This week’s Friday Five is a discussion focused on a discussion of considerations employers should make during the termination process, such as:
Friday’s 5 is here. This post covers five issues that commonly arise when dealing with employment 
contracts and non-competition/non-solicitation agreements. It is a very broad area to discuss, so, as always, this is a very general overview. However, employers and executives alike should have a basic understanding about the legalities and enforceability of such clauses in California.
1. At-Will employment, and Labor Code Sections 2924 and 2925.
California’s Labor Code section 2922 provides that employees are at-will: “An employment, having no specified term, may be terminated at the will of either party on notice to the other.”
However, if the employer and employee enter into a contract for employment, California’s Labor Code specifically sets out that the employer or the employee may terminate any employment contract for any willful breach of the duties owed to each other. Labor Code Section 2924 provides:
An employment for a specified term may be terminated at any time by the employer in case of any willful breach of duty by the employee in the course of his employment, or in case of his habitual neglect of his duty or continued incapacity to perform it.
Labor Code Section 2925 likewise provides:
An employment for a specified term may be terminated by the employee at any time in case of any wilful or permanent breach of the obligations of his employer to him as an employee.
2. Agreements restraining individuals from engaging in a lawful profession is void under Business and Professions Code Section 16600.
Employment contracts, non-competition agreements, and/or non-solicitation agreements can be challenged under Business and Professions Code section 16600. That Section provides a very broad rule voiding any contract that limits an employee’s ability to engage in their profession:
Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
3. Exception to Section 16600 – Narrow Restraint
One exception to Business and Professions Code Section 16600’s prohibition on restraining an employee’s ability to work is if the restraint is narrowly drafted. Restraints on the pursuit of “only a small or limited part of the business, trade or profession” have been upheld by California courts. As the court in General Commercial Packaging, Inc. v. TPS Package Engineering, Inc. explained, “[A] contract does not have to impair a party’s access to every potential customer to contravene section 16600…. [A] contract can effectively destroy a signatory’s ability to conduct a trade or business by placing a substantial segment of the market off limits.” General Commercial Packaging, Inc. v. TPS Package Engineering, Inc., 126 F.3d 1131, 1132–33 (9th Cir.1997)
There is also a strong public policy against enforcing agreements that restrict employee’s ability to work in the profession they chose. California Courts have noted, “the interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interest of the employers ….”
4. Exception to Section 16600 – Protection of trade secrets and to prevent unfair competition
As one court has noted, “Section 16600 has specifically been held to invalidate employment contracts which prohibit an employee from working for a competitor when the employment has terminated, unless necessary to protect the employer’s trade secrets.” Metro Traffic Control, Inc. v. Shadow Traffic Network, 22 Cal.App.4th 853, 859 (1994). In addition, any such restrictions must be “carefully limited.” Id. at 861.
For example, in Gordon Termite Control v. Terrones, 84 Cal.App.3d 176, 179 (1978) the court refused to enforce an agreement prohibiting an employee from calling on any accounts he had called on while with former employer, finding “[k]nowledge of potential customers … is not a trade secret ….”
Moreover, the information must be an actual trade secret to obtain this protection. In Gordon v. Landau, 49 Cal.2d 690, 694 (1958), the court found that an agreement restricting a door-to-door salesman from using his former employer’s confidential customer list was valid under section 16600. However, in Letona v. Aetna U.S. Healthcare Inc., 82 F.Supp.2d 1089 (1999), the court rejected the employer’s argument that was seeking to protect information that qualified as a “trade secret” because “Aetna’s own admission that such information is ‘publicly available at Aetna’s website on the Internet” destroyed any argument that the information was secret.
5. Out-of-State employers must be cautious about using form agreements.
Employers should heed the warning issued by the court in Letona v. Aetna U.S. Healthcare Inc. to out-of-state employers using form agreements in California:
Aetna took the contract it uses in other states and, without regard to California law, and contrary to the clear prohibition contained in section 16600, compelled its California employees to sign it or be fired. Aetna’s claim that it should not be held responsible for wrongful termination unless it “knew” the provision was unenforceable misses the mark. Aetna knew it was operating in California and would be subject to its laws. Section 16600, or a version thereof, has been on the books since 1872. See Bosley Medical Group v. Abramson, 161 Cal.App.3d 284, 288, 207 Cal.Rptr. 477 (1984). It is not asking too much for Aetna to refrain from requiring its employees to sign presumptively illegal provisions and then firing them when they decline to do so.
