Workplace Agreements, Documents and Notices: Dos, Don’ts and Practical Drafting Tips
June 30, 2011
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When is the last time your company reviewed its key workplace documents to ensure compliance with changes in the law, including court decisions and new statutes? Miller Law Group recently presented a webinar exploring recent developments in federal and California law impacting workplace agreements and other documents, along with best practices for drafting documents that can withstand legal challenge. The following are answers to frequently asked questions by webinar attendees.
Q: AFTER THE SUPREME COURT’S RECENT AT&T MOBILITY V. CONCEPCION DECISION, DO EMPLOYERS HAVE THE ALL-CLEAR TO USE CLASS ACTION WAIVERS IN ARBITRATION AGREEMENTS?
A: Not necessarily. The Supreme Court ruled that the Federal Arbitration Act (FAA) preempts California's rule that invalidates arbitration agreements in which the parties waive the right to class-wide proceedings. The decision arose in a consumer protection setting (an arbitration provision in a cell phone service contract), and for a number of reasons it is unclear whether the holding would extend to arbitration provisions in employment contracts. First, the arbitration agreement examined by the high court in AT&T Mobility contained many consumer-friendly protections; a mandatory employment arbitration agreement lacking similar protections for employees could run the risk of being held invalid. Second, a class action waiver in an employment arbitration agreement may be vulnerable to challenge by the National Labor Relations Board, which has taken the position, pre-AT&T Mobility, that such waivers could interfere with employee rights under the National Labor Relations Act to engage in concerted activity. Third, California courts have already begun a push-back against the AT&T Mobility decision, with a California appellate court recently holding class action waivers in arbitration agreements cannot preclude representative actions under California’s Private Attorneys General Act of 2004 (PAGA).
For these reasons, California employers should consult with counsel before inserting class action waivers in mandatory arbitration agreements to analyze the risks and benefits of this approach, as well as to make sure that any such waiver is properly drafted.
Q: WHAT ARE THE SITUATIONS WHEN COVENANTS NOT TO COMPETE ARE STILL LEGAL IN CALIFORNIA?
A: Under California Business and Professions Code section 16600, a covenant not to compete is legal only upon: (1) the sale of a business (or substantially all of a business so that the “goodwill” of the business is sold); (2) the dissolution of a partnership; or (3) the dissolution of a limited liability company. Currently, there is also an exception for a covenant not to compete which is limited to the use of trade secrets, however this exception has come under fire recently and indications from the California Supreme Court are that it may not be valid. Any covenant drawn under the trade secrets exception should be extremely narrow and reviewed by counsel.
Q: IS IT LEGAL TO INCLUDE CUSTOMER NON-SOLICITATION PROVISIONS IN EMPLOYMENT CONTRACTS IN CALIFORNIA?
A: No. A customer non-solicitation provision is considered a “covenant in restraint of trade” in California and is therefore illegal except in the situations described above. Again, if a business can show that its customer list is a trade secret (a difficult proposition) it may be able to protect it under the shaky trade secrets exception.
Q: ARE THERE LAWS THAT PROHIBIT EMPLOYERS FROM HIRING EMPLOYEES FROM COMPETITORS?
A: No. In fact, recently the federal and state governments have been suing companies that have “no hire” agreements with competitors for violations of state and federal anti-trust laws. In particular, California courts view such “no hire” clauses as an improper limitation on employee mobility (in other words, if your employee seeks out the competitor you cannot prohibit it). On the other hand, California law does allow for a limited non-solicitation of employees provision to be included in an employment contract. Generally, a California court will uphold a one year non-solicitation of employees provision so long as it is limited to actual solicitation.
Q: REGARDING COMMISSION AGREEMENTS, WE HAVE A POLICY THAT IF WE OVERPAY COMMISSIONS -- FOR EXAMPLE, THE EMPLOYEE RECEIVES TOO MUCH IN ADVANCES -- WE CHARGE BACK THE OVERPAYMENT ON THE NEXT COMMISSION CHECK. IS THIS PERMISSIBLE?
A: Generally, an employer can recover commission payments already advanced to employees for commissions the employee did not earn. The key, however, is in how the commission plan is drafted. In particular, it must include a mechanism for chargebacks against advances, must make it clear that the commission advanced is not actually “earned” until some condition subsequent to the advance payment is satisfied, and the employee must acknowledge the plan in writing. Note that once a commission is earned, chargebacks against the earned commission may amount to a violation of California Labor Code section 224, which prohibits an employer from taking back any wages paid to an employee.
Miller Law Group exclusively represents business in all aspects of California employment law, specializing in litigation, risk management, wage and hour class actions, ERISA litigation, and appellate law. If you have questions about your workplace obligations, please contact Michele Ballard Miller (mbm@millerlawgroup.com) or Carolyn Rashby (cr@millerlawgroup.com), or call 415-464-4300.
This webinar and Question and Answer Summary are presented by Miller Law Group to review recent developments in employment law. This material is designed to provide informative and current information as of the date of the webinar and should not be considered legal advice.
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