San Francisco Employment Law Firm Blog

January 16, 2019

Start-Ups: A Critical Issue In Investor Rights Agreements

One important issue that you should pay a particularly close attention to when entering into an investor rights agreement with the people who are looking to invest into your start-up is the section in that agreement that talks about the degree of involvement that investors will have the right to in the day to day operations of your company. Ideally, you want your investors to have as little control as possible over your operations, and to have their rights limited to reasonable access to your company’s financials. For instance you can agree that you will deliver your profit and loss statements, balance sheets and other common financial documents to the investors every fiscal quarter.

You should pay attention to any language in the agreement that in so many words suggests that your investors have the right to walk into your office and tell you how to do your job, who to hire, how to develop and market your product, how to design your website, etc. After all, no CEO enjoys this type of “oversight” that will likely stifle his ability to move his company in the desired direction as soon as possible.

Of course, if your investors are not simply passive third parties but your parent company, or a company that is in the same industry as you are, they will likely want to have significantly more involvement in the key aspects of your operations, such as product development, sales strategy, advertising, etc… In this case, the terms of this broader involvement should be carefully analyzed and negotiated to avoid future disputes over who is in charge of what and why. The more specifically you outline what your investors can and cannot do, the lower the chances will be of any dispute with them that can lead to all kinds of problems, including interruption in funding and lawsuits.

November 24, 2018

Three Common Misconceptions About Wrongful Termination Cases

by Arkady Itkin

It’s important to be aware of the following three typical misconceptions that many wrongful termination claimants have, so that you don’t have the same incorrect ideas about the process of pursuing your case:

1.”This is not about money, but about justice”. I hear this statement quite often. Clients really want to emphasize that they are not greedy and that they have a higher goal in pursuing their case. However, you must remember that whether you win your case, or lose, or settle out of court, your employer is most likely not going to admit that they made a mistake, and they are not going to apologize to you. They are also not going to be forced by court or anyone else to change their practices except for in very special circumstances. This is means that the only remedy you have for the violation committed by the employer is monetary compensation. In other words, it is about money now – it’s about you seeking monetary compensation for your job loss and any related losses. This is a perfectly legitimate goal, even if it doesn’t sound as noble as seeking “justice”.

The same applies to the idea of pursuing a case because you don’t want your employer to “get away with what they have done.” Your managers are not going to go to jail for terminating you and they are otherwise unlikely to be punished, since the employer usually believes that they are right and you are wrong, just as strongly as you believe that the opposite is true. And if they end up paying a settlement or a court verdict, their operations will continue as usual. Your case is not about punishing your former employer, but about seeking maximum reward and benefit for yourself. This is a good time to be selfish and worry about how you can benefit from your case, rather than how much you are going to make the other side lose.

November 2, 2018

Most Employee Non-Solicitation Agreements Are Not Enforceable In California

by Arkady Itkin

In the past, in many states, a restraint on the practice of a trade or occupation, even as applied to a former employee, was deemed to be valid if it was “reasonable”. However, California long ago rejected the so-called ‘rule of reasonableness’ when it enacted Civil Code sections 1673 through 1675, the predecessor sections to Business and Professions Code sections 16600 through 16602. These legislative enactments ‘settled public policy in favor of open competition, and rejected the common law rule of reasonableness, and today in California, covenants not to compete are void, subject to several exceptions. . . Edwards v. Arthur Andersen LLP (2008). Section 16600 provides, “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Thus, unless a contractual restraint falls into one of section 16600’s three statutory exceptions (§§ 16601 [sale of goodwill or interest in a business], 16602 [dissolution of a partnership], or 16602.5 [dissolution or sale of limited liability company]), it ostensibly is void. Dowell v. Biosense Webster, Inc. (2009). The Dowell case also noted that California does not follow the Ninth Circuit’s exception for “narrow restraints” on practicing a profession.

Section 16600 expresses California’s strong public policy of protecting the right of its citizens to pursue any lawful employment and enterprise of their choice. Advanced Bionics Corp. v. Medtronic, Inc. California courts have consistently affirmed that section 16600 evinces a settled legislative policy in favor of open competition and employee mobility. The interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interests of the employers, where neither the employee nor his new employer has committed any illegal act accompanying the employment change. Diodes, Inc. v. Franzen (1968).

Thus, the typical language contained in employee non-solicitation agreements that states as shown in the example below is invalid: “for a period of at least one year after termination of employment with company x, the employee is prohibited from directly or indirectly solicitating, recruiting or causing others to solicit or induce any employee of company x to switch and work elsewhere…”

October 23, 2018

Employee / Contractor – Understanding The California “Dynamex” Decision

by Arkady Itkin

By now, the California Dynamex decision (Dynamex Opertions West Inc. v. Superior Court) has been thoroughly discussed and analyzed in many publications and legal seminars. However, here is the big picture that both workers and especially employers should keep in mind, as it will help them understand what’s behind this significant ruling, and avoid liability and significant expenses associated with employee misclassification.

Through the Dynamex decision, California’s highest court sought to address common abuses of workers’ rights that became pretty much an epidemic in this new “gig” economy, where employers would classify workers as contractors under the guise of outsourcing or telecommuting. Companies would argue that since a worker is free to perform him duties from anywhere and at the time of his choosing, he should be classified as a contractor. The California Supreme Court, however, made it clear that a worker should be classified as an employee even if he has flexibility in work hours and work location, contrary to what many employers have gotten used to believing. The Court has articulate a new “ABC” test for determining whether a worker can be classified as a contractor that has been the law since. This three-factor test states that in order to be properly classified as a contractor, all of the following criteria has to be met:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

September 30, 2018

Legal Protection for Employee Inventions in California

by Arkady Itkin

June 23, 2018

New 2018 Law Regarding Criminal Background Checks in California

by Arkady Itkin

As of January 1, 2018, a new law in California adding Government Section 12952 to California Fair Employment and Housing Act went into effect. This new law states that it’s is unlawful for employers with five or more employees to include on any application for employment any question that seeks the disclosure of an applicant’s conviction history, inquire into or consider the conviction history of an applicant until that applicant has received a conditional offer. Employer also shall not consider, distribute, or disseminate information about any of the following while conducting a conviction history background check in connection with any application for employment: arrest not resulting in conviction, referral to or participation in pre-trial or post-trial diversion program, or convictions that have been sealed, dismissed, expunged, or legally eradicated pursuant to law.

