Proposed State and Federal Employment Law Changes Could Significantly Impact Companies

Posted by on Apr 1, 2019 in Newsflash | 0 comments

Employers, especially in California, are required to comply with a vast and complex set of laws regarding their employees. Proposals to change some of the more well-known laws have been submitted at both state and federal levels. In California, AB 5 was introduced as a placeholder bill in December 2018. This bill intends to codify the Dynamex decision which was published last April. Dynamex adopted a new test to determine when a worker is an employee rather than an independent contractor, and has caused many employers to rethink its classification procedures. At the federal level, the Department of Labor (DOL) published for comment its long awaited proposal for the overtime rule in the Federal Labor Standards Act (FLSA). This law provides a test to determine when an employee is eligible for overtime pay under the FLSA. Part of the test involves the employee’s salary. The DOL’s proposed change increases this salary amount. California’s AB 5 We covered the Dynamex decision when it was published in 2018 here. In this decision, the California Supreme Court adopted Massachusetts’s ABC test for determining whether a worker is an employee or an independent contractor. In short, this test analyzes: (a) whether the hiring entity exercises significant control over the worker, (b) whether the worker is engaging in activities which are within the hiring entity’s regular course of business, and (c) whether the worker is engaged in an independently established trade, occupation, or business doing the services the worker is providing for the hiring entity. Importantly, Dynamex made clear that workers would be presumed to be employees, and that it is up to the employer to prove the worker is in fact an independent contractor. The Dynamex decision has left significant confusion and uncertainty in its wake. To curtail this, AB 5 was introduced at the beginning of California’s legislative season, and is aiming to codify Dynamex‘s ABC test as well as clarify some of the uncertainty surrounding the test. Notably, AB 5 is also reportedly intending to broaden the reach of this test. The Court in Dynamex was careful to note the ABC test would only apply to Wage Order issues – meaning it would not apply for discrimination, harassment, and other claims not covered by the Wage Orders. AB 5 intends to broaden the ABC test to apply to these additional claims. AB 7 was also introduced at the beginning of the legislative season as a placeholder bill. This bill intends to disregard the Dynamex decision and go back to the Borello test which had previously been used to determine whether a particular individual is an employee or an independent contractor. Department of Labor’s Overtime Rule A number of state and federal laws provide a statutory framework governing overtime. The FLSA is one of those laws, providing that employers must pay their employees who work more than 40 hours in one week at least 1.5 times their regular rate of pay. However, one exception to this rule, the “white collar exception,” operates to allow employers with employees who meet certain criteria to be exempt from the FLSA’s overtime rules. The basic test to determine whether an employee falls within the FLSA’s “white collar exception” is: (a) whether the employee is paid a predetermined and fixed salary, not based on hours, (b) whether...

