In California we frequently hear stories about employees who have filed lawsuits against their employers for alleged legal violations, from sexual harassment to unpaid overtime. Most of my clients know someone who made claims against their employer at some point in time. California’s employment laws cover a wide range of employment matters, including discrimination, harassment, unlawful retaliation, wages, record keeping, and meal and rest periods. These are some of the kinds of employment-related claims we frequently see in the courts today.
But claims by employers against employees also happen on occasion.
Both employers and employees have rights and duties relating to their employment relationship. Some rights and duties are established by law and others by contract. If an employee breaches certain duties laid out in an employment contract, it is possible for the employer to seek relief in court. It is rarely economically feasible for an employer to sue an employee for minor breaches of their duties and for damages they can never recovery. Claims involving the misappropriation of trade secrets, including propriety data and customer lists, are sometimes seen as a necessary step by companies.
California law imposes a broad range of duties and responsibilities on employers. There is also a broad range of differences among employers in their knowledge of the laws, and their motivations and ethics. The number of lawsuits filed each year is not all that surprising.
In the Bay Area, sophisticated employees have immediate access to information about their employment rights. It is not difficult for an employee to begin the process of determining whether their rights have been violated. Certainly, the Bay Area does not have a shortage of employment lawyers ready to take on any viable employment case.
But California law also imposes legal duties on employees. Employees are deemed to have some level of a duty of loyalty to their employers, the breach of which can lead to damages and a lawsuit.
Labor Code section 2860 states:
“Everything which an employee acquires by virtue of his employment, except the compensation which is due to him from his employer, belongs to the employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.”
And, Labor Code section 2863 continues:
“An employee who has any business to transact on his own account, similar to that intrusted to him by his employer, shall always give the preference to the business of the employer.”
This means that employees must place the interest of their employers above their own with respect to the work they perform for the employer. Thus, for example, an employee may not engage in conduct that is detrimental to the interests of their employer, such as sending their employer’s customers to a competitor for personal gain. A sales associate in a clothing store cannot refer customers to the more fashionable clothes sold by in their friend’s shop down the street.
Aside from these duties imposed on employees by law, many duties imposed on employees arise from written contracts between employees and their employers. Employers often require new employees to sign an assortment of acknowledgements and agreements before starting to work. These are presented en masse to the new hire, often on their first day on the job.
Employment agreements and acknowledgments are meant to lay the foundation for the rules under which an employee will be expected to work. Some of the agreements are meant to protect the employer from claims by employees and other agreements are meant to protect the employer from bad acts by an employee. If an employee violates contracts that protect the employer, they can face individual liability for damages in a lawsuit brought by the employer.
The following agreements and acknowledgements make up the bulk of the kinds of agreements employees are asked to execute when they start working for a company.
When the employer has made a written offer of employment in an “offer letter,” they generally ask the employee to sign and return a copy of the offer letter within a certain number of days. The letter typically makes clear that you are an “at-will employee,” meaning the company has the right to terminate your employment at any time and for any reason not prohibited by law, for any reason, or for no reason at all. It also summaries the position, pay rate, benefits and start date.
Offer letters make promises that the employer is required to keep. But the terms are always open to modification by the employer. While an offer letter might say that the company will pay the employee a certain amount of wages, the employer has the right to reduce the wage in the future after giving advanced notice to the employee. The employee has the right to walk away from the job without consequences and without advanced notice. In turn, the employer has the right to fire the employee without consequence (unless it does so for an unlawful reason, like retaliation).
If an employee begins to work at the rate promised in the offer letter, the employer must pay them that rate until providing notice of a different rate. Thus, an employee might have a claim for breach of contract if the rate paid is less than the rate promised. But, offer letter typically do not establish express grounds for claims against employees.
The Confidentiality Agreement
If a job exposes an employee to proprietary information and trade secrets, it is likely they will be required to sign a confidentiality agreement, sometimes called a “Confidential Information and Invention Assignment Agreement.” These agreements have provisions relating to an employee’s duties and responsibilities with respect to information the company deems private, confidential and/or proprietary.
These agreements make it clear that any inventions relating to the work your company performs or would like to perform that you develop while employed is the employer’s property. If your company makes mousetraps and you invent a better mousetrap in your garage on your own time, the invention belongs to the employer. The time machine you design in your spare time belongs to you, however, not the mousetrap company!
If the employee breaches a confidentiality agreement, the employer has the right to bring a claim for breach of contract, theft of trade secrets or perhaps business claims like interference in contract. Breach of a confidentiality agreement can give the employer the right to an injunction, damages and attorneys’ fees.
One of the worst mistakes employees sometimes make is to download or forward company information when their employment ends. This can result in a serious claim against the employee for violation of the Uniform Trade Secrets Act. If the theft of trade secrets is found to have been willful and malicious, a court can award twice the value of the underlying damages as an award of exemplary damages.
In the years following several important United States Supreme Court decisions about the Federal Arbitration Act, employers across California took the opportunity to impose mandatory arbitration agreements on their employees. These agreements required employees to pursue their claims in private, confidential arbitration, and prohibited them from seeking relief from the courts.
California Assembly Bill 51, passed into law in 2019, went into effect on January 1, 2020. The Bill adds section 432.6 to the California Labor Code, which states in part, that,
A person shall not, as a condition of employment, continued employment, or the receipt of any employment-related benefit, require any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of the California Fair Employment and Housing Act (Part 2.8 (commencing with Section 12900) of Division 3 of Title 2 of the Government Code) or this code, including the right to file and pursue a civil action or a complaint with, or otherwise notify, any state agency, other public prosecutor, law enforcement agency, or any court or other governmental entity of any alleged violation.