This new law should help thousands of job applicants with prior criminal history get their foot in the door, as it prohibits any consideration of criminal history until after a conditional employment offer has been made. Further, once an offer has been made and a criminal background check is allowed, the employer cannot simply rescind the job offer because of that criminal history. The law imposes additional requirements on an employer to conduct an individualized assessment about whether a job applicant’s conviction history would negatively impact his ability to perform his job duties. AB 1008 requires that employer assess the following in making that decision: the nature and gravity of the offense, the time passed since the offense or conduct and completion of the sentence, and the nature of the job held or sought.

If the employer ultimately decides to deny employment to the candidate based on the above assessment, then it must provide the applicant with a written notification of the decision. That notification must include notice of the disqualifying conviction, a copy of the conviction history report, and an explanation of an applicant’s right to respond before the decision not to hire is final. If the job applicant decides to dispute the conviction history and notifies the employer in writing of the same, the employer must provide at least five additional days to the applicant to do so, and must consider any additional evidence provided by the applicant in making its final hiring decision.

May 2, 2018

California Broadens The “Employee” Definition in Employee / Independent Contractor Distinction

by Arkady Itkin

On April 30, 2018, the California Supreme Court issued its unanimous ruling in Dynamex Operations West, Inc., v Superior Court, making it even harder for companies to classify workers as independent contractors (rather than employees). The previous standard used for classifying workers as employees or independent contractors had been in place since 1989 and was based upon a multifactor test that considered, among other factors, the worker’s skill, the method of payment by the hirer, existence of contractor agreement between the parties, and the nature of the business to determine the level of control exercised over the worker and respectively – whether sufficient control took place for employee-employer relationship to exist. Thus, companies such as Dynamex had classified their delivery drivers as independent contractors, arguing that their drivers had significant control over their own working conditions by being able to set their own hours and drive for multiple companies.

The new standard adopted by the Supreme Court requires hirers to establish three factors in order to properly classify a worker as an independent contractor – and in the process greatly expands the definition of “employee” under California law:

A. The worker is free from the control and direction of the hirer in connection with the performance of the work, both under contract for the performance of such work and in fact; and

March 30, 2018

How To Prove That Your “Lay-Off” As Age Discrimination

by Arkady Itkin

Like many others, I anticipate that age discrimination is the “future” of employment litigation as many employers, especially in San Francisco Bay Area are so eager to higher younger worker and get rid of the older ones or even “better” – avoiding hiring them in the first place. Often, age discrimination is disguised as a layoff due to alleged workforce reduction or restructuring. In the video, I talk about several common signs that a lay-off may be actually be a wrongful termination due to age discrimination.

February 17, 2018

New Law On Piece Rate Compensation Requires Separate Pay For Rest Breaks

by Arkady Itkin

Effective January 1, 2016, employees compensated on a piece base basis have an additional important right – to be paid for their meal an rest breaks separately and in addition to any piece rate compensation they are otherwise entitled to. This law is codified in Labor Code 226.2.

What is Piece-Rate Compensation?

Per Labor Code 226.2 defines piece rate compensation as work paid for according to the number of units turned out. Here are some of the common examples of piece-rate plans: automobile mechanics paid a “book rate” per job; nurses paid on the basis of the number of procedures performed; carpet layers paid by the yard of carpet laid; technicians paid by the number of telephones installed; factory workers paid by the widget competed; and carpenters paid by the linear foot on framing jobs. A piece-rate plan may include a group of employee who share in the wage earned for completing the task of making the product. This law does not apply to employees who work on a commission basis.

January 30, 2018

Protected Leave For New Parents Under The New Parent Leave Act

by Arkady Itkin

Until now, the main law in California that afforded parents to take time off for babying bonding, adoption or foster care placement has been California Family Rights Act (CFRA / Government Code 12945.2). That protection, however, only applied to employers of 50 or more employees within a 75 mile radius to provide up to 12 workweeks of job protected leave.

Titled the New Parent Leave Act, State Bill (SB 63) / section 12945.6, which went into effect as of January 1, 2018, requires employers within 2o to 49 employees within a 75 mile radius to provide up to 12 workweeks of job protected leave for an employee to bond with a new child within one year of the child’s birth, adoption or foster care placement. As with CFRA and FMLA, an employee will need t have worked more than 12 months and at least 1250 hours for the employer during preceding 12 month period to qualify for leave under New Parent Leave Act. Like with CFRA, employers must guarantee reinstatement. This law also authorized an employee to use accrued vacation pay, paid sick time, other accrued paid time off, or other paid or unpaid time off negotiated with the employer during parental leave. Employers must also maintain and pay for an eligible employee’s medical coverage under a group health plan for the duration of parental leave.

This new law has similar anti-discrimination provisions to those found in CFRA and FMLA. The New Parent Leave Act prohibits employers from refusing to hire, discharging, suspending, or discriminating against an individual for either exercising the right to parental leave or for testifying about his or another employee’s parental leave in an investigation or legal proceeding, or for interfering with, restraining, or denying any rights provided by this law.