Court of Appeal: Federal OSHA preempts Unfair Competition Claims ( B&P Section 17200)

California's unfair competition law, Business and Professions Code section 17200, is quite broad.  Plaintiffs can bring claims for injunctive relief and restitution for just about anything they can prove is unlawful, unfair, or fraudulent.

California’s “UCL defines ‘unfair competition’ as ‘any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.’ [Citation.] By proscribing ‘any unlawful’ business act or practice (ibid.), the UCL ‘“ borrows”‘ rules set out in other laws and makes violations of those rules independently actionable.”

The District Attorney of a jurisdiction also may use another section of the UCL, section 17204, to collect statutory penalties; private litigants cannot.  Such penalties are in addition to whatever other remedies are available.

Per the Court of Appeal in Solus Industrial Innovations LLC v. Superior Court, here's what happened:

Solus makes plastics at an Orange County manufacturing facility. In 2007, Solus installed an electric water heater intended for residential use at the facility. In March 2009, that water heater exploded, killing two workers instantly in what district attorney refers to as an “untimely and horrific death.”

As a result, Cal-OSHA investigated and fined Solus.  Because there was a death, Cal OSHA also referred the case to the district attorney, who prosecuted company officials.  But the DA also brought a civil action for penalties under the UCL. 

The company argued that federal OSHA preempts the UCL claim.  Federal OSHA preempts all workplace safety laws.  However, the Secretary of Labor may approve a state plan to substitute for the federal enforcement scheme, under certain conditions.

The problem for the DA is that the Secretary of Labor did not consider or approve private enforcement under the UCL by a DA.  Rather, it approved the Cal OSHA enforcement scheme.  Therefore, the Court of Appeal held that the DA could not maintain a civil claim for penalties under the UCL based on a workplace safety violation subject to Cal OSHA's jurisdiction.

Here's the money quote:

In light of our determination that state regulation of workplace safety standards is explicitly preempted by federal law under the OSH Act, and that consequently California is entitled to exercise its regulatory power only in accordance with the terms of its federally approved workplace safety plan, we conclude the district attorney cannot presently rely on the UCL to provide an additional means of penalizing an employer for its violation of workplace safety standards.

So, the Secretary of Labor would have to approve a modification to the California OSH law.  I imagine that could occur if California acts to make the change and submits it to our current administration. But we'll have to wait and see.

The opinion in Solus Industrial Innovations LLC v. Superior Court is here.

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.