California Corporate Officers are Employees
This post discusses why – especially now that Assembly Bill No. 5 (AB-5) has taken effect – in California corporate officers are considered employees rather than independent contractors.
California Corporate Officers Employees by Statute
The starting point is California Unemployment Insurance Code Section 621. This Section states, in relevant part:
(more…)“Employee” means all of the following:
(a) Any officer of a corporation.
Which Personnel Records Can an Employee Inspect?
This post describes California employees’ rights to inspect, and receive copies of, their personnel records.
The relevant statute is California Labor Code Section 1198.5(a), which states:
(more…)Every current and former employee, or his or her representative, has the right to inspect and receive a copy of the personnel records that the employer maintains relating to the employee’s performance or to any grievance concerning the employee.
Non-solicitation Provision Overturned in California
It is common knowledge that California generally prohibits post-employment non-compete provisions. However, people know far less about law pertaining to post-employment non-solicitation provisions.
In this post, I will describe existing post-employment non-compete and non-solicitation case law. Then I will discuss a recent case that may signal a new direction.
Background – Non-competition Provisions Disfavored
Business and Professions Code Section 16600 is the statutory basis for California’s post-employment non-compete prohibition: (more…)
ABC Test for Employee Misclassification in California
This post discusses a recent decision by which the California Supreme Court adopted the so-called ABC Test for misclassification of employees as independent contractors.
The relevant case is Dynamex Operations West, Inc. v. Superior Court, decided on April 30, 2018. (more…)
At-will Employment – Why It Is the Norm in the U.S.
At-will employment permits either an employer or an employee to terminate their relationship at any time for almost any reason. This post explains why at-will employment is the norm in the U.S.
I am basing this post on a Quora question that I answered recently. Please see Why are labour laws governing companies almost non existent in North America, compared to Europe? (more…)
Employment Law for Foreigners
This post is about employment law. It is directed particularly to people from other countries who are not familiar with U.S. employment practices.
It is based on my answer to a Quora question. Please see What are the most important aspects of American labor law that a foreigner trying to make a terrestrial logistics company in (any state of) the U.S. should take into consideration?
I am providing this answer based on my experience helping dozens of international clients conduct businesses in the U.S.
Moonlighting Employees Protected by California Labor Code
Moonlighting employees in California have a right to hold down their second jobs (or to work on startups in their spare time).
The right to moonlight – and to engage in other activities on one’s own time – is expressed in Labor Code Section 96(k).
Labor Code Section 96
Section 96 identifies, generally, the types of employee claims that the California Labor Commissioner is obligated to accept. These include, for example, claims pertaining to payment of wages and expenses; damages arising from misrepresented conditions of employment; claims for vacation pay; and awards for workers’ compensation benefits.
Moonlighting is addressed as follows. (more…)
DTSA (Defend Trade Secrets Act) Requires Notice to Employees
Until recently, trade secrets were solely a matter of state law. However, on May 11, 2016, President Obama signed the DTSA, the Defend Trade Secrets Act of 2016.
Because of the DTSA, trade secret misappropriation suits with an interstate component now can be filed in federal court. For more information about civil and criminal enforcement, please see Trade Secrets Receive Federal Protection. (more…)
Monthly Missives Compilation Now Available
From late 2004 to early 2016, I published a not-quite-monthly email newsletter on various business-related legal topics – what I called my “monthly missives“.
I recently compiled the nearly 100 emails and have made the collection available on the Downloads page.
“Work Made for Hire” Can Convert a Contractor to an Employee
In California, a “work made for hire” (WMFH) provision in a contract can convert a contractor to an employee. This post describes the statutory basis for this little-known area of the law.
Before providing details, I will note that the (likely unwanted) ability to convert a contractor to an employee will arise only under narrowly-defined circumstances.
- The independent contractor must be an individual rather than a legal entity (a corporation or limited liability company).
- The relevant contract must expressly specify WMFH treatment for the contractor’s work product.
- The contractual relationship must be governed by California law. (I don’t know whether any other states have similar laws.)
