Blog

California employers should know that retaliation charges can pose a serious risk their business. It is not only illegal, but it can cause significant harm. EMPLOYER RETALIATION STILL ON THE RISE The Equal Employment Opportunity Commission (EEOC) reports that cases of retaliation are still increasing at a significant rate over the years. In 2020, retaliation claims made up 55.8% of all the charges filed with the EEOC – more than half of all the claims. The reasons behind this increase vary widely. However, one reason for the high numbers is likely that employees are more willing to speak out about discrimination and harassment in the workplace. Many social and workplace movements have contributed to this, but it is up to employers to stop retaliation. ACTIVE STEPS ARE NECESSARY TO STOP RETALIATION When dealing with employee complaints, employers should play an active roles in preventing retaliation. We have discussed the importance of this in previous blog posts. Unfortunately, creating and implementing an anti-retaliation policy is not enough to stop it from occurring. Employers must make sure both employees and leadership understand the business’ policy towards retaliation, and in addition should: Regularly review the reporting process and make sure it is employee-friendly Include practices against retaliation in leadership training efforts Carefully evaluate employment decisions for any risk factors of retaliation

It can never be said enough – employers must always make sure they stay on top of any changes to employment laws. When they are up to date, they face a lower risk of non-compliance. Unfortunately, this can be a complicated task, as changes and revisions are frequent in this area of law. And California lawmakers recently made a couple of changes to the law that will greatly affect the manner in which employee disputes are resolved. TWO RECENT BILLS THAT CHANGED THE LAWS In 2018, California passed Senate Bill 820, the STAND Act (Stand Together Against Non-Disclosure Act), in response to the #MeToo movement.  SB 820 prohibited the use of confidentiality provisions in settlement agreements where the underlying claims were based upon sexual assault, sexual harassment, and workplace harassment or discrimination based on sex. The law did not extend to claims based upon other protected characteristics. Therefore, a confidentiality provision in a settlement agreement could not prevent an individual from discussing the factual information related to sexual harassment or sex discrimination allegedly experienced in the workplace, but could preclude an individual from discussing factual information related to harassment or discrimination based upon any other protected characteristic (e.g., race, age, gender, etc.). Last year, Governor Newsom signed Senate Bill 331, known as the “Silenced No More Act” into law which expands Civil Procedure Code Section 1001.  The Act went into effect on January 1, 2022 and applies to agreements entered into beginning on January 1, 2022, and is designed to prevent employers from including nondisclosure agreements (NDAs) in any settlements or agreements with employees who experienced any form of discrimination. The Silenced No More Act expands the provisions in the 2018 STAND Act to broadly prohibit confidentiality provisions in settlement and separation agreements involving workplace harassment or discrimination on any protected basis (i.e., harassment or discrimination based on race, religion, color, national origin, ancestry, disability, medical condition, familial status, gender, age, and all other protected characteristics), not just sexual harassment or sex. It also requires non-disparagement agreements to contain specific language advising the individual of those rights. CONFIDENTIALITY IN SETTLEMENT AGREEMENTS SB 331 leaves in place the prior law’s provisions protecting the identity of the claimant.  Specifically, if the claimant requests a provision protecting the claimant’s identity and any facts that could reveal the claimant’s identity, a confidentiality provision is lawful so long as a government agency or a public official is not a party to the settlement agreement. NON-DISPARAGEMENT AGREEMENTS SB 331 also expands Government Code Section 12964.5, which now makes it unlawful to include any provision that prohibits an employee from disclosing information about any type of harassment or discrimination or other conduct that an employee reasonably believes is unlawful in the workplace unless the agreement includes the following carve-out language in substantial form: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.” SEPARATION AGREEMENTS SB 331 also expands these requirements to any agreement related to a current or former employee’s separation from employment.  Any such separation agreement must provide: (1) notice about an employee’s right to consult an attorney, and (2) reasonable time (at least 5 business days) for the consultation with an attorney.  If an employee wishes to accept the agreement before the end of the 5-business-day period, it must be “knowing and voluntary” and not a result of improper inducement by the employer.  This requirement does not apply to a negotiated agreement to resolve an underlying claim filed by an employee in court, before an administrative agency, in arbitration, or through an employer’s internal complaint process. OTHER CONSIDERATIONS Like SB 820, SB 331 allows the settlement or severance amount paid to remain confidential.  It also permits confidentiality provisions in releases and agreements that aim to protect the employer’s trade secrets, proprietary information, or other confidential information that does not involve unlawful acts in the workplace. CONFIDENTIALITY PROTECTS THE BUSINESS, BUT STRATEGY IS ESSENTIAL Generally, if employers deal with disputes or complaints regarding discrimination, they attempt to use confidentiality agreements or NDAs to safeguard the business’s best interests. As we have discussed in previous blog posts, issues like this in the workplace can quickly spiral and cause significant damage to the business – regardless of how the employer handles the complaint. However, the intent of using them may not always match the effect they have. Employers must be strategic when it comes to using NDAs, including: Determining when they will use them, such as specifically protecting intellectual property When embarking on a new venture or partnership When working with third parties in consulting

