- Employees Who Hire Lawyers May Be Protected From Retaliation
- DOL Endorses Narrow FLSA Change Which Shields Stock Option Profts From Being Calculated Into Employee Pay Rates
- Former Employees May Be Prevented From Competing If They Will "Inevitably Disclose" Trade Secrets
Employees Who Hire Lawyers May Be Protected From Retaliation
A California Court of Appeal recently held that an employer can be liable for retaliating against an employee who retains an attorney to represent his or her individual employment interests. (Gelini v. Tishgart, Cal. Ct. App., No. A082565, 12/28/99).Plaintiff Kelly Gelini was a female attorney at the law office of Kenneth Tishgart. After becoming pregnant, Gelini notified Tishgart of her pregnancy. One week later, Tishgart reduced Gelini's hours and pay by half. Gelini thereafter retained an attorney who advised Tishgart in a letter that Gelini was being discriminated against in violation of California's Fair Employment and Housing Act. Gelini was subsequently fired one week after Tishgart received the letter.
At trial, the jury found that Tishgart did not fire Gelini because of her pregnancy, but in retaliation for her attorney's letter. The jury awarded Gelini her economic damages which amounted to $15,000. Tishgart sought to overturn the award on appeal by arguing that California law did not support the jury's findings and that it was legally permissible to fire an employee for retaining an attorney. The appellate court, however, disagreed and let the $15,000 jury verdict stand.
On appeal, Tishgart tried to attack the fact that Gelini's wrongful discharge claim (which required that she prove she was terminated for a reason which is in violation of public policy) was impermissibly based on California Labor Code Section 923 as the "source" of the public policy. Section 923 recognizes that employees have the freedom to designate a representative of their own choice in negotiating the terms and conditions of their employment. Tishgart argued that Section 923 only applies in situations involving collective bargaining or nonunion selforganization among employees, and does not apply to individual employees seeking representation. In rejecting Tishgart's argument on the scope of Section 923, the appellate court stated that it was bound by a 1970 decision of the same court --Montalvo v. Zamora. The Montalvo case held that it was "the intent and scope of the statute, by implication, though not expressly declared, that the individual employee has the right to designate an attorney or other individual to represent him in negotiating terms and conditions of his employment, and that his discharge for so doing constitutes a violation of Section 923." The appellate court, however, reached its conclusion quite reluctantly and noted that if it were deciding the issue for the first time, it would have held that Section 923 does not protect individual employees.
Tishgart then argued that even if Section 923 extended to Gelini, it could not be the basis of her retaliation claim because the public policy it declares is not "substantial and fundamental," which is a necessary element for a wrongful discharge tort claim. In response to that argument the appellate court noted that "the government as well as the individual employee has a substantial interest in assuring that every worker may seek guidance in penetrating the legal thicket without fear of retaliation."
In a very interesting aside, the appellate court held that an employer does not violate Section 923 by merely refusing to negotiate with an employee's representative. This, of course, is the action which most employers take - telling the employee that it is company policy to deal with employees directly, and not through any attorney "representative."
This is a case very likely to be taken up for review by the California Supreme Court. We will keep you updated on any new developments.
DOL Endorses Narrow FLSA Change Which Shields Stock Option Profts From Being Calculated Into Employee Pay Rates
Department of Labor ("DOL") administrator T. Michael Kerr told a House panel on March 2, 2000, that Congress should amend the Fair Labor Standards Act ("FLSA") to specifically exclude profits from bona fide stock option programs from being calculated into an employee's regular rate of pay for purposes of calculating overtime. The DOL endorsement is the latest twist in a series of events which have caused a stir among employers who offer stock options to non-exempt employees who fall under the FLSA.
The DOL endorsement stemmed from a conserted effort among various employer groups who in January asked the DOL to rescind a February 12, 1999 opinion letter which had stated that a company's proposed employee stock option program was not a gift, special occasion bonus, a bona fide profit sharing plan, discretionary bonus, or any other type of compensation that could legitimately be excluded under the FLSA in calculating an employees regular rate of pay. By negative implication, the opinion letter seemed to be saying that the value of an employee's stock options should be factored into his or her regular pay rate when determining overtime pay. Employers around the country were extremely concerned that this DOL policy would make it very difficult for companies to offer stock options to non-exempt employees covered by the FLSA. Employers would be forced to undertake an excessively complicated series of calculations in order to pay overtime on the profits earned by non-exempt employees. For example, if a company gave options to 1,000 non-exempt employees, all of whom worked some overtime, the company would have to do the following in order to calculate each employee's overtime pay:
- determine the exercise date for each share of stock exercised by each employee;
- determine the profit each employee made on the stock as of the exercise date, however, the profit may not be allocated over more than the previous two years because of the statute of limitations set by the Portal-to-Portal Act;
- determine the overtime hours worked by each employee during the weeks the employee held the options;
Since employees can exercise vested options at any time during the life of the program, these overtime calculations could become excessively cumbersome, some say nightmarish, for employers. In comparison, neither profit sharing programs nor health benefits are included in calculating employees' regular rate of pay.
In response to the controversy which the opinion letter caused, the DOL stated that it is "specifically charged by the law to ensure that workers receive the minimum wage and overtime pay they are entitled to, regardless of the forms of compensation they receive." The DOL further stated that it does not want to discourage the use of stock option plans, and that the opinion letter "does not state, nor was it intended to suggest, that all stock option programs would be treated in the same manner."