Personal Cell Phone Use for Work Must be Reimbursed
California Court of Appeal for the Second District (Los Angeles)
This post discusses a 2014 case (Cochran v. Schwan’s Home Service, Inc.) which held that California employers must reimburse employees who use a personal cell phone for work.
Plaintiff Colin Cochran, as class representative, brought a class action lawsuit against Schwan’s Home Service (“Home Service”) on behalf of 1,500 service managers employed by Home Service. The suit sought, among other things, reimbursement of the managers’ work-related personal cell phone expenses. (more…)
Ridiculous Yelp Lawsuit Alleges Reviewers are Employees
Do you wonder why lawyers often have a bad reputation? If so, consider the ridiculous Yelp lawsuit alleging that Yelp’s reviewers are employees of the company.
Yelp is an online review site and local business search service. Consumers are encouraged to write reviews of, and rate their satisfaction with, various products and services.
Historically, controversies have concerned whether Yelp punishes businesses for not advertising on the site (which Yelp denies). More recently, business owners have complained about Yelp’s automated tools for removing false or inappropriate (e.g., paid) reviews based on unpublished criteria.
Labor Compliance Office Joins Hall of Shame
Labor Compliance Office is one of many companies that use fear of the law and subterfuge to extract money from naive owners of small businesses. What is interesting about LCO, however, is that it focuses on compliance with labor laws rather than corporate laws.
One of my clients brought Labor Compliance Office to my attention. (As agent for service of process for several other clients, I had already received copies of LCO’s pink-accented NOTICE.) Fortunately, even though the notice looks like it came from a governmental entity (the disclaimer is not readily apparent), my client was not taken in by the threat of fines up to $17,000.
Labor Compliance Office proposes to help the reader’s business avoid such fines by providing for $275 a poster that includes all notices required by California and federal labor laws. In addition, the business receives:
California Commissioned Employees Must Have a Written Employment Contract
Effective January 1, 2013, every employee in California who is compensated, entirely or partially, by commission must have a written employment contract that states the method by which commissions will be computed and paid.
Labor Code Section 2571(a) says:
By January 1, 2013, whenever an employer enters into a contract of employment with an employee for services to be rendered within this state and the contemplated method of payment of the employee involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid.
“Doing Business” Requires More than an Employee and an Office
In Doing Business in CA? Be Sure to Register, I wrote that an out-of-state corporation that “enter[s] into repeated and successive transactions of its business in [California] other than interstate or foreign commerce” must register with the Secretary of State as a foreign corporation, and that a penalty for failing to do so is being precluded from maintaining actions in California courts. A recent case in the US District Court for the Northern District of California (Jarzab v. KM Enterprises) provides an example of what does not constitute “repeated and successive transactions”.
What Happens if the Board Doesn’t Approve My Stock Options?
This post is adapted from a question I answered on OnStartups. Q. I’ve been working for a large private company, and my offer letter said I would receive X number of options as long as the board approved it. It’s been a year and I’ve been stonewalled on the option plan. I’ve sent multiple emails to HR and the controller and the CFO. HR has gotten back to me, but their hands are tied. Can I send a letter and a check to the CFO with $100 to force the issue of exercising some amount of shares and determining the strike price that way?
A. Unfortunately, “subject to board approval” is a common contingency for stock option grants. At this point, I’m not sure there is much you can do about it.
Why Should We Have an Employee Handbook?
Although I’ve written quite a few posts about employee handbooks, I just realized that I never have explicitly stated why an employer should have one – thus, the topic of this post.
An employee handbook is a collection of policies, procedures and other important information that is provided to every employee. Reasons for having an employee handbook include:
- To let every employee know what is expected of him or her on the job
- To help ensure that employees are treated equally and appropriately
- To reduce employee morale problems and complaints related to unstated policies or procedures
- To reduce the risk that employees will allege unfair practices or unlawful discrimination
- To enhance the perceived authority and appropriateness of employer decisions that are based on the handbook
Probationary Period for Employees Not Needed and May Cause Problems
The CEO of a client with a half-dozen employees recently asked, “We are about to start hiring again. I would like to add language regarding a 90 day probationary period. Is this a good idea?” My answer was “No.” Here’s why.
