In the previous litigation tip we discussed several recent cases that concluded employee non-solicitation provisions in employment agreements are per se invalid under California law.  It is axiomatic that parties in litigation generally pay their own attorneys’ fees.  Section 1021.5 of the California Code of Civil Procedure is an exception to this rule.  It allows a court to award attorneys’ fees to a litigant if (1) he or she is a “successful party,” (2) the action has resulted in the enforcement of an important right affecting the public interest, (3) the action has conferred a significant benefit on the public or a large class of persons, and (4) an attorney fees award is appropriate in light of the necessity and financial burden of private enforcement.  In AMN Healthcare, Inc. v. Aya Healthcare Servs., Inc., 28 Cal. App. 5th 923 (2018), the Court of Appeal affirmed the award of attorneys’ fees to the prevailing defendant who had successfully argued that an employee non-solicit provision contained in a contract was invalid.  The practitioner would be well-advised to keep this in mind when defending against claims involving employee non-solicit provisions.  The threat of attorneys’ fees could prove to be a powerful weapon in the litigator’s armory and could lead to a quick resolution of the dispute, or at least increase the stakes for the plaintiff.

At Lewis & Llewellyn we routinely advise and represent clients regarding all facets of employee mobility.  California businesses commonly include employee non-solicitation provisions in their employment agreements.  But several recent cases have concluded these provisions are per se invalid under California law, resulting in significant potential consequences for companies statewide.  It is well-established that California law favors employment mobility and does not recognize non-compete agreements restraining employees from leaving one job to work for a competitor.  This policy is codified in Business & Professions Code section 16600.  Unlike non-competes, however, courts have long held that employee non-solicit provisions barring individuals or companies from poaching company talent do not violate section 16600 because the restraint on employee mobility is minimal.  Until now:  in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (2018), the Court of Appeal cast significant doubt on the enforceability of employee non-solicits.  This analysis soon gained traction—federal courts in Barker v. Insight Glob., LLC, No. 16-CV-07186-BLF, 2019 WL 176260, at *3 (N.D. Cal. Jan. 11, 2019) and Weride Corp. v. Kun Huang, No. 5:18-CV-07233-EJD, 2019 WL 1439394, at *10 (N.D. Cal. Apr. 1, 2019), relied upon AMN Healthcare to conclude employee non-solicits were unenforceable under section 16600.  While it is too early to say whether these rulings will become the majority view, companies now face significant risk that former employees can legally raid the company’s talent pool.  Moreover, as with non-competes, companies can face liability for wrongful termination for firing an employee who refuses to agree to an employee non-solicit provision.  Accordingly, both company and outside counsel should closely monitor these developments to determine whether these cases are the new norm or a string of outliers.

As every litigator knows, most California settlement agreements include a waiver of Civil Code section 1542.  Because, in a settlement agreement, the parties typically agree to abandon, or give up, rights or claims that otherwise could be pursued or enforced, a section 1542 waiver is needed if the settling parties wish to include both known and unknown claims in a general release.  Effective January 1, 2019, the language of section 1542 has been amended as follows:

A general release does not extend to claims which that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release, which and that if known by him or her, must would have materially affected his or her settlement with the debtor or released party.

While these amendments may seem picayune, the practitioner would be well advised to be sure the new language is included in future settlement agreements, otherwise he or she risks the section 1542 waiver being ineffective.

The New Year also saw a change in the rules governing mediations.  Effective January 1, 2019, all parties to California based mediations will be required to sign a written disclosure form confirming that the client understands and agrees to mediation confidentiality.  The new rule, which is embodied in California Evidence Code section 1129, requires the attorney to obtain a printed acknowledgment, signed by that client, stating that he or she has read and understands the confidentiality restrictions governing mediation.  There are many samples of such forms, such as the one found here.  While some have criticized the new rule as fixing a non-existent problem, practitioners should ensure compliance as a matter of routine practice to avoid any issues on the day of the mediation.

When a case settles, most settlement agreements include a confidentiality provision for key terms.  Attorneys often believe they are bound by such terms either when they approve the settlement as to form or even when the agreement has broad language regarding its application to the client’s attorneys.

However, a recent ruling by the California Court of Appeal threw that assumption into doubt.  In Monster Energy Company v. Schechter, the parents of a 14-year old girl sued Monster Energy after she consumed two Monster brand energy drinks, went into cardiac arrest and died.  Thereafter, the parents’ attorney negotiated a settlement agreement which included a confidentiality provision purporting to bind him and his firm.  The attorney subsequently gave an interview in which he said the case had settled for “substantial dollars for the family.”  Monster Energy then sued the attorney and his firm alleging that they had breached the settlement agreement’s confidentiality provision.

The attorney and his firm then filed a special motion to strike under section 425.16 of the California Code of Civil Procedure (an anti-SLAPP motion) arguing that Monster Energy could not show a probability of prevailing on its breach of contract claim because the attorney and his firm were not parties to the settlement agreement.  The trial court denied the motion and an appeal followed.

The Court of Appeal held that “when a settlement agreement provides that the ‘[p]laintiffs and their counsel agree’ to keep the terms of the agreement confidential, and when the plaintiffs’ counsel signs the agreement under the words, ‘Approved as to form and content,” the plaintiffs’ counsel could not be liable to the defendant for breach of the confidentiality provision.  The Court noted: “The only reasonable construction of this wording is that they were signing solely in the capacity of attorneys who had reviewed the settlement agreement and had given their clients their professional approval to sign it.  In our experience, this is the wording that the legal community customarily uses for this purpose.”

Because confidentiality is often a key term of a settlement agreement, attorneys would be well-advised to keep this recent opinion in mind when drafting settlement agreements.  As the Court noted, one way to avoid this issue, and bind attorneys to a confidentiality provision, is “to draft a settlement agreement that explicitly makes the attorneys parties to the agreement (even if only to the confidentiality provision) and explicitly requires them to sign as such.”