Photo: Casa Thomas Jefferson
Generally, California employers must comply with the following rules governing whether they may obtain criminal history information when conducting background checks for applicants or employees:
In regards to item number 5, employers must be aware that California’s Fair Employment & Housing Council has proposed regulations that could make employer’s use of any criminal history in the employment context if the use of the information would “have an adverse impact on individuals on a basis protected by the Act, including, but not limited to, gender, race, and national origin.” Employers would be prohibited from using criminal information in employment decisions if it would create an adverse impact on individuals and the employer cannot demonstrate that the criminal history is job-related with business necessity or if the employee can show that there is a less discriminatory means of achieving the business necessity. The Council is considering written comments about this proposed regulation from any interested party until April 7, 2016. Comments can be submitted by e-mail to FEHCouncil@dfeh.ca.gov.
Employers must also be aware of their local ordinances, such as those in San Francisco, that create additional prohibitions, Federal requirements and the changing legal landscape in this area.
Today’s Friday’s Five focuses on five aspects of responding to employee’s complaints made on social media. Yelp has been in the news recently (Another ex-Yelp worker is calling the company out after being fired, CNNMoney; Yelp’s Tweet About Fired Employee Could Spell Legal Trouble, Inc.com [I was quoted in this article]), for how it responded to two former employees’ complaints on social media about the company. The incident is a great learning opportunity for employers. Employers need to understand that this is the new reality, employees feel that they need to voice their concerns very publicly on social media, and these complaints can spread quickly. Employers also need to plan ahead and have a system and policies in place before they are confronted with this type of situation so their response can protect the company without creating legal liability. Here are five lessons for employers about responding to employee’s complaints on social media:
Terminations. It is not a subject you cover in management class, or any class for that reason. But yet the termination process is one of the more common business decisions that will receive the most scrutiny, and are probably the most legally challenged decisions in the workplace. In addition, terminations trigger immediate legal obligations that the company must be ready to deal with on a moment’s notice. I’ve written another article about terminations recently, and provided a webinar earlier this week on the subject (you can subscribe to receive email updates and upcoming webinars here) because I believe the topic needs more attention on the legal and management issues it raises. Just as companies focus on making the hiring process as good as possible, the same attention needs to be given to the termination process. Doing so will reduce liability.
1) Do not sugar coat the reasons for a termination.
Document performance as you see it. If the termination was for cause – document that it is for cause – don’t take the easy route out and say that the employee was laid off. It is important to document any for cause termination (i.e. for poor performance, theft, etc.…). to defend against potential litigation. A company does not want to be in the position of stating that the reason for termination was a layoff, but then if litigation is initiated attempting to explain that the true reason was for the employee’s poor performance. This looks like the company is changing its reason for the termination, and will affect the company’s credibility regarding why the employee was terminated.
2) Respect the employee during the termination process.
I do not have anything scientific here, but I’m a true believer in good bedside manner. Most employees might not like the termination, but probably will understand the decision if they have been given proper performance reviews leading up to a termination.
3) If offering severance, obtain a release of claims from the employee.
If a company is paying money in terms of a severance payment that is not owed to the employee, the company should obtain a release from the employee. A release can be a simple document, sometimes a page or two, if there is not any anticipated litigation. While offering an employee some severance pay may cost the company money in the short-term, but doing so could save a lot of time and money in the long run. If done properly, an employee’s acceptance of a severance agreement would effectively waive any and all claims against the company.
4) Documentation.
5) Develop a checklist to follow for your company.
Checklists are used by pilots and doctors to ensure that nothing is overlooked. I believe in checklists in order to avoid missing simple items during a termination, and reducing liability. Also, the process of thinking through the steps of a termination is helpful to do when there is no pressure, and time can be taken to ensure that all aspects are addressed. A checklist is also helpful for organizations to ensure their managers are following all of the legal and organizational requirements of a termination.
Today’s Friday’s Five focuses on what steps one can take to become more proficient in operating under California’s complex employment legal structure.
Happy Friday. Big data has entered into the employment context. The EEOC is proposing changing the EEO-1 report to require employers to report about an employee’s earnings based on their race, gender and ethnicity. Here are five things employers should know about the EEOC’s proposal:
1. Proposal to add wage data about employees to EEO-1 reporting.
Currently, employers must collect EEO-1 data from any pay period occurring in the months of July through September of the current survey year. The EEO-1 must be filed by September 30th of the same year. The EEOC also proposes that beginning in 2017, all employers will be required to submit the proposed EEO-1 report electronically. The sample form can be found here.