I had prepared a form of employment offer letter and an employee handbook for the client. Both of these documents state that employment is at-will. This means that either party may terminate the employment relationship at any time for any (non-discriminatory) reason or for no reason. As a result, at-will employment, by itself, allows a company to terminate the employment of an individual whose performance is inadequate during the first 90 days. A probationary period is not necessary.
Non-compete Snares Conspiring Employer
California courts are known for not enforcing non-compete provisions except under narrowly-defined circumstances (see “California doesn’t *always* prohibit non-compete provisions”). In a case last year (Silguero v. Creteguard, Inc.), the Court of Appeal for the Second District held that an employer may not terminate an employee because of another company’s unenforceable non-compete agreement.
In 2003, Rosemary Silguero began working for Floor Seal Technology, Inc. (“FST”). In 2007, FST threatened Silguero with termination if she did not sign a confidentiality agreement that included an 18-month post-employment non-compete provision. Two months later, FST fired her.
Employee Right to Wage Claim Hearing Trumps Arbitration Clause
A recent court decision held that an employee in California has the right to file a wage claim and to have a hearing on that claim before the Labor Commissioner, even if the employee has signed an arbitration agreement.
In California, employees who are not paid what they are owed can file wage claims (see Wage Claims – Nasty but [Sometimes] Necessary). Because the employee need not retain legal counsel, and because the Labor Commissioner may help the employee, a wage-claim hearing provides to the employee benefits and leverage that are not available in other venues, such as litigation or arbitration.
Handbook Defeats Employee Claim of Attorney-Client Confidentiality
In “Inspection of Employee Text Messages ? Be Careful“, I described provisions concerning company-provided technology that every employer should include in its employee handbook. A recent California Court of Appeal case, Holmes v. Petrovich Development Co., shows that such provisions are strong enough to defeat a claim of attorney-client confidentiality!
Gina Holmes brought suit against her former employer, alleging sexual harassment, wrongful termination and other causes of action. The employer presented as evidence e-mails between Holmes and her attorney – e-mails sent from her employer’s computer – that supported the employer’s case.
Unpaid Interns: What You Need to Know
Many companies – especially startups – like the idea of using unpaid interns as free labor. This post discusses whether and how a California company can use unpaid interns.
Paid or Unpaid Interns vs. Employees
If individuals are interns under California law (as discussed below), then they need not be paid. Furthermore, they are not subject to other employment protections, because they are not employees.
If, on the other hand, individuals are determined to be employees, then they must be paid at least minimum wage.
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Accelerated Vesting may Mean Little if Your Employer is Acquired
This post is adapted from a question that I answered on Quora. Q. How can an acquirer make an employee with single-trigger vesting commit to a “lock-up” period to receive all his shares? Say you’re an engineer at a just-acquired startup with 0.5% of the old company, and your shares fully vested upon acquisition. The acquirer’s terms were that current employees get 50% of their payout up front, and 50% if they stay on board for 5 years. How is that possible, legally?
A. It is difficult to provide a definitive answer without looking at the relevant documents. However, I suspect that this situation is possible because 50/50 pertains to shares in the acquiring company rather than the acquired company.
In my experience, acquired companies will put some effort into converting employee equity interests directly into comparable interests in the acquiring company, but there is no guarantee this will happen.
So you may (I can’t be sure, not having reviewed the documents) have a choice: Keep your 0.5% fully-vested interest in the acquired company (which is likely to have little, if any, market value in the foreseeable future), or accept the 50/50 conversion to an equity interest in the acquiring company.
Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Does My New Employer Now Own My Software?
This post is adapted (with editing) from a Quora question that I answered. Q. I developed a software application on my own, then adapted it for my new employer, where it is used enterprise-wide. What are my ownership rights in this situation?
A. It would help to know whether you signed any type of proprietary information and inventions agreement with your employer. If you did, its terms (obviously) will be of great importance. You did not mention any such agreement, so I will assume, for the purposes of the discussion below, that there is no such agreement.