read more

Maintaining the Protection You Intended Your Corporation to Provide

Posted by on Apr 1, 2019 in Newsflash | 0 comments

For corporate clients of Navigato & Battin, you likely received a letter in the mail accompanied by a questionnaire, asking about your corporation’s activities for 2018. One purpose of this questionnaire is to allow our office to draft unanimous written consents for your corporation’s shareholders and directors in lieu of annual shareholder and director meetings, should you wish to utilize these options. We published an article about the importance of annual minutes a while back, which can be found here. California requires all corporations to hold annual shareholders’ meetings where, at the very least, directors are elected. While California does not require annual meetings for the directors, we recommend the directors meet after the shareholders elect them. Luckily, California allows both shareholders and directors to execute unanimous written consents instead of holding these meetings. But why are these minutes or consents important? One of the main reasons corporations are formed is to protect those who own the corporation (i.e., the shareholders) from liability. For example, if a corporation enters into a contract requiring it to pay a certain amount of money each month and the corporation later defaults on the contract, the shareholders generally will not be liable for the amounts owed by the corporation. To avoid people taking advantage of this protection, the so-called “corporate veil” (which otherwise shields the corporation’s shareholders from liability) can be pierced if certain circumstances are found by a court, which may lead to individual shareholder liability for what seemed to have been corporate debts or liabilities. Piercing the corporate veil is a two-step process. First, a number of factors are considered to determine whether the shareholders have treated the corporation as an “alter ego.” These factors include: commingling of corporate and personal funds, failing to observe corporate formalities (including maintaining corporate minutes), and failing to contribute sufficient capital. Second, allowing the shareholders to be shielded from liability must result in an “injustice.” Based on the first step, it is critical to maintain your corporation’s annual minutes, whether they be in the form of actual minutes from a meeting or in the form of a unanimous written consent in lieu of the meeting. Additionally, funds belonging to the corporation must not be commingled with your personal funds, and vice versa. This factor is generally problematic with single-person corporations. However, it can be easily avoided with careful accounting to ensure corporate monies are deposited into the corporation’s bank accounts and only distributed to the shareholders through proper methods. Lastly, your corporation must be properly capitalized throughout its existence. The second step usually poses a trickier analysis. The basic idea, though, is that shareholders of a company should not be able to wrongfully hide behind the company to avoid liability which really should be assessed against the individual shareholders. Usually when a court finds the first step is satisfied, meaning one or more of the shareholders has treated the corporation as his “alter ego,” this second step is also satisfied. When a shareholder uses the corporation as his own personal piggy bank (commingling funds, not properly accounting for money being distributed to the shareholder and/or loaned or contributed to the corporation, and disregarding corporate formalities), it is more likely that a court may find that the shareholder should not be able to avoid individual liability...

read more

Employees Must be Compensated for Calling in to Confirm Shifts

Posted by on Mar 1, 2019 in Newsflash | 0 comments

For employees of Tilly’s, a clothing store, each work week consists of both scheduled shifts and what the company called “on call shifts.” For these on call shifts, employees are required to call their respective store two hours in advance of the on call shift, and during that call the employees are informed whether they are required to work the shift or not. In September of 2015, a Tilly’s employee filed suit against Tilly’s claiming these required call-ins for on call shifts were a violation of Wage Order 7. Wage Order 7 requires that any employee who reports to work and is not then put to work, or is only assigned to work half of the employee’s scheduled shift, be compensated for half of the scheduled shift. For example, if an employee is scheduled to work from 12 p.m. to 4 p.m., and reports to work but then is sent home without working at least two hours, the employee will be compensated for two hours. This Order was adopted in order to compensate employees for the “tremendous costs” of unpaid on-call shifts. The Court of Appeal found that, “in short, on-call shifts significantly limit employees’ ability to earn income, pursue an education, care for dependent family members, and enjoy recreation time.” The Tilly’s employee argued that by calling in to be told whether to report for the scheduled on call shift, the employee was “reporting” for work, which required the employee to be paid for at least half the scheduled time of the shifts for which the employee was ultimately told not to work. Tilly’s, on the other hand, argued that “reporting” for work meant physically presenting oneself for a shift, meaning that such an employee would actually need to physically show up at the store for his or her shift to be paid “reporting time” pay. Under Tilly’s definition of “reporting,” calling the store two hours before the on call shift would not be sufficient to trigger a duty to pay. The trial court agreed with Tilly’s and sustained Tilly’s demurrer to the employee’s complaint; however, the Court of Appeal disagreed with Tilly’s. The Court of Appeals found that while Wage Order 7 had been adopted in current form in 1979, long before the concept of an on call shift came to be, the situation this order originally intended to cure mirrored that which presented itself in this case. Originally, the order was enacted to achieve a two part goal: to properly compensate employees and to encourage proper notice and scheduling. The Court of Appeals found that by requiring its employees to call in two hours before the start of on call shifts, Tilly’s significantly hindered the employees’ activities not only during the on call shift itself, but also two hours before. Because of this significant hindrance, caused by Tilly’s ineffectively scheduling its employees’ shifts, the Court held Wage Order 7’s dual goals would be achieved. First, by requiring Tilly’s to pay reporting time for employees calling in to confirm on call shifts, Tilly’s would be required to internalize some of the costs of overscheduling. Second, by requiring this compensation, Tilly’s will be partially compensating employees “for the inconvenience and expense associated with making themselves available to work on call shifts.” Importantly, both Wage Order 7 and the...

