In Enforcing Non-Compete Agreements Against California Employees — Part I, I discussed how a Massachusetts company might be able to enforce a non-compete against a California employee by including a Massachusetts choice of law provision in an employment agreement.  In this post, I will discuss three scenarios under which an employer may be able to obtain an actual (or the functional equivalent) of a non-compete with respect to California residents/employees even if California law applies.

1.      Enforcing a Non-Compete Against the Seller of Goodwill or Equity

 Section 16601 of the California Business and Professional Code states:

Any person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity, or any owner of a business entity that sells (a) all or substantially all of its operating assets together with the goodwill of the business entity, (b) all or substantially all of the operating assets of a division or a subsidiary of the business entity together with the goodwill of that division or subsidiary, or (c) all of the ownership interest of any subsidiary, may agree with the buyer to

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With the new year, taking the time to review the status of your independent contractors may create valuable savings.  Independent contractors, when properly classified, can often be a valuable and efficient means for both businesses and individuals to conduct business.  Many businesses engage workers on an independent contractor basis as means of avoiding rigorous requirements associated with an employment relationship, including payment of minimum wages and overtime; provision of benefits, workers’ compensation insurance and unemployment benefits; and protections under discrimination and safety laws – all of which may result in significant costs to the operation of a business.  If employees are misclassified as independent contractors, however, the company risks the potentially hefty damages resulting from a misclassification. 

The downturn in the economy has changed the face of independent contractor arrangements for a variety of reasons.  For workers, being classified as employees often means that they receive benefits, including paid vacation time, subsidized health insurance, workers compensation insurance benefits and unemployment benefits.  For many government agencies, classifying workers as employees often generates greater revenue from employment taxes that should have been paid, plus penalties and interest.  According to the National Employment Law Project’s Summary of Independent Contractor Reforms, New State … Keep reading

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The Attorney-Client Privilege: Myths vs. Reality


I recently had the pleasure of giving a presentation to the Northeast Chapter of the Association of Corporate Counsel on issues affecting in-house counsel in connection with the attorney-client privilege.  Click here to listen to a webcast of that presentation.  (You will be prompted to sign in with your ACC log-in, but if you don’t have one, you can still access the webcast after clicking on “next step” on the check out page.)

In connection with that presentation, I developed the following list of Myths vs. Reality:

Attorney Client Privilege Myths

 

 

 

 

 

 

 

 

 

 

 

 

 

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In a post this summer, I raised three issues employers may want to consider before even requesting that an employee execute a covenant not to compete.  One issue that I did not mention is whether the company’s employee lives and works in California.  Although where an employee lives may be relevant, contrary to what many attorneys think, it may be possible for a Massachusetts company to enforce a non-compete against a California resident.… Keep reading

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One size most certainly does not fit all when it comes to noncompetition agreements.  Every state has its own requirements when it comes to the enforceability of employee noncompetition agreements.  In some, such as California, noncompetition agreements are unlawful by statute.  In other states, such as Colorado, noncompetition agreements may only be enforced in certain specific settings, such as the sale of a business.  In many states, however, noncompetition agreements will be enforced if they protect the company’s legitimate business interests and are reasonable in time, geographic scope and the scope of the limitations on the employee’s ability to perform his profession.  Where noncompetition agreements are not void as a matter of law, they are great fodder for litigators because there is no uniform definition of “legitimate business interest” and no consistent test to determine if the time, geographic scope and the scope of limitations on the employee’s ability to perform his profession are “reasonable.”  These criteria are very fact and case specific.

Although most litigation of noncompetes focuses on whether the business interests of the employer are “legitimate,” and/or if the geographic and temporal scopes of the limitations are “reasonable.” Equally important to the enforceability of a … Keep reading

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After putting all of the specific deal points into a new contract, you are just about finished.  All you have to do now is add in the “Miscellaneous” section with all of your boilerplate provisions like force majeure, choice of law and a few others.  You have drafted so many contracts for so many years that you do not even know where some of these boilerplate provisions came from, let alone remember all of the implications of each.  Even more dangerous, there may be some boilerplate provisions on which you rely that may not be as enforceable as you think.  Take, for example, a standard clause appearing in many contracts stating the following:  “Nothing in this Agreement is intended to create any enforceable right in favor of any non-party to this Agreement.”