The EEOC’s proposal would require employers to report the number of employees by their sex, race and ethnicity according to the employee’s W-2 income. The proposal would require this information to be reported for certain wage bands. The EEOC wants this data in order to “compute within-job-category variation, across-job-category variation, and overall variation, which would support the EEOC’s ability to discern potential discrimination while preserving confidentiality” (more about the EEOC’s claim about confidentiality below).
The EEOC believes that the W-2 income reporting is the most accurate and easiest data for employers to use in preparing the report:
W-2 gross income includes wages, salaries, fees, commissions, tips, taxable fringe benefits, and elective deferrals. Amounts withheld for taxes, including but not limited to income tax, Social Security, and Medicare taxes, are considered “received” and are included as gross income of the given year they are withheld. The W-2 encompasses all earned income, including supplemental pay components such as overtime pay, shift differentials, and nonproduction bonuses (e.g., year-end bonuses, hiring and referral bonuses, and profit-sharing cash bonuses). Nonproduction bonuses account for over 11 percent of cash compensation for management, business, and financial operations occupations, while shift differentials are a significant component of compensation for healthcare workers.
2. Total hours worked must be reported
Employers will also have to report the total number of hours worked by the employees included in each EEO-1 pay band cell. The EEOC states that this “data will allow analysis of pay differences while considering aggregate variations in hours. The total hours worked also will permit an analysis that accounts for periods when the employees were not employed, thus reflecting part-time work.” The EEOC is not sure about how to have employers report hours worked for exempt/salary employees, and is seeking comments from employers about this issue.
3. EEOC proposes to use software to determine “statistics of interest”
According to the EEOC:
The EEOC and OFCCP plan to develop a software tool that will allow their investigators to conduct an initial analysis by looking at W-2 pay distribution within a single firm or establishment, and by comparing the firm’s or establishment’s data to aggregate industry or metropolitan-area data. This application would highlight statistics of interest.
This raises the question though about how the software will exactly make the determination what constitutes “statistics of interest?” It obviously does not take into account the wide range of factors that determine an employee’s rate of pay: experience, education, seniority with the company, management skill, etc…. There may be additional factors that skew the statistics as well, such as geographic and local issues about the workforce. I’m afraid that this type of statistical calculation can place employers in the situation that they will be presumed guilty if the EEOC’s software flags a concern based on the EEO-1 report, and then the employer will have the burden to justify its pay scale.
4. Confidentiality issues
The EEOC attempts to belie any confidentiality concerns in its proposal, but many issues are unaddressed. Some of the confidentiality issues that need to be addressed:
5. Employers may comment about the proposal
Want to share your comments about the proposed regulation with the EEOC? The EEOC established a relatively easy way to post a comment on its website here. I actually have to hand it to the EEOC in making the comment process very easy. Comments are due by April 1, 2016.
Employers need to review their compliance with California’s sexual harassment training requirements 
on a periodic basis. When doing so, it is a good time to update policies and remind employees about the company’s policies on a routine basis – not just when a complaint is made. This Friday’s Five provides reminders about sexual harassment training and dealing with complaints in the workplace:
1. Employers with 50 or more employees must provide sexual harassment training to all supervisors every two years.
Employers with 50 or more employees must provide at least two hours of classroom or other effective interactive training and education regarding sexual harassment to all supervisory employees who are employed as of July 1, 2005, and to all new supervisory employees within six months of assuming a supervisory position. From, all covered employers must provide sexual harassment training and education to each supervisory employee once every two years. In 2015, California requires that a portion of the training also address “abusive conduct.”
2. It is recommended that employers provide training to all employees.
All employees should be training about the company’s anti-harassment policy and seriousness of violations of the sexual harassment policy. Rank and file employees should be encouraged to report any harassment or inappropriate conduct that they see occur in the workplace even though it may not be directed at them. Encourage employees to help other employees to speak up and make the company aware of inappropriate conduct so that the company can take effective measures to stop the conduct.
3. Employers should have a compliant policy and complaint procedure.
All employers should have an anti-harassment policy of their own developed and distributed to all employees. In addition, employers are required to distribute the pamphlet, Sexual Harassment Is Forbidden by Law (DFEH-185), to all employees. Employers should also routinely discuss the sexual harassment policy with employees at meetings and remind them of the complaint procedures and document these additional steps. This additional training will show that the company is serious about preventing harassment and took affirmative steps to protect its employees.