read more

Subsidiaries Can Bind Parent Companies to Arbitration Clauses

Posted by on Mar 1, 2019 in Newsflash | 0 comments

A parent and subsidiary relationship exists when the parent company controls the subsidiary company, either through owning the majority of membership interests or stock. Regardless of this ownership, the parent and subsidiary are and remain two distinct entities, wholly separate from one another. While the two entities may share similar ownership and common interests, they do not share funds, bank accounts, corporate records, and so on. Based on their separate status, parents and subsidiaries usually cannot bind one another to contracts unilaterally. However, in a recent decision, a Court of Appeals held that a subsidiary can in fact bind its parent company to an arbitration provision, despite the parent company not signing the contract including the provision. In order for the subsidiary’s agreement to bind its parent entity, (1) the parent must control the subsidiary to such an extent that the subsidiary was a mere agent or instrumentality of the parent, and (2) the claims against the parent must have arisen from the agency relationship. In Cohen v. TNP 2008 Participating Notes Program, the parent company had created an LLC to raise funds for an endeavor. One of the investors who signed a subscription agreement required the agreement to include an arbitration provision, which was in fact included in the final agreement. When it came time to sign the agreement, an agent of the parent company signed the agreement on behalf of the subsidiary LLC. The agent’s title was noted as the LLC’s “managing member.” The Court of Appeal held the parent’s agent had acted on behalf of the LLC to the extent that the agent was also an agent of the LLC, because the agent signed the agreement as the LLC’s “managing member.” After the investments did not yield the promised returns, the investor initiated arbitration proceedings against the LLC and the parent company for breaching the subscription agreement. The parent company argued that because it was not a signatory to the agreement including the arbitration provision, it was not bound to arbitrate the investor’s claims. Because these claims arose directly from the breached subscription agreement, which the parent’s agent had entered into on behalf of the LLC, the Court of Appeal held the claims against the parent arose directly from the agency relationship between the parent and the LLC. The parent company, despite not having signed the agreement containing the arbitration provision, was compelled to arbitrate the investor’s claims. In order to avoid this type of accidental binding of parent or subsidiary companies to contractual provisions, parent and subsidiary companies should be mindful of the following: Carefully review contracts to ensure the correct entity is listed as a party to the contract. Ensure the signatory for each party is not an agent of another party, and is signing on behalf of the intended signatory. Allow the subsidiary to control its day-to-day operations. Conversely, limit the parent company’s control over the subsidiary to that of providing goals and direction. When persons have titles under both the parent and subsidiary, ensure they are acting on behalf of the correct entity when entering into contracts. If these types of parent-subsidiary issues may affect your business operations, call the attorneys at Navigato & Battin. We are available to review these relationships to help make sure one company is not inadvertently taking...

