Employment Law Cases

If you are a California employee, you should consider the following points if your former employer threatens you with a lawsuit for using confidential information acquired from the former employer.

Point No. 1: You have the right to compete by opening a competing business, or working for a competing employer. You may freely solicit the former employer’s customers unless you reach those customers by taking the former employer’s trade secrets, such as a detailed customer list compiled by the employer. Business and Professions Code Section 16600 states a basic public policy in California protecting an employee’s right to compete. This right is deemed so important that an agreement between you and your former employer that has a term (”covenant” or “promise”) by you not to compete will not be enforced to stop you from competing. What if you are presented a long employment agreement during your employment that has in it a “covenant not to compete” and you refuse to sign the agreement? A California court has held it is illegal to fire you because you do not sign such an agreement even if the only “unenforceable” part of the agreement is the “non-compete” provision. [Of course, you could also elect to sign the agreement, and then proceed to ignore the “non-compete” provision knowing it could not be enforced against you]. See generally D’Sa v. Playhut, Inc. (2000) 85 Cal.App.4th 927.

Point No. 2: What if you sign a “non-compete”agreement while in another State, then leave that State to work for a competing company in California? Now matters get tricky. The employer, knowing how difficult or even impossible it is to enforce a non-compete agreement in California, may elect to sue in the State where you first worked. Other states often have laws that will uphold non-compete covenants. The problem arises when your former employer gets a restraining order or preliminary injunction in that other State stopping your work before you can get a restraining order or injunction in California stopping your former employer from interfering with your new work. California courts will honor the judgment that is first entered. The reason is the “full faith and credit” clause of the Constitution. See Baker by Thomas v. General Motors Corp. (1998) 522 US 222, 223. The tactical point is obvious: you may want to make a pre-emptive filing in California.

Point No. 3: If you have signed a “non-compete” agreement that states the agreement will be interpreted according to the laws of another State (usually a State that has laws that uphold non-compete agreements), California courts will ignore the “choice of law” provision, and will apply California law to invalidate the non-compete covenant. Application Group, Inc. v. Hunter Group Inc. (1998) 61 Cal.App.4th 881, 902.

Point No. 4: Employers may know they can’t ultimately win by enforcing their illegal covenant not to compete, but they will use economic duress and bully tactics by filing for a Temporary Restraining Order and for a Preliminary Injunction. While this battle is expensive, it is not necessarily as protracted or costly as a full trial. Often your new employer will aid you with providing a lawyer on your behalf, especially if you bring real value to the employment. There may be a provision in the agreement allowing for recovery of attorney’s fees if you win. You have an excellent chance of defeating an attempt to enforce a non-compete agreement in California, and you should fight back. Also, you could file a counter-suit for intentional interference with existing contractual relations with your new employer on the theory that the former employer knew it had no reasonable basis to seek an injunction, and made false charges against you to cause your new employer to fire you. (Should that misfortune occur).

Point No. 5: Usually, a “non-compete” agreement is found in a larger agreement that requires confidentiality about employer business, and protection of proprietary trade secrets. Confidentiality and trade secret provisions are generally enforceable. Not all competition in California is protected by Business and Professions Code Section 16600, but rather only “fair competition”. Courts have held that an employee cannot compete by taking and using trade secret information, or by taking the employer’s property or confidential information. An important point is that you cannot be stopped from working for a competing employer simply because you possess knowledge of the employer’s confidential or proprietary processes, products, or strategies. To get a preliminary injunction, the former employer must show that you actually have expressed a clear intent to disclose the trade secret to your new employer. Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1460.

Conclusion: You may one day be the recipient of a letter from your former employer’s attorney demanding that you “cease and desist” from violating a confidentiality and trade secret agreement. Remember that you have the right to use your basic knowledge of the industry and customers gained while working for your former employer. You can use that knowledge in pursuing your livelihood in California. You may freely solicit the business of your ex-employer’s customers as long as you do not identify those customers based on proprietary databases or lists developed by your employer and taken by you at the time you left your employment.

More information is available from Frank Pray at http://www.tinyurl.com/joblaw

(c) 2009 Frank Pray

The following is related to Illinois law only and is compiled from our conversations with various Illinois labor attorneys.

1. Verify whether your company pays overtime. Not all employers are required to pay overtime. Illinois employers that earn about $500,000 or more in annual revenue typically have to pay. If your employer earns significantly less than $500,000 in revenues each year, you are likely not entitled to overtime pay.

2. The same rules apply to all sizes of employers. Employers in IL must follow overtime laws regardless of size. For instance, if you own a company and are the only employee, you must receive overtime pay (as long as you are not exempt). The law is not affected by the employer’s size.

3. Understand “exempt.” Some employees are exempt and are not covered by OT laws. If you are exempt, you will not receive extra pay when you work over 40 hours per week.

4. Determine whether you are exempt. Generally under Illinois law, highly skilled employees such as executives, managers and professionals like doctors, lawyers and engineers are exempted from OT laws. If you are unsure, an Illinois employment attorney can help you determine whether you are exempt.

5. Receiving a salary does NOT mean you are exempt. Being paid a salary does not automatically make you exempt from overtime pay; the nature of your position determines whether you are entitled to overtime. Consult with an Illinois employment attorney to determine if you should receive more money whether you receive a salary or an hourly wage.

6. Check your overtime pay date. Payments should be paid on your regularly scheduled pay date. An employer generally cannot hold your pay until a later date.

7. Training time counts. Time you spend attending training meetings, seminars and conferences for your company is usually included in calculating OT unless all of the following is true:
1) the training is voluntary, and
2) takes place outside regular work hours, and
3) is not directly related to the your job, and
4) you do not complete any work for your employer during the training. Again, these tips are based on Illinois law.

8. It is illegal for your employer to ask you to waive your right to overtime. Your employer cannot ask you to waive this right. Even if you did agree to sign a waiver, the agreement is not enforceable unless 1) the waiver was specifically approved by the Illinois Department of Labor, or 2) you were represented by a lawyer when you made the agreement. If you agreed to a waiver and neither of these situations applies, an Illinois employment attorney can help you determine whether you are entitled to back pay.

9. Collect your overtime back pay. You can collect back pay that you earned during last two years. If your employer was intentionally violating the law (for instance, by having you sign an illegal waiver of overtime rights), you can collect back pay from the last three years. An Illinois employment attorney can help you collect pay that is owed to you.

10. Get more information on the law. If you think you may have a legal issue related to OT pay, an Illinois employment attorney can help you determine whether to bring a case against your employer. You should also read the Fair Labor Standards Act which is a Federal law. Most of the law applies in Illinois, although there are a few differences regarding which employees are exempt.