Which Financial Information Must a Private Company Provide to Employees with Vested Stock Options?
This post is based on a Quora question that I answered (Q and A are somewhat edited). Q. Which financial information must a private company provide to employees with vested stock options?
A. In California, Corporations Code Sections 1500 and 1501 specifies records that must be kept by each corporation. Shareholders’ rights to inspect records are set forth in Sections 1600 and 1601.
I know of no comparable statutory provisions with respect to holders of vested options, however. Unless the stock option plan grants you such rights, the easiest way for you to gain such rights would be to exercise your option with respect to one share and, then, exercise your rights as a shareholder.
Related post: Which Financial Information Must a Corporation Provide to its Shareholders?
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
What Should We Put in an Employment Offer Letter?
From time to time, clients ask me to review their current form of employment offer letter.
As a result, I am writing this post. It is a summary of what I believe every offer letter should convey to the prospective employee from the business and legal perspectives.
Offer Letter Business Terms
From the business perspective, the letter should lay out the most important characteristics of the position: (more…)
Small-company CEOs Can Be Accused of Sexual Harassment, Too
Rita Risser
I am especially pleased to welcome Rita Risser as a guest writer – not just because her post about sexual harassment is this blog’s first guest post, but because I have had the pleasure of knowing, and staying in touch with, Rita ever since we met at Boalt Hall.
As CEO of a small company, you may imagine that the recent resignation of HP’s CEO has no relevance to you and your organization. Think again.
Whenever employees or contractors are let go, they are more likely to bring claims for harassment, whistle-blowing and more. The worse the economy, the less likely they are to find other jobs and the more incentive they have to pursue alternative sources of income through lawsuits.
Another Reason Why Employees Should Not Disclose Their Passwords
Their are obvious security-related reasons why businesses do not want employees to give their computer passwords the third parties. With the recent decision in Multiven v. Cisco Systems, the U.S. District Court for the Northern District of California has given us a legal reason, as well.
Peter Alfred-Adekeye (“Adekeye”), a former Cisco engineer, left Cisco to form plaintiff Multiven. After his departure, Adekeye used a Cisco employee’s password, with the employee’s permission, to download certain proprietary Cisco software.
Don’t Steal Your Former Employer’s Customers (Unless You’re Confident…)
Many people know that, when one leaves a job in California, the former employer typically cannot stop the former employee from working for a competitor. However, some people mistakenly believe that the right to compete includes the right to steal the former employer’s customers!
According to Civil Code Section 3426.1(d), a trade secret is “information…that [d]erives independent economic value…from not being generally known to the public…and [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” For many employers, a customer list is an important trade secret.
Why (not) form an S corporation?
Some companies are formed as S corporations to avoid “double taxation”: The corporation does not pay federal income tax. Instead, income flows through to the shareholders, who pay income taxes (as in a partnership).
This potential tax benefit is available, however, only if stringent requirements are met. Most notably:
- There must not be more than 100 shareholders.
- Permissible shareholders are limited to individuals (other than non-resident aliens), estates, tax-exempt organizations, and certain qualified trusts.
- Only one class of stock is permitted.
Failure to meet a requirement, even if inadvertent, results in loss of S corporation status.
Entrepreneurs should think carefully about whether S corporation status is appropriate for the long term. Here’s why.
Court Says Tech Startups Special re Works Made for Hire
In a recently-decided case (JustMed v. Byce), the U.S. Court of Appeals for the Ninth Circuit decided that a software developer was an employee, rather than an independent contractor, even though the parties had completed almost no employment-related paperwork.
Byce took over development of JustMed’s software from an employee who had moved out of state. Byce’s compensation – the same as his predecessor’s – was 15,000 shares of JustMed stock (valued at $0.50 per share) per month.
Contractors as a Tax Dodge – NYT Reports U.S. to Crack Down
Four months ago, I wrote about a Wall Street Journal report. According to that report, the Internal Revenue Service planned to audit 6,000 randomly-selected U.S. companies to determine the extent to which companies misclassify employees as independent contractors. (See The “Independent Contractor” Trap Becomes More Dangerous.) Today The New York Times reported that both federal and state officials are cracking down on misclassification (U.S. Cracks Down on Contractors as a Tax Dodge). The incentive: To reduce record budget deficits.