read more

Protecting Your Intellectual Property: Trade Secrets

Posted by on Feb 1, 2019 in Newsflash | 0 comments

This is the final installation of our four part discussion of intellectual property. Last month, we discussed patents and their protections.   When someone thinks of a trade secret, they may think of the Kentucky Fried Chicken recipe, or the Coca-Cola formula. But trade secrets can be more commonplace pieces of information such as a client list, business plan, and corporate minutes. California considers a trade secret to be any information which a company actively works to keep confidential, and which would lose value if it was widely known. This definition provides for a wide array of information to be considered trade secrets. Trade secret theft, or misappropriation, can be as simple as a former employee taking your client list and using it to contact potential clients on behalf of a new boss. In some cases, it can be so extreme as to be considered corporate espionage. One common trend in recent cases is that this type of theft is committed by employees. In order to be found liable for misappropriation of trade secrets, a company will have to prove an employee (1) acquired the information by improper means, and (2) used the information or disclosed it to a third party. An employee makes an improper acquisition if he acquires the information through theft, bribery, misrepresentation, or breach of a duty to maintain secrecy, to name a few ways. When a company is the victim of an employee who misappropriates trade secrets, the initial goal is to try and keep the disclosed information as secret as possible. The law provides a couple of ways to do this. For example, a company can file a temporary restraining order against the disclosing employee, asking a court to order the employee to destroy and/or unpublish any disseminations of the information, stop using the information, and to stop disseminating or using the information. A company may also file an application for a preliminary injunction (typically after the issuance of a temporary restraining order). Unfortunately, in some cases, by the time a company discovers its trade secrets have been misappropriated by an employee, it is simply too late to remove the information from the realm of public knowledge. In those cases, temporary restraining orders and preliminary injunctions will likely not be worth filing. Instead, these companies will seek to recover damages against the misappropriating employee. A company in this situation can recover the amount of money the company lost, including its loss of sales or goodwill, or the amount by which the misappropriating employee was enriched by using or disclosing the trade secret information. For example, if a former employee takes your client list and successfully steals away some of those clients, you may recover the amount of revenue you would have earned had you been able to serve those clients or the amount the former employee earned from those same clients.  In addition, if the misappropriation is found to be willful or malicious, you can recover punitive damages. A misappropriating employee’s new employer who uses or benefits from the misappropriated information may also be liable. While this award can end up being quite high, finding yourself litigating over this type of claim is not desirable. Instead, there are ways to protect your trade secret information to both deter would-be misappropriating employees and to...

read more

Another Reason to Ensure Your Company Pays Its Employees Correctly

Posted by on Feb 1, 2019 in Newsflash | 0 comments

Owners and officers of California companies have always been able to rest easy knowing that, absent extenuating circumstances, they would not be held personally liable for wage and hour law violations. Recently, though, a Court of Appeal issued a decision reversing this. Now, mistakes in calculating wages or underpayment of employees may end up costing not only employers large sums, but can end up being owed by the companies’ owners or officers. In Atempa v. Pedrazzani, two former restaurant employees brought claims against their former employer, Pama, Inc., and its owner, Pedrazzani. The employees’ claims included unpaid minimum wage and unpaid overtime. The employees also made a claim under the Private Attorney General Act (PAGA), which we have written numerous articles on before. The employees prevailed at trial, winning both their unpaid wages, a PAGA award, 75 percent of which is remitted to the State of California, and their attorney’s fees under PAGA. The trial court held Pama, Inc. and Pedrazzani jointly and severally liable for the award, even though Pedrazzani was not the employer of either employee. Shortly after the judgment was rendered, Pama, Inc. filed for bankruptcy, leaving Pedrazzani as the only party who would be on the hook to pay the award. Pedrazzani appealed. Pedrazzani did not challenge the judgment, but instead argued only that he should not be held personally liable for the award. Pedrazzani based his argument on the fact that he was not the employer of the two employees, nor was there any legal basis to find him liable for the company’s debts. In short, Pedrazzani sought to rely on the legal shield a corporation can provide. The Court of Appeal disagreed with Pedrazzani and found there was language within the statutes which allowed for some “other person” who “act[s] on behalf of the employer” to be liable for the civil penalties associated with the violations. In this case, that meant Pedrazzani, as the owner of Pama, Inc., was liable for the two employees’ unpaid wages and attorney’s fees. Because Pedrazzani had appealed, added to his bill were post-judgment interest and additional attorney’s fees incurred by the employees. This case adds to this list of reasons why employers must take steps to ensure they are in compliance with wage and hour laws. As illustrated here, company owners, officers, or other agents can be named personally in a lawsuit and held liable for these types of violations. As we discussed in last month’s article, minimum wage increased on January 1, 2019, in California. Companies who did not raise their employees’ wages as necessary are at risk and now their owners and officers may also be held personally liable for any unpaid wages. If your company has employees and you would like assistance in complying with California’s extensive wage and hour laws, call the attorneys at Navigato &...

