Lewis & Llewellyn partner Nick Saenz is a regular contributor to Tech Crunch, one of the web’s leading publications focused on the technology industry. In a recent article, Nick cautioned readers on how to avoid accusations of trade secrets theft, when either leaving for a competitor or onboarding new employees. You can read the article, which includes Nick’s sage advice, below or on TechCrunch’s website.
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.”
On May 23, 2018, the Supreme Court issued a new California Rule of Court which requires most active California attorneys to be re-fingerprinted. This requirement is part of an effort by the State Bar to come into full compliance with statutory mandates that require the Bar to receive notifications of attorney arrests and convictions from the California Department of Justice. The new rule came into effect on June 1, 2018, but attorneys have until April 30, 2019 to come into compliance. For anyone who has yet to do so, you can find the necessary information here. Don’t wait until the last minute, as LiveScan locations can become crowded and fingerprints aren’t always accepted the first time. Failure to comply with these new requirements can result in monetary penalties, and if new prints haven’t been taken by the final deadline of December 1, 2019, you may face a suspension of your license.
If you are filing a new case in the Northern District of California, and your case is assigned to the ADR Multi-Option Program, be advised that the initial case management scheduling order will no longer set a deadline by which the parties must either file a Stipulation and Proposed Order Selecting an ADR Process or a Notice of Need for ADR Phone Conference. Instead, the scheduling order will set a deadline regarding when the parties must file a new form of ADR Certification. This new form will include a space for parties to indicate if (1) they will be filing a Stipulation and Proposed Order Selecting an ADR Process or (2) if they need to discuss ADR at the case management conference.
In short, while ADR phone conferences may be requested or required in individual cases, they are no longer required in the standard scheduling order, effective May 1, 2018.
This new change aligns the ADR Local Rules with Civil Local Rule 16 and should streamline the process for litigation and the ADR. As a firm that utilizes all tools in federal litigation, we look forward to following this new process.
While California law promotes lawful competition, individuals cannot violate agreements with their former employer with impunity. This was illustrated last week when a California jury awarded AeroVironment, Inc. $2.4 million after finding three former employees of the drone technology company engaged in fraud and breached patent and confidentiality agreements with their prior employer. See Aerovironment, Inc. v. Gabriel Torres, et al., County of Ventura Superior Court Case No. 56-2015-00465460.
AeroVironment hired the three defendants to work in its engineering department where the company was developing drone technology for military use. All three defendants signed agreements to keep AeroVironment’s proprietary information confidential and not to engage in any competing activities during their employment. Notwithstanding these agreements, and while still employed by AeroVironment, defendants began planning a competing business and went so far as to found the drone sensor company for which they would all eventually work after their resignations. AeroVironment filed suit soon after discovering such conduct.
The verdict in AeroVironment’s favor demonstrates that even in California, juries will hold former employees accountable for misusing protected information and actively competing with their current employers. In general, California employees may prepare to compete as long as they are not actually pursuing competitive enterprises while employed, or using their employer’s resources to do so. However, these defendants went too far in the jury’s view. The case is a reminder that employers should ensure that their employees sign basic confidentiality agreements as well as agreements that they will not compete during employment. Such agreements can be complemented with strong written policies, including handbooks that prohibit conflicts of interest and describe the employer’s expectations for maintaining confidences.
As with most things, an ounce of prevention is worth a pound of cure. California employers who wish to remain competitive should take these simple steps, as AeroVironment had done, to protect their technologies. The existence of standard agreements was key to AeroVironment prevailing at trial.
Lewis & Llewellyn has extensive experience litigating and advising clients on the myriad issues that can arise when an employee transitions from one company to another. Click here to read more about our practice areas in the field of employee mobility.
In a recent Litigation Tip, we explored the perils that employees face when changing jobs. But at Lewis & Llewellyn, we represent employers in high-stakes litigation as often as we represent plaintiffs. And employers face their own unique concerns in the complex and ever-changing world of employee mobility.
It is very common for contracts, including employment contracts, to contain a choice of law clause, a forum selection clause, or both. These clauses dictate both the venue for any future litigation between the parties, and which state’s law should apply. In 2017, California enacted Labor Code section 925 which has a direct impact on employment contracts for employees who live and work primarily in California. In broad terms, the new provision prevents such employees from being bound to a contractual provision that would force the employee to litigate outside of California, or litigate under another state’s laws, on claims that arose in California. The provision applies to contracts entered into, modified or extended on or after January 1, 2017, and applies to both litigation and arbitration. Not only that, the provision allows for the recovery of attorneys’ fees and injunctive relief for employees having to enforce their rights under the new section. There is, however, a carve out for employees represented by counsel during the negotiation of the contract.
Employers with California employees would be well advised to review their employment agreements for compliance with the new provision, and should keep the new provision in mind when extending or modifying existing agreements, or entering into new agreements with California employees. Where applicable, employers may also want to memorialize the presence of counsel during the negotiations when seeking to avoid the impact of the new section.
Most litigators are generally familiar with Section 664.6 of the California Code of Civil Procedure, which provides a summary procedure to enforce a settlement agreement after dismissal of a lawsuit. Without such a provision, a non-breaching party would have to file a new lawsuit for breach of contract (the settlement agreement itself), which could then take months or even years to resolve, and thus frustrating the purpose of the underlying settlement. Many settlement agreements therefore contain a provision specifically providing for the Court to retain jurisdiction under Section 664.6. However, the California Court of Appeal clarified last week that such a provision is likely insufficient.
In Sayta v. Chu, an opinion issued on November 29, 2017 by the California Court of Appeal, the First Appellate District set forth clear and express requirements for invoking Section 664.6. The underlying dispute, which arose from the termination of a tenancy, was subsequently resolved by written settlement agreement, and the lawsuit dismissed. Following an alleged breach by defendant, plaintiff brought a motion to enforce the settlement agreement pursuant to Section 664.6. The trial court denied the motion, a decision which was affirmed by the Court of Appeal. This is because the parties failed to request, before dismissal, that the trial court retain jurisdiction to enforce the settlement, or alternatively, seek to set aside the dismissal.
Settlements are very often reached in confidence and therefore there may not be the opportunity to request that the Court retain jurisdiction. It remains to be seen how the impact of Satya will be addressed in practice. However, if there is any risk that the opposing side may breach the settlement agreement, the practitioner would be well advised to request that the Court retain jurisdiction on the record or in a minute order.