By misclassifying personnel, companies avoid paying Social Security, Medicare and unemployment insurance taxes. The article goes on to say that, on average, misclassified personnel do not report 30% of their income. The 2010 federal budget projects that the crackdown will net at least $7 billion over ten years.
Implication of contractors as a tax dodge for companies of all sizes:
If you have been lax in classifying workers, now would be a good time to start doing things correctly. Avoiding the “Independent Contractor” Trap may help you determine how to improve your classification procedures.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Which state’s law matters for employment contract questions?
I recently learned that one of my LinkedIn answers in Employment and Labor Law [no longer available at LinkedIn because this feature was discontinued] was selected as the Best Answer. The question and my answer are reproduced below.
Question: Which state law matters for employment contract questions (for the CEO of a firm), the law of the state of incorporation or the law of the state where the headquarters are located? (more…)
Educate Employees about Online Endorsements – the FTC is Watching!
A few months ago, I posted Does your Employee Handbook address social media? This post discusses a specific social-media issue that is of great importance to every employer: Online endorsements of products or services by employees.
The Federal Trade Commission has published Guides Concerning the Use of Endorsements and Testimonials in Advertising. Actions that are inconsistent with the Guides may result in an FTC enforcement action.
Rewarding Key Personnel: Restricted Stock or Options?
As I write this post, I am in the process of helping an early-stage client develop a stock-based compensation plan for a key officer. The principal choice was between a stock option and restricted stock.
A stock option is the right to purchase a specified number of shares at a specified price at some point in the future. The option typically “vests” over a period of years. The longer the individual stays with the company, the greater the portion of the option s/he has the right to exercise. At the end of the vesting period, the individual has the right to purchase all of the shares specified in the option. (more…)
Stock is Great – but Don’t Give It Away Too Quickly!
Most startups and early-stage companies have limited cash. As a result, they often are eager to use stock as a major component of? compensation. They need to make sure, however, that personnel stick around long enough to make the contributions for which they are being compensated.
In some instances, the corporation creates a tax-qualified incentive stock option plan. Employees are granted options to purchase stock, and they do not have to pay any tax on the stock (actually, on profits from their sale of the stock) until they exercise the option (purchase the stock, presumably, at a low price) and, later, sell the stock. (Tax law is less favorable to independent contractors.)
Does your Employee Handbook address social media?
Prudent employers have known, for many years, the importance of Employee Handbooks in setting forth a company’s policies and operational procedures. However, the recent increase in the popularity of social media – Facebook, Twitter, blogs and the like – has taken many employers, and their Handbooks, by surprise.
Policies governing mobile phones, computers, Internet access and e-mail no longer suffice. With social media, every employee – for better or for worse, intentionally or unintentionally – can become a spokesperson for the company.
The “Independent Contractor” Trap Becomes More Dangerous
Earlier this year, I wrote Avoiding the “Independent Contractor” Trap about the dangers that companies face if they misclassify employees as independent contractors. The Wall Street Journal recently reported (Employers and Workers Clash in Court Over ‘Contractor’ Label) that those dangers have increased.
According to the WSJ article, the Internal Revenue Service will audit 6,000 randomly-selected U.S. companies in its first attempt since 1984 to quantify the extent of employee misclassification. The IRS is not taking this step merely to help the individuals involved receive the pay and benefits to which they are entitled – state and federal governments stand to gain billions of dollars every year from withholding taxes, unemployment insurance and workers’ compensation if workers are classified properly.
Even greater than the risk of a government audit is the risk that a disgruntled “independent contractor” will file a wage claim (see Wage Claims – Nasty but [Sometimes] Necessary).