Infringement on your brand or trademark is not the only way your brand could be put in jeopardy. You may well know that any form of litigation could put your brand at risk. And as we have seen in the last few years, it does not take much for one issue to affect a brand’s image and lead their reputation to suffer. As a business owner, you must also be aware of specific risks your brand could face – and where they come from – so you can effectively mitigate the impact of these risks. FOUR PARTIES BUSINESS OWNERS MUST ADDRESS The threat to your brand stems from the particular lawsuit, naturally. However, this threat can have a powerful ripple effect. Many of these risks arise in the digital world. However, whether the threats are online or not, many of these consequences center around the business relationships you maintain, including with: Consumers: This one is a commonly known risk. When brands face backlash from a lawsuit, consumers will often stop purchasing goods or services from the company. In turn, this can lead to a sharp reduction in profits. However, as we have discussed in previous blog posts, consumers often take to social media to criticize the brand as well. Business partners: Partnerships with other businesses may also suffer. To protect their own brand, they might try to disassociate with your business as soon as they can. Deals can fall through, and contract disputes could result. Investors: Shareholders and investors in your business might also take action when the brand is in jeopardy. For example, as we discussed in a previous blog post, shareholders filed a derivative lawsuit against the social media company Pinterest when the brand started to suffer from the other legal actions they faced. Employees: Both former and current employees might also try to distance themselves from your brand in the face of litigation. For example, current employees might disengage from operations or even resign. This can lead business to suffer even more. Mitigating the effects that a lawsuit could cause your business is already a priority, but California business owners must make sure they confront these four risks head-on and secure these important relationships. BEWARE: THESE PARTIES CAN MULTIPLY LITIGATION RISKS Any dispute or public complaint can reflect on the brand – regardless of whether it is a former employee’s claim to the Equal Employment Opportunity Commission, or a business partner’s accusation. One issue can quickly spiral, and all four of these parties could add to a business owner’s stress by taking legal action. When these cases multiply, the brand you worked so hard to build could suffer even more. That is why business owners must be vigilant in their strategies to protect their brand, whether or not they face litigation.

Employers are well aware that wage and hour claims are one of the most common legal issues they could face throughout their careers. These claims pose a risk particularly because employers must ensure they comply with federal, state and even local laws, all while monitoring pay practices carefully. This risk is on employers’ radar, but a recent report indicates that these claims could become an even larger problem for employers in the future. WAGE AND HOUR CASES ARE AN INCREASING RISK According to the Society for Human Resource Management (SHRM), employers should be particularly conscious of their wage policies as they move forward. The report found that wage and hour class action cases were more common than any other employment claims in 2020. The rate of these cases was also the highest it has been in the last 20 years, and that this litigation trend will continue for the next few years. EMPLOYERS MUST TAKE MITIGATING ACTION To protect their businesses, business owners should ensure they minimize the potential causes of wage and hour lawsuits by: Staying on top of minimum wage laws to avoid claims of violations Updating the best practices to which managers must adhere Reviewing and auditing pay records to avoid different pay issues Affirming employees are classified correctly under California law Even minor mistakes in this area can lead to serious issues for employers – as well as financial and legal penalties. Additionally, these cases, and the ensuing investigations, can be invasive and disruptive. Most business owners strive to avoid these legal claims, especially after this past year when businesses of all sizes have faced complex financial challenges. That is why it is even more critical for employers to be diligent about their best practices regarding employee wages.