Although the DOL has refused to rescind the opinion letter, it looks hopeful that Congress will amend the FLSA in order to carve-out an exception which will allow profits on stock options to be excluded when calculating an employees regular rate of pay. However, the DOL opinion letter and its negative implications for employers still looms as the DOL continues to stand by its opinion letter.
Former Employees May Be Prevented From Competing If They Will "Inevitably Disclose" Trade Secrets
A California Court of Appeals, in Electro Optical Industries, Inc. v. White, recently ruled that a former employee may be prevented from working for a competitor when the new employment will inevitably lead the employee to disclose the former employer's trade secrets. (Electro Optical Industries v. White, Cal. Ct. App., No. B133110 11/30/99).
The case was one of first impression in California, and in its ruling the court adopted the "inevitable disclosure" rule accepted in other states. The "inevitable disclosure" rule allows an employer to stop a former employee from working for a competitor if it can show that the disclosure of trade secrets is "likely to result" or "impossible" not to result during the employee's subsequent employment.
EOI is a supplier of infrared devices. There are only 3 to 6 firms that make these devices, and only about 100 entities world-wide that purchase such equipment. White worked as EOI's sales manager for about 15 years, and knew EOI's supply sources, production costs, customer lists and requirements, sales prices and volume, and marketing plans and finances. Although White was not an engineer, he had acquired technical information about the design and manufacture of EOI's existing and future products.
While still employed by EOI, White received an offer of employment from SBIR, which is a competitor of EOI. White's duties at SBIR would be to develop a marketing plan, develop a profile of SBIR's competitors, and increase SBIR's customer base. White eventually accepted the sales manager position at SBIR. Upon leaving EOI the company asked White to sign a "termination statement." In that document, White stated that he understood that trade secrets and other proprietary data of EOI belong to EOI and may not be used by him or disclosed by him to any person after the termination of' his employment with EOI. At the same time, EOI served White with a complaint and an application for an injunction stopping him from working for SBIR, selling infrared testing equipment, and disclosing or using EOI trade secrets.
In seeking the injunction, EOI argued that White possessed both technical and nontechnical EOI trade secrets. EOI claimed that White knew technical trade secrets about existing and future products, designs, product methods, materials and processes, and the status of patent applications. EOI also claimed that White knew non-technical trade secrets such as EOI's customer list, customer requirements, production costs, sales prices and volume, and marketing plans. The trial court, however, denied EOI's application for a preliminary injunction. EOI then appealed the trial court's decision.
On appeal, the appellate court recognized that the Uniform Trade Secrets Act permits an injunction against any actual or threatened trade secret misappropriation, and that some jurisdictions have adopted the "inevitable disclosure" rule. Under that rule, a former employee may be enjoined from working for a direct competitor where the new employment will inevitably lead the employee to rely on the former employer's trade secrets. In other words, an injunction will be issued if the new employment is "likely to result" in the disclosure of a former employer's trade secrets, or where it would be "impossible" for an employee to perform their job without using or disclosing the secrets.
Although the appellate court acknowledged that no California court had adopted this rule, it adopted the "inevitable disclosure" rule noting that the rule was "rooted in common sense." However, in applying the "inevitable disclosure" rule to EOI's appeal, the appellate court found that the trial court properly denied EOI's preliminary injunction because EOI had presented only a bare statement that a threat of disclosure existed. This, the court said, was inadequate to satisfy its burden of proof. In its analysis, the appellate court found that the trial court acted properly in denying the preliminary injunction in regard to EOI's claimed technical trade secrets because the evidence showed: (i) White lacked the training needed to pass technical information on to SBIR; (ii) SBIR's president declared that SBIR had no desire or need for EOI's technology; and (iii) EOI presented no contrary evidence. The appellate court also agreed with the trial court's finding that there was no threat of White misappropriating EOI's claimed non-technical trade secrets. After reviewing the evidence, the appellate court found that none of EOI's claimed non-technical trade secret information such as its customer list, customer preferences, sales prices, production costs and marketing plans, qualified as trade secrets. For example, the appellate court dismissed EOI's argument that its customer list was a trade secret because the identity of EOI's customers lacked economic value. Its sales market was small and it was not difficult to learn the identity of actual customers. The appellate court also held that information regarding the requirements, preferences and specifications of EOI's customers was not a trade secret since that information could be freely disclosed by the customer to EOI's competitors. In regard to sales price information qualifying as a trade secret, the appellate court found that EOI presented no evidence that its sales prices constituted a trade secret. The evidence, rather, was that suppliers could obtain sales price data simply by calling their competitors. Moreover, the appellate court found that there was no evidence that EOI's and SBIR's products competed on price terms.
The appellate court did recognize that product cost information may be confidential, but EOI failed to show that this information had independent economic value. In regard to EOI's allegation that White had confidential information about its marketing plans and sales strategies, the appellate court held that this information was not a trade secret because it was a matter of "common knowledge."
Although the appellate court held that an employer may enjoin a former employee, from working for a competitor where the new employment will inevitably lead the employee to rely on the former employee's trade secrets, it is certain that before the courts grant employers such relief, employers will have to establish their burden of proof with significantly more evidence than just bare statements of fact.
These materials have been prepared by Brobeck, Phleger & Harrison for information purposes only and are not legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between the sender and receiver. Internet subscribers and online readers should not act upon this information without seeking professional counsel. |