wang.  Wang alleged that Gong and Zuk misappropriated his trade secrets under the California Uniform Trade Secret Act (CUTSA).

Applying CUTSA’s definition of a trade secret, the Court rejected Zuk’s and PAN’s 12(b) motion challenging the sufficiency of Wang’s pleading of a trade secret infringement claim. The Court stated that “[b]ecause patent applications are usually confidential until published, it is reasonable to infer that Zuk should have known … Gong had acquired trade secrets in the context of a business relationship with Wang …”  Id at 3.

This observation drawn by the Court affects third parties, such as Zuk and PAN, who receive or use information that is subject to a patent application.  At the pleading stage, the court may infer that the information subject to a patent application is a trade secret.  Furthermore, in the context of discussing information that may be subject to a patent application, business parties are expected to know what a trade secret is and how to treat it.  In the very least, this should result in a heightened level of diligence when entering transactions where such information may be disclosed or used.

Homecare Business: Is Your Most Valuable Asset a Ticking Bomb?

Quality homecare for California seniors is a rapidly growing industry in response to the increasingly aging population and because it is a rewarding service. Homecare eases the burdens on the families caring for the elders and, most importantly, allows seniors to live in their homes as long as possible and to maintain their quality of life.

Yet, the industry has its challenges. Common issues include a high turnover rate in the caregiver pool, a lack of professionalism, poor attitude and even unlawful activity, any of which may cost a star homecare business its reputation, clients, or operating budget. California legislature recognizes that people 65 years and older are inherently more vulnerable to financial abuse. Statistics indicate that people over the age of 65 are targeted more heavily by financial predators. Over 70 percent of people over the age of 50 have been approached fraudulently, with no less than $3.8 billion lost by seniors to financial scams.1 California protects its seniors through various forms of legislation, including California’s financial elder abuse statute, Welfare and Institutions Code Section 15610.30.

A homecare business owner should know about this statute. If an employee causes financial loss by fraud or other bad faith conduct to a client who is 65 years or older, the employer may not only end up paying the elder’s losses, but also the elder’s attorney’s fees and costs, even if employer knew nothing of the employee’s “unfitness” for the job. If the employer knew of the wrongful conduct and consciously disregarded it, the business may be penalized with punitive damages. Examples of conduct which may give rise to employer liability include stealing from the elder, inducing the elder to loan the employee money or property, to give gifts, or to invest in the employee’s side business. The statute imposes liability regardless of the elder’s physical or mental capacity. Even a relatively small infraction by an employee may result in losses in tens of thousands of dollars, to say nothing of large or numerous claims.

Clearly, prevention is the key. Businesses that protect their clients protect themselves. Prevention starts with a legal audit of existing practices with regard to hiring the caregivers and training and educating them in the business’ policies and procedures. Once deficiencies are identified and corrected, next comes a rigorous implementation of such policies, including but not limited to regular oversight through customer feedback, meetings with employees and prompt investigation of any complaints. An honest litigator will tell you that the common stumbling blocks to paying for an audit and a set of working employment policies, of “time, cost and “we have never been sued (therefore it will never happen),”” pale in comparison to the time and cost of fighting disputes in court or paying judgments.

Experience shows that auditing hiring practices and properly training and supervising employees addresses problems before they come from the clients or their lawyers. And then your most valuable asset – your employees – ensure your stellar reputation, economic prosperity and much needed undisturbed sleep.

1 Elder Financial Abuse Task Team Report to the California Commission on Aging, available at (last visited August 27, 2013)

Generation Gap in Attitudes toward Confidential Company Files Leaves Young Workers Vulnerable

A 2012 survey conducted by a software company, FileTrek (below), reveals generational gap in employee attitudes toward confidential company documents. A majority (68%) of the Millennial generation (people aged 18-34) believe it is OK to remove confidential files from work, whereas only 50% of people aged 55 plus do. The preferred method? USB stick.

The survey highlights what many will recognize to be a common attitude in the Silicon Valley, namely that “[t]oday’s workforce believes information is an asset to be shared.” (Dale Quayle, CEO of FileTrek) This attitude contributes to the success of Silicon Valley companies. However, in the proprietary information sector, the associated risks may be high for both businesses and employees alike.