Avoiding the “Independent Contractor” Trap lists factors that can help you determine how to classify workers properly.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Attention Employers: “Retaliation” is the New “Discrimination”
According to an article in yesterday’s Wall Street Journal, the U.S. Equal Employment Opportunity Commission is seeing a surge of complaints based on retaliation – i.e., allegations that an employer retaliated against an employee who sought to protect his or her rights by complaining to the EEOC.
The article reports that eliminating retaliation is the EEOC’s top priority, because its enforcement of anti-discrimination laws will be successful only to the extent that employees free to file complaints.
So whether you are a large or small employer, here is the bottom line:
- Do not discriminate against any employee based on age, race, sex, religion, etc.
- If an employee files a discrimination complaint, do not retaliate against that employee.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Should I pay employees or vendors first?
I answer questions on Avvo pretty regularly. From time to time, I will reproduce (perhaps with modest editing) some of the questions and answers here on my blog.
Question: If an employer has cash flow problems, who should be paid first: employees or vendors?
Answer: I see this situation as requiring analysis from both the business and the legal perspectives.
Business: I believe that employees are more important, and are less able to do without the money to which they are entitled, than (most) vendors, so I would pay employees first.
Legal: While either employees or vendors could bring suit against the employer, employees also would have the ability to file, at no cost, a wage claim with the Division of Labor Standards Enforcement. In my opinion, DLSE investigation of a wage claim is worse than a lawsuit, so for this reason, too, I would pay employees first.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Wage Claims – Nasty but (Sometimes) Necessary
Recently I have seen an increase in the number of current or former employees filing wage claims against their employers here in California. There often is a good reason for the filing. In my experience, employees typically do not spend time and effort on filing wage claims unless they have some basis for concluding they have been underpaid, such as:
- Unpaid wages, including commissions or bonuses.
- Accrued but unused vacation time not paid at the time of termination.
- Unauthorized deductions from paychecks.
Limiting Non-business E-mail: Define Precisely and Enforce Consistently
Last month, my post Court Curbs Inspection of Employee Text Messages discussed an employer that was held to have unreasonably searched employee text messages because, despite a policy stating that employer-supplied technology must be used only for the employer’s business activities, that policy was undercut when it was only selectively enforced.
Continuing this theme, in a more recent case, Guard Publishing v. NLRB, the D.C. Circuit held that selective enforcement of a policy limiting employee e-mails constituted a violation of federal labor law.
In my opinion, Guard Publishing actually made two mistakes. First, the e-mail policy prohibited “non-job-related solicitations” (emphasis added) but did not prohibit other other non-job-related communications. So the employer gave itself the ability to limit only a fraction of all possible non-business communications.
Alice Doesn’t Work Here Any More
A software company (“Client”) had to dismiss one of its developers (let’s call her “Alice”). The problem was Alice’s incompetence.
But there was a complication: Alice was pregnant. Adding to Client’s frustration, Alice, without permission or advance notice, was taking more time off than she was entitled to. Client wanted to be rid of Alice but did not want to be charged with discrimination based on sex or pregnancy.
Focusing on the Issue
I worked with Client’s CEO and Alice’s manager. We agreed right away to ignore the unauthorized time off. The amount of money at stake was relatively small, and we were concerned that raising time off as an issue could entangle us in Alice’s pregnancy-related medical needs.
Termination Tips
Employment terminations are difficult for both managers and employees. Because of the sensitivities involved and the desire to avoid litigation, managers should take special care in drafting the severance agreement and release and in conducting the termination meeting.
For California employers, one of the most important contract provisions is to require that the employee waive all rights under Section 1542 of the California Civil Code. This Section, which is well-known to attorneys but not necessarily to business managers, states: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”
Inspection of Employee Text Messages – Be Careful
“Texting” is booming in popularity, especially among younger workers. Are your personnel sending text messages on company-provided devices? If so, you should know about the Ninth Circuit’s decision in Quon v. Arch Wireless Operating Co., Inc., 529 F.3d 892 (2008).
Update: On June 17, 2010, the U.S. Supreme Court, in City of Ontario v. Quon, overturned the Ninth Circuit decision, ruling that the search of employee text messages did not violate the Fourth Amendment prohibition against unreasonable search and seizure because (a) it was motivated by a legitimate work-related purpose and (b) it was not excessive in scope. However, the Court expressly sidestepped the issue of whether employees have a reasonable expectation of privacy in their text messages, so the precautions listed at the end of this post still are relevant.