4. Investigate all complaints.
Employers are liable for harassment when it knows or should have known that harassment has occurred. Therefore, employers should take immediate and appropriate action when they become aware of any potential harassment taking place in their workplace. An employer must take effective action to stop any further harassment and to minimize any effects of the harassment. The investigation should fully inform complainant of his/her rights. In addition, the investigation must be immediate, thorough, objective and complete. All witnesses and anyone with information on the matter should be interviewed. A final determination must be made and the results communicated to the complainant, to the alleged harasser, and, as appropriate, to all others who have a need to know.
If the investigation determines that harassment occurred, the company must take prompt and effective remedial action. These steps would include taking appropriate action against the harasser, and keep the complainant informed of these steps. In addition, the employer must take steps to prevent further harassment.
5. Protect employees who complain against retaliation.
Employers must take steps to prevent retaliation against any employee who complains about harassment. This even applies if the employer determines that the complaint was unfounded, the fact that a complaint was made is a protected activity. Employers should remind the complainant of the anti-retaliation policy and have the employee report any perceived retaliation to the appropriate person in the company. In addition, the employer should remind the person against who the complaint was made that there cannot be any retaliation against the complainant. The employer may consider separating the two people involved in the situation to avoid any retaliation claims.
Happy Friday! This Friday’s Five focuses on the termination process. Employers should develop a termination checklist to ensure all documents and contingencies are consistently covered during the process. Here are five pointers employers can use to start in developing their own checklist:
1. Final wages must be timely paid.
The employee’s wages must be paid at the time of termination. In addition, employers are required to pay the employee all accrued but unused vacation in this final paycheck. In addition, other items employers should review to ensure they are timely paid:
2. Provide all required forms to employee at separation.
To the surprise of many employers, there are many forms that employers are required to provide to employees at the time of termination. Here is a non-exclusive list of some of the routine forms required:
Employers should take time to review their obligations and forms that are required for their particular industry or situation.
3. Communications about the terminated employee with others in the company and outside of the company.
In order to prove a libel or slander claim, the employee must prove: (1) false communication; (2) unprivileged statement of fact (not opinion); (3) it was made about the plaintiff; (4) published to a third party; and (5) caused damage to the plaintiff. More information about liable for slander claims can be read here.
Employers should take appropriate measures not to discuss the circumstances surrounding why an employee left the company with people within the company that do not have a need to know. In addition, employers need to be very careful in how they communicate with anyone outside of the company about the employee’s work at the company. To avoid any potential claims, many employers restrict what information they will provide for reference checks (even for employees who were good and left on good terms) to the employee’s dates of employment, and if authorized by the employee, the employee’s last rate of pay.
4. Consider if a severance agreement would be appropriate.
Offering an employee some severance pay may cost the company money in the short-term, but could save a lot of time and money in the long run. If the employer believes that there is a potential dispute with the employee, the employer may choose to pay some severance in exchange of a release of claims by the employee in order to avoid any potential litigation. If done properly, an employee’s acceptance of a severance agreement would effectively waive any and all claims against the company. If there is any potential for a dispute about any issues that arose during employment, entering into a severance agreement could be an effective way to avoid costly and time consuming litigation. I’ve previously written about five common questions about severance agreements here.
5. Have an attorney review the process.
If the termination has any type of complicated issue, of if the company is going to over a severance agreement, an employment lawyer familiar with the law should be consulted. It is also helpful to discuss a termination with an employment lawyer to see if there are any other potential issues that the employer may not have considered, and develop a strategy to deal with the issues at the time of termination, and not during litigation.
California employers are required to provide non-exempt employees with certain information upon hire as required by the Wage Theft Protection Act. The law became effective in 2012 and is codified at Labor Code section 2810.5. Many employers use the Labor Commissioner’s template (embedded below) to meet their legal requirement, and will pre-populate the items in the form that do not change from employee to employee, lessening the information required to be completed on the form for each employee.
Many employers that have employees working at the minimum wage will pre-populate the wage information section of the form with the minimum wage rates and the applicable overtime rates based on that minimum wage rate. However, with the increase in California’s minimum wage in 2016 state wide and also in many local areas (such as Los Angeles and Santa Monica), employers should review and update the wage information section on the Notice to Employee.
Do employers need to re-issue the Notice To Employee for all employees given the higher minimum wage?
No. Employers are not required to re-issue the Notice to Employee to existing employees with updated wage information as long as new increased rate is show on the employee’s pay stub with the next payment of wages. The DIR publishes a great FAQ on the law here that employers should review.