Companies of all sizes face the risk of antitrust litigation, though the risk substantially increases the larger a business becomes. Business owners must be acutely aware of the antitrust laws regulating their business practices. However, they must also be aware of where this risk comes from to mitigate it. BACKGROUND In the United States, antitrust law is a collection of mostly federal laws that regulate the conduct and organization of businesses to promote competition and prevent unjustified monopolies. The main statutes are codified in three Acts – the Sherman Act of 1890, the Clayton Act of 1914 and the Federal Trade Commission Act of 1914. WHO CAN FILE ANTITRUST CLAIMS? There are three parties who generally can file antitrust claims against a business: The government: The Federal Trade Commission or state governments could take actions against a business for violating competition laws. Sometimes, state governments and attorney generals will join forces in a class action against large companies. Competitors: If competitors in the same industry claim they have evidence of antitrust actions, they could also file a claim against the company. Former employees: In some cases, former employees might also file class-action antitrust lawsuits. For example, in 2019 one such lawsuit stemmed from a 2019 case where several companies had violated antitrust laws by agreeing not to poach employees. In addition, consumers can file antitrust lawsuits as well. One of the main risks companies face is the escalation of these cases. For example, one competitor might file an initial complaint, but more might join in. EXAMPLE – AMAZON FACING CONSUMER-LED ANTITRUST LAWSUIT Long before it held the reputation of the largest online retailer, Amazon mainly focused on selling books – both hard copies and e-books. The company has branched out over the years, but this line of business is causing current trouble for the company. Business Insider reports that Amazon customers filed a lawsuit claiming that the company worked with large publishing houses behind the scenes to increase the price of e-books. According to the report, Amazon made agreements with these publishing houses that included “most favored nation” clauses. Essentially, these prevent the third-party from listing lower prices on their products on competing sites. This is not the only antitrust action Amazon is facing. The company is also involved in the federal government’s lawsuit against several large tech companies claiming they are controlling the digital market. Accusations and lawsuits like this can escalate and multiply quickly. Business owners must take care to respond to these claims effectively as soon as they arise.

As a business owner, you take great pains to protect your trade secrets. After all, they are essential to your endeavors and competitive success. There are many strategies you can utilize to secure trade secrets and prevent the risk of theft or misappropriation. However, even after making a reasonable effort to keep these secrets, there are still ways that competitors could put your trade secrets at risk without violating the law. In particular, reverse engineering is one concern of which business owners must be aware. THE LAW ALLOWS REVERSE ENGINEERING Essentially, reverse engineering is the process, typically by a competitor, of obtaining knowledge of a trade secret from studying your product, process or technology. Then they recreate it for their own purpose and use. Under California law, reverse engineering is not considered an improper means of obtaining information or a trade secret. If a competitor obtained your trade secret through improper means and reverse engineered the product, then you could take legal action. But reverse engineering in and of itself is not against the law. HOW CAN BUSINESS OWNERS PREVENT REVERSE ENGINEERING? Reverse engineering may not be actionable in and of itself, so the question becomes, “is there a way to prevent it?” Easier asked than answered, but case precedent tells us that business owners cannot expand the definition of improper means in agreements or contracts to include reverse engineering. However, business owners can still improve their strategies of trade secret protection proactively in an effort to prevent this and should: Control who can access trade secrets Establish security measures to protect trade secrets Ensure employees understand confidentiality terms It is often a good idea to consult an experienced attorney as well to determine the effective strategies that will work best for your business. Reverse engineering is an issue that business owners must prepare for, but the proper preparation can reduce the risk it poses.

Entrepreneurs have many opportunities available to grow their business. One strategy that business owners often contemplate is expansion through acquisition. There are various strategic reasons why businesses choose to merge with or acquire another business in their industry. Regardless of the reasons, acquiring a business is a large undertaking. And business owners must be strategic and diligent as they move forward with such a deal. ACQUISITIONS RECEIVE A LOT OF ATTENTION One reason why business owners must approach acquisitions carefully is because these endeavors often garner a lot of scrutiny. A recent example would be the news of TFI International’s acquisition of UPS Freight. But many others have been under the spotlight as well in the last few decades, including Disney’s acquisition of 21st Century Fox and Google’s of YouTube. The larger the company, the more attention an acquisition will receive from consumers, the media and other business owners alike. And business owners must be prepared. CONDUCTING DUE DILIGENCE IS CRITICAL There are many things business owners should consider proactively when faced with an acquisition, including: Legal liabilities: This step is important on both sides. Business owners should have a candid conversation with the other party and conduct careful research about any legal issues – past or present – so they can protect the reputation of their own business. Finances: Business owners should carefully evaluate their finances before, during and after an acquisition. Owners should look into all aspects of their finances, from the purchase itself to the other party’s payroll information. This is essential to avoid complex tax issues as well as any other potential legal penalties under California law. Branding strategies: When acquiring another business, many want to apply their name to the other business. However, this might be a mistake. It is often beneficial to maintain a trusted brand name after an acquisition to also maintain the consumer base and following that brand has. Forbes reports that growth will be a challenge in 2021. This is something to be aware of, as the state of the market can impact an acquisition’s success. However, it is critical that owners are aware of these steps and understand how to approach the situation.