Arbitrating Employment Disputes: Pro and Con
I prepared a Proprietary Information and Invention Agreement (“PIIA”) to be signed by the employees of a small but established technology company in the Bay Area. The PIIA ensures that the company owns whatever employees create on the job, and it obligates employees not to disclose the company’s proprietary information to third parties.
The client pointed out, however, a conflict between the PIIA and the existing Employee Handbook: The PIIA states that any dispute will be resolved in state or federal court in San Francisco, but the Handbook states that all employment disputes will be subject to arbitration. The client asked me how this conflict should be resolved.
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Employee Proprietary Rights Agreements – Be Careful
Some companies force employees to sign proprietary rights agreements under which the employee automatically assigns to the company any patent applications that the employee files within one year following separation from the company. I have always considered these provisions unjustifiable. California law apparently has reached the same conclusion.
Applied Materials Made a Mistake
In Applied Materials, Inc. v. Advanced Micro-Fabrication Equipment (Shanghai) Co., et al., 630 F.Supp.2d 1084 (2009), the U.S. District Court for the Northern District of California held that such a provision is unlawful. (more…)
Top Ten IP Mistakes of Small to Mid-Size Tech Companies
On June 18, I will make a presentation to the East Bay MashEx. The title: “The Top Ten Intellectual Property Mistakes of Small to Mid-Size Technology Companies”. (The handout is available as a Free Download on the Downloads page.)
Here are the mistakes that I will talk about:
- Failing to use employee invention agreements
- Assuming that the company owns contractors’ work product
- Using another company’s license agreement
- Thinking that patents are the only IP that matters
- Filing for a provisional patent before the scope of the invention is clear
- Treating the federal government like non-government infringers
- Neglecting to identify and protect trade secrets
- Believing that “open source” means “no restrictions”
- Giving the “family jewels” to an overseas supplier
- Registering the wrong entity as the owner of IP
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Choice of Law and Non-Compete Provisions
This post describes the fascinating interaction between a contract’s choice of law and non-compete provisions in a matter that I worked on.
A longtime client received an acquisition offer from a large, publicly-held company (“Acquirer”). Once the acquisition closed, the client’s founder (“Founder”) would become a management-level employee of Acquirer.
Concern about Non-compete Provision
Although Acquirer’s proposed employment agreement generally was acceptable, Founder was concerned about its non-compete provision. That provision stated that for one year following termination of his employment, Founder would not “engage in any business activities that are competitive with the business activities of [Acquirer] or those of its subsidiary or parent companies”.
The problem was that the business of Acquirer and its affiliates was vast, and Founder’s expertise was industry-specific. In effect, Founder would not be able to work elsewhere. (more…)
Negotiating Executive Employment Agreements
In the U.S., most employment is “at will”. This means that either the employer or the employee can terminate the employment at any time, for any legitimate, non-discriminatory reason, with or without cause. The typical senior executive, in contrast, has an employment agreement that runs for a number of years and allows termination only for cause. The reason: Attracting and retaining key executives is critical for any company’s success.
By the time I am called in, the parties usually are at or near agreement on salary and the amount of equity compensation (stock options or grants). In addition, the employer’s benefits program usually is well-defined. I have found that most of the negotiation effort goes into the following provisions:
Avoiding the Independent Contractor Trap
Small companies usually need to conserve cash, so they often turn to independent contractors rather than employees. This makes perfect sense – unless the company falls into what I call the independent contractor trap.
If there is not enough work to justify a regular employee, the company can use an independent contractor when needed. That way the company avoids making unemployment and social security contributions. Also, it does not pay benefits such as health and life insurance, retirement plan contributions and personal time off.
There can be problems, however. If the individual really is doing the work of an employee – is misclassified – the Internal Revenue Service or, in California, the Employment Development Department might reclassify the individual as an employee, erasing the presumed financial benefits.