read more

Labor Laws Effective on January 1, 2019

Posted by on Jan 3, 2019 in Newsflash | 0 comments

Each year, Navigato & Battin compiles a list of California’s newly enacted labor laws which will go into effect in the New Year. For 2019, following another year of the #metoo movement, there are a number of new laws going into effect regarding sexual harassment in the workplace. In addition, the statewide minimum wage has once again increased. Among other things, this means that the salaries of all exempt employees should be reviewed to confirm that such employees meet the minimum applicable salary thresholds to maintain their exempt status. Anti-Harassment Training Requirements Government Code § 12950. This new law requires that for any company having five or more employees, every employee and supervisor must undergo anti-harassment training every two years. This is an expansion from the old law, which only required supervisors at companies with more than 50 employees to undergo such training. The Department of Fair Employment and Housing has currently published its interpretation of this law and states all employees must undergo this type of training in 2019, regardless of whether the company provided adequate training in 2018. In 2020, this requirement will be further expanded to include temporary or seasonal employees who must also undergo this training within 30 days of hiring or 100 hours worked. Confidentiality in Sexual Harassment Claims Code of Civil Procedure § 1001. We published an article on the passing of this law in more depth previously. This new law will make void any provisions in a settlement agreement relating to sexual harassment claims which call for confidentiality of the claims made against a company or its employees. This will include any settlements arising from civil or administrative claims of sexual assault, sexual harassment, gender discrimination, or retaliation. Certain limited portions of the settlements, however, may remain confidential. Civil Code § 1670.11. In addition to eliminating the use of confidentiality provisions, settlement agreements may not include waivers of a party’s right to testify regarding criminal conduct or sexual harassment. This law was enacted in partial response to settlement agreements containing similar provisions which had been entered into between members of the U.S. Olympic Gymnastics team and the U.S. Gymnastics Association regarding Larry Nassar. Civil Code § 47. This new law aims to protect victims of sexual harassment who file claims against their abusers, and bars defamation suits from being filed against them. Specifically, this new law adds protections for an employee’s complaints of sexual harassment to an employer based on credible evidence, made without malice, and communications between an employer and interested persons regarding a sexual harassment complaint. This law also provides protections to employers speaking about employees’ history with sexual harassment. Pre-Employment Salary History Labor Code §§ 432.3, 1197.5. Last year, a law was enacted which barred employers from asking candidates for their salary history. However, the law was ambiguous with respect to internal hires. The law has been amended to provide clarification about the applicability of this law to internal hires- a company which hires internally does not have to comply with the law barring any inquiry into compensation history and may inquire and use an internal candidate’s salary history. Additionally, employers are now able to inquire about a candidate’s “salary expectation” for a particular position, although employers should tread very carefully and be wary of asking anything further. Private...

