Court of Appeal Strikes Down Non-Compete Related to Sale of Business

Maas sold his company, Crave, to Handleman.  As part of the sale transaction, Maas signed a stock purchase agreement that prohibited Maas from competing with Handleman for three years from the sale.

Maas became a Handleman employee. He also signed an employment agreement with Handleman that contained another non-compete, barring him from competing for one year from the termination of his new employment with Handleman or from the expiration of the three-year non-compete, whichever came first.  That employment agreement also contained a non-solicitation clause.

Maas stayed with Handleman three years, thereby satisfying the non-compete in the purchase agreement.  But then he went to work for a new company, violating the non-compete in his employment contract. Handleman sued, claiming that the one-year non-compete was part of the sale transaction and was in consideration for the "good will" value of Crave.

Fillpoint bought the Crave assets from Handleman and sued Maas and others for violating the non-compete agreement.

Most people who read this blog know that most non-competition agreements are unenforceable under California law. But there are exceptions.  One exception applies to the sale of a business to protect the buyer.  See Business and Prof. Code Section 16601.

The court of appeal noted that the three-year covenant in the purchase agreement satisfied the exception contained in Section 16601, as it protected Handleman's purchase of Crave.  Fillpoint, however, argued that the employment agreement's further non-compete was part of the same transaction.   The court agreed that the purchase agreement and employment agreement must be read together.  But the court struck down the employment agreement's non-competition provision.

For one thing, Fillpoint argued that the employment agreement's non-compete served a different purpose from the purchase agreement's non-compete.  The latter applied to Maas as a shareholder and the former as a Handleman employee.  The court viewed that argument as a concession that brought the non-compete outside Section 16601.  Moreover, the court decided that the employment agreement non-compete was way too broad and precluded Maas from pursuing a profession regardless of Crave's goodwill.

So, according to the court's decision in Fillpoint v. Maas, non-competes associated with the sale of a business cannot have a "latent tail" that becomes effective years after the sale.   The opinion is here.

California Supreme Court: Workers' Compensation Preemption of Loss of Consortium Claim

The Workers' Compensation Act preempts most civil lawsuits by injured workers. There are certain exceptions allowing civil lawsuits, such as for emotional distress due to sexual harassment. There are statutory exceptions, too, such as when a co-worker intentionally injures the employee.  One less-known provision, called the "power press" exception permits civil actions in addition to workers' compensation claims. As explained by the Supreme Court:

[Labor Code] Section 4558 authorizes an injured worker to bring a civil action for tort damages against his or her employer where the injuries were “proximately caused by the employer’s knowing removal of, or knowing failure to install, a point of operation guard on a power press,” where the “manufacturer [had] designed, installed, required or otherwise provided by specification for the attachment of the guards and conveyed knowledge of the same to the employer.” (§ 4558, subds. (b) & (c).)

 If an injured worker can sue in court in addition to filing a workers' compensation claim for injuries falling within the "power press" exception, can his spouse sue for loss of consortium, or is that claim barred by the Workers' Compensation Act exclusivity provisions?

The Supreme Court said:

notwithstanding the availability of a civil cause of action for workers who suffer power press injuries, claims arising from the industrial accident that caused those injuries fundamentally remain compensable under the workers’ compensation system. Consequently, under settled principles of workers’ compensation law, the exclusivity rule bars a dependent spouse’s claim for loss of consortium.  

This means that the loss of consortium claim is not actionable, even if the power press exception applies. 

The case is Lifiell Mfg. Co. v. Superior Court and the opinion is here.

California Pregnancy and Disability Regulations - Final Comments?

The Fair Employment and Housing Commission has issued nearly almost final regulations regarding disability discrimination and regarding pregnancy disability leave.  You may read them here. You may comment on the proposed regulations through August 30.
We will have articles on each of these regulatory changes.
DGV

Court of Appeal: Desperate Housewives Case

From the court of appeal's opinion:

Touchstone Television Productions (Touchstone) hired actress Nicollette Sheridan (Sheridan) to appear in the first season of the television series Desperate Housewives. The agreement gave Touchstone the exclusive option to renew Sheridan‟s services on an annual basis for an additional six seasons. Touchstone renewed Sheridan's services up to and including Season 5. During Season 5, Touchstone informed Sheridan it would not renew her contract for Season 6.

In case you hadn't heard about this, Sheridan sued for wrongful termination and other torts, claiming that

During the September 24, 2008 filming of a Season 5 episode of Desperate Housewives, an incident occurred between Sheridan and Cherry, the series‟ creator. Sheridan claims that Cherry hit her. Thereafter, Sheridan complained to Touchstone about Cherry‟s (alleged) battery.

Then, Touchstone decided not to renew Sheridan for the final season, killed her character, but had her return as a ghost.  Yes, I did not make this up.  No, I never watched an episode.

A jury deadlocked on whether Touchstone wrongfully terminated Sheridan in violation of public policy (retaliation for her complaint she was battered).   The trial court repeatedly rejected Touchstone's argument that non-renewal of annual contracts do not give rise to wrongful termination claims.

The Court of Appeal, however, disagreed: "Decisional law does not allow a plaintiff to sue for wrongful termination in violation of public policy based upon an employer‟s refusal to renew an employment contract. "

Like every good story, though, this one has a twist. The Court of Appeal permitted Sheridan to sue under Labor Code Section 6310(b):

(b) Any employee who is discharged, threatened with discharge, demoted, suspended, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because the employee has made a bona fide oral or written complaint to the division, other governmental agencies having statutory responsibility for or assisting the division with reference to employee safety or health, his or her employer, or his or her representative, of unsafe working conditions, or work practices, in his or her employment or place of employment, or has participated in an employer-employee occupational health and safety committee, shall be entitled to reinstatement and reimbursement for lost wages and work benefits caused by the acts of the employer. Any employer who willfully refuses to rehire, promote, or otherwise restore an employee or former employee who has been determined to be eligible for rehiring or promotion by a grievance procedure, arbitration, or hearing authorized by law, is guilty of a misdemeanor.

So, why is this important?  Because the statute allows for "non-renewal" of employment as a basis for a claim. But the statute only allows for "reinstatement and reimbursement for lost wages and work benefits . . .. "  So, in Ms. Sheridan's case, she would be entitled to the one-year contract fee and related benefits, but not to emotional distress, front pay, or punitive damages.

For a minute, employers may have become interested in entering into six-month contracts with employees. But, as you can see, statutes may provide remeides, even if the common law does not.  On the other hand, these contracts, if done right, could limit exposure on the lost wages measure of damages .... maybe?  Another day and another case...

The case is Touchstone Television Productions v. Superior Court and the opinion is here.

US Department of Labor Stats on Leaves

The DOL's Bureau of Labor Statistics just released data from a survey regarding leaves of absence.

You can read the full press release about the survey here.


Here's the summary.


In 2011, 90 percent of wage and salary workers had access to paid or unpaid leave at their main jobs, the
U.S. Bureau of Labor Statistics reported today. Twenty-one percent of wage and salary workers took
paid or unpaid leave during an average week. Workers who took leave during an average week took an average of 15.6 hours of leave. Fifty-six percent of wage and salary workers were able to adjust their work schedules or location instead of taking leave or because they did not have access to leave in 2011. Seven percent of workers made such an adjustment in an average week.

End of summary. Begin my annoyed rant.

Let's read it again: 1/5 of workers take leave in an average week.  20% of people cannot report to work in a given week. Yes, there are some people who need leave.  But the system is abused.

End rant.