For sure there is no downside to including such a clause in a contract.  Indeed, Professor Corbin, one of the preeminent authorities on contract law has said, “If two contracting parties expressly provide that some third party who will be benefited by performance shall have no legally enforceable right, the courts should effectuate the expressed intent by denying the party any direct remedy.” (Corbin on … Keep reading

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Employees Misclassified as Independent Contractors Pose Significant Risks


Many are familiar with Juliet’s tribute to Romeo: “What’s in a name? that which we call a rose By any other name would smell as sweet.”  In the context of employees and independent contractors, however, Juliet is quite wrong.  As I discussed in a prior post, it can be perilous to misclassify workers as independent contractors, and, under the Massachusetts independent contractor law, workers are deemed employees unless all three of the following criteria, commonly known as the “ABC” Test, exist:

  1. the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and
  2. the service is performed outside the usual course of the business of the employer; and
  3. the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

Further, misclassifying an employee as an independent contractor could trigger violations of other laws, with the Massachusetts Weekly Payment of Wages Act (“Wage Act”) (and its mandatory treble damages and attorneys’ fees) being the most treacherous. 

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I read a great piece last week by Mark Rogers arguing that corporate directors can unwittingly breach their fiduciary duty by spending too much time on mobile devices during board meetings.  Not only did I agree wholeheartedly with Mark’s analysis, but it also reminded me of another fiduciary duty that company insiders, and even some in-house counsel, often wittingly ignore: the duty to preserve “corporate opportunities” for the company.

In general, an officer, director, partner, LLC member or shareholder in a closely held corporation owes a fiduciary duty not to usurp for his personal benefit, a business opportunity that could and should belong to the corporation.  A classic example of a breach of this duty, which can lead to a claim for what is called the “diversion of a corporate opportunity,” occurs when the president and CEO of a company learns that a competing business is for sale, and, instead of bringing the matter to the company’s board of directors, he helps his son buy the business for himself.… Keep reading

Employees not at work


Although there are many occasions when an employer may lawfully terminate a non-performing or absent employee, if the reason for the non-performance or absence is based on a physical or mental condition – or a perceived physical or mental condition – employers are well-served to carefully scrutinize the facts before deciding to terminate an employee.  Here are a few examples of where further scrutiny is well worth the effort:

 Employees not at work1.  Where the basis for termination comes only from a single source.

Assume, for example, that a line manager recommends the termination of an employee because she is “unreliable.” In reality, and unbeknownst to the employer, the line manager actually wants the employee fired because he feels inconvenienced by having to cover her authorized, intermittent leave hours.  If the employer takes the line manager’s word that the employee is simply “unreliable” and terminates the employee taking intermittent leave, the employer will potentially be liable for disability discrimination or a violation of the Family and Medical Leave Act.  Thus, when the basis for making an employment termination decision comes only from one person, in-house counsel should advise the company to do whatever it can to verify the facts through one … Keep reading

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Sometimes, when business people can’t directly negotiate (or re-negotiate) favorable deal terms, they are tempted to withhold a payment or some other obligation in an effort to leverage the other party into an agreement it otherwise would not make.  In-house counsel should be wary of endorsing such conduct, as this could result in exposing their companies to liability going far beyond simply having to lose face and/or doing what they should have done in the first place.  Take, for example, the following scenario:

Acme engaged Alpha as its exclusive manufacturer for widgets and gidgets for two years.  Four months later, Acme tries to negotiate a similar deal with Beta to manufacture didgets, and, if consummated, such a deal would provide Acme with ten times the revenue that the Alpha contract was expected to provide.  While Beta expresses interest, it eventually makes clear that unless it also can manufacture gidgets, there will be no deal.  While Acme tries to buy out of the gidget portion of the Alpha contract so that Acme can give Beta what it wants, Alpha refuses.  Acme’s CEO realizes that the Beta deal is going to fall apart if something does not change quickly, so she … Keep reading

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