Consequently, an employee can no longer be required to sign an arbitration agreement that forfeits their right to pursue in court their employment claims under the Fair Employment and Housing Act and the Labor Code as a condition of obtaining or maintaining a job in California. Furthermore, an employer cannot require an employee to affirmatively opt out of such an agreement. This new law now applies to all employment contracts entered into, modified, or extended after January 1, 2020.
If you are subject to an employment arbitration agreement dated before January 1, 2020, you might be stuck with it unless the agreement is found to be unconscionable and unenforceable for some reason.
The Handbook Acknowledgment
Employers who use employment handbooks generally require new employees to sign an acknowledgment form stating that the employee agrees to abide by and be subject to the rules set out in the handbook.
Handbooks usually make two things very clear. First, they remind the employee that they are working “at-will” and that no promise of continued employment is being made. Second, they state all provisions of the handbook are subject to modification at the employer’s discretion.
Employers often use handbooks as the basis for discipline and termination. It is important, therefore, for each employee to carefully review their employment handbook. Handbooks typically describe rights and responsibilities of the employer and the employee. They almost always contain workplace rules and identify what acts constitute grounds for discipline and/or termination.
Under California Labor Code section 2751, employees who are paid sales commissions must be provided with a written commission agreement that “set[s] forth the method by which the commissions shall be computed and paid.” The agreement must be signed by the employer and the employee. All such commission agreements remain in effect until they are modified in writing by the parties.
These agreements sometimes contain provisions that are unconscionable and unenforceable, like forfeiture clauses. Sometimes, they require the employer to pay commissions to an employee when after they are no longer employed by the company.
Commission agreements are frequently the subject of litigation against employers, particularly at the end of a salesperson’s employment.
Meal Periods, Rest Periods and Record-keeping Acknowledgments
Many employers also require new non-exempt employees to acknowledge in writing that they have been provided written policies describing when meal and rest periods are earned and how the employee’s work time will be maintained. If an employee refuses to follow the rules set out in these acknowledgements, they often face some sort of reprimand or discipline. In an at-will state, an employer does not generally need to state a specific reason for terminating an employee. But because the failure to abide by meal, rest and record-keeping requirements can place an employer in jeopardy of a wage and hour lawsuit, employers treat these policies are mandatory. To stay out of trouble, employees should learn these and follow these policies. If anything interferes with the employee’s ability to follow these policies, then the employee should inform a supervisor why they were not able to do so.
California employers are required to provide all employees with a clear and easy to understand written harassment and retaliation policy that is discussed regularly in meetings. The writing must contain a number of provisions designed to inform the workforce of their rights and duties as employees with respect to acts of harassment. The requirements are set out in California Code of Regulations 2 § 11023. If your employer has not provided you such a written policy, you should bring the requirement to their attention.
In the employment context non-compete agreements are void and unenforceable. Under the California Business and Professions Code section 16600, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
Until recently, many employers included “non-solicitation” clauses in their employment contracts. These clauses stated that the employee would not solicit any of their coworkers to work for another company. Thus, the clauses prohibited employees from hiring away their former teammates when they moved to a competitor’s business.
While the decision has not yet been made by the California Supreme Court on the issue, an appellate court and a U.S. District Court have separately held that non-solicitation clauses in employment contracts violate California Business and Professions Code section 16600 by restraining workers from engaging in a profession or trade. Because the hiring of employees is part of engaging in a profession or trade, restricting you from hiring certain persons violates your post-employment freedoms.
If you are threatened with a lawsuit on the grounds that you violated any non compete agreement, you should speak with an employment attorney about your rights.
Forum and Venue Selection Clauses
The rights of California employees are governed by California laws. If you work in California, all of your rights are subject to California’s labor laws. Even if your employer is based in New York and you are the only employee working in California, your rights will differ in significant ways from other employees working in other states.
California Labor Code section 925 prohibits employers from requiring employees to sign agreements that impose the laws or the venues of another state on disputes.
(a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:
(1) Require the employee to adjudicate outside of California a claim arising in California.
(2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.
Any contract with a California employee that provides otherwise is voidable by the employee. This means that if the employee requests that the out-of-state provision be voided, then any dispute between them and the employer must be adjudicated in California pursuant to California law.
Section (e) of Labor Code section 925 excludes any contract with an employee who was represented by legal counsel in negotiating terms of an employment contract that selects out-of-state law or an out-of-state venue.
Violating a provision within an employment contract is more likely to result in your termination than a lawsuit. Except perhaps the most vindictive employer, employees are less likely to be sued by an employer than vice-a-versa. The exception to this is when an employee has misappropriated something of value from the employer, like customer lists, at the end of their employment.
Recently, a client of Kitchin Legal resigned his employment with a large corporation in the Bay Area. A few days before he left, he decided that it would be helpful to download some of the work he had performed for the company as part of his portfolio. Some of the company’s materials were clearly confidential. Within days of his resignation, the company sent him a letter demanding the return of all materials he had taken. The company’s IT department was able to determine exactly what he had taken and when. The company threatened a lawsuit if its former employee failed to cooperate. Over the course of several weeks, I worked with him and the company’s attorneys to prove that he had deleted all of the pilfered materials. It involved submitted his cell phone and laptop to a computer forensic expert for examination and signing a declaration under penalty of perjury that he no longer possessed any of the company’s data. Overall, it cost my client thousand of dollars in fees and many sleepless nights.
The possibility of a lawsuit arising out of a breach of an employment contract by an employee is low, but the consequences of a lawsuit can be significant. The right thing to do is to read and understand all documents you are required to sign during your employment. If you do not understand the way the agreements apply to you, talk with an employment attorney.
Please get in touch with Patrick Kitchin at 415-677-9058, or by email to email@example.com if you have any questions about your duties and contractual obligations.