For companies, a secure infrastructure and a set of internal policies are extremely important to protect confidential data and to keep income-producing and potentially valuable confidential information under company control. The alternative may mean losing a competitive edge, or losing, period.

For employees, philosophical misunderstandings or “no harm no foul” rationalizations when removing confidential work files may result in termination and exposure to civil liability. At the end of the day, the most secure networks may be compromised if employees do not understand or appreciate the importance of confidential information security and individual consequences. Universities do not prepare young professionals to navigate the pitfalls of a modern workplace when it comes to non-public company information. California occupies a special place in this arena due to the tension between California’s prohibition against restraint on trade (Bus. & Prof. Code §16600, generally known as prohibition against “non-competes”), trade secret law (California Uniform Trade Secret Act, Civ. Code §§3426-3426.11), general contract law and California Labor Code affording employees certain rights, for example §2870 (employee inventions on their own time). Whether they are signing employment agreements for a new job, thinking of transitioning to a competitor or firing up a start-up, stir young people to get advice, understand their responsibilities and rights, and how they fit in the young workers’ worldview.


Why Are Trade Secrets Important When Changing Jobs?

In Silicon Valley, most employment agreements will contain a restriction that employees must keep employer’s trade secret information confidential, even after terminating employment.  This is known as the “trade secret” exception to an otherwise strict mandate by the California legislature against restriction on trade or competition codified in Bus. & Prof. Code §16600 et seq.  In short, subject to several limited exceptions, such as the sale of a business, California employers may not restrict employees from engaging in their profession by having them promise not to work for a competitor after leaving the company as a condition of employment.  However, a former employer may enforce a trade secret clause in the employment contract after employee leaves, for example, to stop the employee from using the former employer’s trade secrets at his new job.  Even though this may appear to restrict the former employee’s ability to practice his profession, the employer does not violate Section 16600 because trade secrets are protected.

Because so much is at stake, disputes arise over what constitutes trade secrets.  Agreements that have overly general language without specifying what should be treated as secret or are not accompanied by a sit-down with the employees to go over the paperwork they are asked to sign, may not give sufficient notice to employees of the types of information they are supposed to treat as trade secret.  Even if the agreements are clear, the information that employer describes may still not be a trade secret under the statutes; it may be not be secret, it may been publicly disseminated, such as on the Internet, it may be generally known in the industry or readily ascertainable by proper means, or it may not derive independent economic value from being secret.  Attorneys evaluate all of these factors and more.

Running afoul of trade secret statutes and employment contracts may expose employees and companies to severe economic consequences in the form of litigation costs, interrupted business opportunities, loss of reputation or timely market advantage, even if the misappropriation occurred unintentionally or through negligent oversight.  Understanding your obligations under the agreements with your employer is an indelible element of a peaceful and economically undisturbed transition to a new job or starting your own business.  For businesses hiring new employees, it is just as important to take reasonable measures to ensure that incoming professionals maintain confidentiality of third party trade secrets and the employer’s.

Contact us if you are facing any of these issues.

Trade Secrets. What Are They?

Generally, trade secrets are any information, process, formula, or technique owned by a business that is secret, is subject to reasonable efforts to keep it secret, and derives its actual or potential economic value from remaining secret. The big difference between a trade secret and a patent, for example, is that patents are publicly registered.  An engineering drawing, a soft drink formula or particular software code may become subject to a patent and the legal protections afforded to patents against infringement. However, until or unless these become patented, their owner will keep them secret or confidential, known only to select employees or customers, to protect their commercial value and guard them against being copied or stolen by persons who can make use of them.  Typically, but by no means exhaustively, trade secret information may also include pricing, employee salaries, valuable vendor relationships, customer contacts, financial information of the company, marketing plans and strategies, customer purchase orders and various internal documents.

Different legal rules apply to trade secrets than to patents or copyrights.  In California, Uniform Trade Secret Act (Cal. Civ. Code §§3426 through 3426.11) provides protection to valuable confidential commercial information.