read more

BREAKING NEWS: NavBat Wins Federal Jury Trial

Posted by on Dec 11, 2018 in Newsflash | 0 comments

2018-12-11 Press Release - Zhong Verdict FINAL

read more

Protecting Your Intellectual Property: Patents

Posted by on Dec 4, 2018 in Newsflash | 0 comments

This is a continuation of our four part discussion of intellectual property. Last month, our newsletter discussed trademark protections for words, symbols, phrases, or other identifiers of a product or brand. Trademarks exist to protect the goodwill and brand recognition that are associated with a particular company or good, and are commonly affixed to a company’s goods and marketin The U.S. Patent and Trademark Office (USPTO) registers both trademarks and patents. Patents, unlike both copyrights and trademarks, are intended to protect inventions and discoveries.  In order to bring an invention or discovery to fruition, a person or company must generally invest a significant amount of time, energy, and resources into the research and development of the invention or discovery. Obtaining a patent for the invention or discovery helps to ensure that the person or company who put the time, energy, and resources into the creation of the invention or discovery is actually able to reap the rewards associated therewith.  A patent provides a person or company with the exclusive right to make, use, or sell the invention (at least for a certain amount of time) before others can make the same or similar products. There are three types of patents: utility patents, design patents, and plant patents.  First, and most common, is the utility patent.  This type of patent is available for new and useful processes, machines, manufacturing methods, compositions, or improvements. A design patent is available to protect a new design for a manufactured item.  Finally, as the name indicates, a plant patent is available to protect a newly invented or discovered type of plant. Obtaining a patent can be difficult, time consuming, and expensive, as the applicant must show the invention is new, useful, and nonobvious, and must comply with various statutory requirements.  To prove an invention is new or novel, the invention: (1) must not be similar to another product or process and the public must not have previously known of the invention; (2) cannot have been described in a publication more than one year before the filing date; and (3) must not have been used or publicly sold more than one year before the filing date.  These requirements impose a fairly strict one year deadline to file a patent application, starting at the time the invention is first disclosed to the public.  Next, the invention must have a useful purpose and be operable.  Finally, an invention must be nonobvious.  To be nonobvious, an invention which is an improvement must not have been obvious to a person who had ordinary skill with the technology used in the invention. Patents are a highly complex type of intellectual property which usually require a very specialized review.  Companies seeking patent protection are well-served to hire competent and experienced patent counsel to help navigate the process.  Although Navigato & Battin does not prosecute patents, it has a network of experienced patent counsel it can recommend.  If you have created a product you think may be eligible for patenting, call the attorneys at Navigato & Battin so that we can help determine if patent protection is something you should...

read more

California Court of Appeal Strikes Down Anti-Solicitation Clause

Posted by on Dec 3, 2018 in Newsflash | 0 comments

While many states authorize employers to use fairly broad non-compete and non-solicitation provisions in contracts with their employees, California has what are likely the most restrictive and employee-friendly laws regulating these issues in the country. Under California law, except in rare circumstances, these types of provisions are generally not enforceable. Employers are often left to rely solely on trade secret protections as their sole means of restricting an ex-employee’s use of confidential information for the benefit of a new employer. While this type of protection provides a modicum of protection to an employer by providing a remedy in the event an employee pilfers a company’s trade secret information and takes it down the road to a competitor, it certainly does not provide an employer with all of the protections that its counterparts in other states enjoy. A recent California case chips away at employers’ options even further. In November, the California Court of Appeal issued an opinion in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., et al., addressing the validity of non-solicitation clauses. AMN sued Aya and four former employees of AMN who had recently moved to Aya, claiming AMN and the former employees had violated a non-solicitation clause in the former employees’ contracts. This clause, according to AMN, operated to bar any former employees of AMN from soliciting AMN’s clients and employees for an amount of time between 12 and 18 months following the employee’s departure, depending on the client and employee. AMN and Aya are both traveling nurse agencies, which place traveling nurses and other medical professionals in hospitals and medical centers for short periods of time. While these nurses completed their assigned placements coordinated by AMN, the nurses were considered by AMN to be AMN employees. Defendants, former AMN employees who had worked as recruiters for AMN, did the same job for Aya. At the beginning of the former employees’ employment with AMN, AMN required an employment contract be signed which included a non-solicitation clause. When the former employees left AMN for Aya, AMN noticed a small number of traveling nurses also began taking assigned placements from Aya. AMN believed these traveling nurses had been solicited and ultimately poached by the former employees for the benefit of Aya, and AMN accordingly filed suit because it believed that these nurses were AMN “employees” who could not be solicited by Aya or its new, ex-AMN recruiters. The Superior Court decided, and the Court of Appeal affirmed, that AMN’s case was without merit. The Court of Appeal first found that, under the somewhat unique circumstances of the case, enforcing the non-solicitation clause was a direct violation of California’s strict rule invalidating any restriction on a person’s right to practice his or her profession. Because the former employees were recruiters by trade, AMN’s attempt to keep the former employees from recruiting traveling nurses who had ever worked for AMN on behalf of Aya amounted to a restriction on the former employees’ ability to practice their profession. However, the Court of Appeal left open the possibility that these clauses can be valid if the former employees are using trade secrets of their former employer. The most important trade secret in this case was the company’s pay structure. The Court of Appeal noted that if a competitor knows of a company’s...

read more