For developers, contractors and specialty trades, getting complaints of a construction defect can be stressful and costly. They often immediately think of the damage their reputation – and their business – could suffer in this situation, but with certain safeguards in place such pitfalls will be easier to resolve. The mantra should be: act quickly, say nothing, and seek the advice of a construction attorney. WHY IS IT SO IMPORTANT TO ACT FAST? Defect claims often involve a series of other legal issues that multiply challenges and risks, including: Breaches of contract – If the alleged defect, or resulting damage from the defect, goes against the terms of the contract. Breaches of warranty – Specifically if the defect contravenes an express or implied warranty, or guarantee, regarding quality that the parties outlined in the contract. Negligence – If workers do not uphold the standard of care required of them under the law and the individual contract. Strict liability – Which is only a risk for mass developers in California, but is a risk nonetheless. CRITICAL STEPS TO TAKE AGAINST DEFECT CLAIMS As we have discussed in previous blog posts, California law provides an avenue for dispute-resolution before taking matters to court. Even so, business owners must take great care as they move forward to handle these claims. If a construction defect claim is brought to their attention, business owners should: Carefully review the claim Reevaluate the documents and records from that specific project Seek legal advice regarding the options and obligations under California law Many business owners might wish to respond to the claim as soon as possible to defend their reputation. And while it is critical to act quickly, owners must still act strategically.

When business partners take on the business world together, they often know they will face challenges. It is inevitable. Business partners must create a Partnership Agreement (or similarly an Operating Agreement if the entity formed is an LLC) to tackle these challenges effectively. They can work together proactively to avoid serious disputes – especially if they create a specific outline for how they approach all business matters and decisions. PARTNERS MUST KNOW HOW THEY WILL MAKE DECISIONS As we have discussed in previous blog posts, Partnership Agreements are a critical aspect of every business partnership. And one of the most important elements partners should address in these agreements is how they will approach any and all business decisions they may come across. Of course, the strategy that partners choose to outline will depend on the roles and responsibilities each partner takes on in the daily operations of the business. Even so, business partners should make sure they clearly explain the process and requirements for making decisions regarding: Financial matters Employment decisions Operational matters Disagreements over these three main areas of decision-making are fertile ground for partnership disputes. That is why establishing a process to follow for each decision can help prevent disagreements from developing into or contributing to a much larger dispute that puts the business at risk. WHAT FACTORS TO CONSIDER IN A DECISION-MAKING STRATEGY The first thing that California business partners should consider is their involvement in the decision-making process. For example, one partner might be more involved in daily operations than the other, but both might wish to review and approve any decisions in the employment arena. Therefore, it is helpful if business partners consider: Who will all be involved in the process How these individuals will communicate with each other The boundaries and terms for compromising, if necessary The process for reviewing the outcome of business decisions Strategies will differ depending on what is best for the business and what both partners wish. It is even common for these processes to evolve over time. However, it is still critical for business partners to have a foundation for their decision-making to prevent disputes.

We have discussed the widespread impacts of Assembly Bill 5 in previous blog posts. This law is at the center of many employers’ concerns for the future of their companies. However, a recent decision regarding AB 5 will also have employers looking into the past. THE ABC TEST IS RETROACTIVE By now, most California employers are very familiar with the ABC test established by the Dynamex decision. Employers must apply the terms of the ABC test to workers to determine whether they qualify as employees or independent contractors. The decision creating the ABC test was in 2018, but it took until the beginning of 2021 for the California Supreme Court to answer one of the biggest questions employers had: does the test apply retroactively? In short, the answer is yes. The Court stated that the statute of limitations on employees’ claims still stand. Even so, this recent ruling could increase challenges – and risks – for employers across the state. WHAT DOES THIS MEAN FOR EMPLOYERS? Establishing retroactivity of the ABC test could significantly increase the liability employers could face from former or even current employees. This means that there are several steps employers must take, including: Auditing their employment records carefully Carefully considering the worker relationships in the past Completing the necessary payroll and employment taxes It is critical that employers are proactive in determining their employees’ statuses, even if it is retroactive. Taking these steps could make all the difference in helping employers avoid complex labor claims in the future, as well as the severe penalties for violating the law.

Keeping certain matters confidential – such as trade secrets and business plans – is critical to navigate the business world. It allows companies to differentiate their products and services and compete successfully. Confidentiality is important, as most employers know. Even so, they must approach this matter with great care. RECENT CASE SHOWS DANGERS OF GENERALIZED AGREEMENTS Employers often use non-disclosure agreements to protect their intellectual property and company overall. However, a recent case illustrates that overly broad terms in an agreement can create significant legal issues for employers. Although Baker & Associates was not involved in the recent case of Brown v. TGS Management Co., LLC, employers should take note of the details of this case. Essentially, the employer defined confidential information so broadly that: The former employee claimed the terms prevented them from working in the same field again; and The too-broad terms ultimately led the agreement to have the same effect as a non-compete agreement. Non-compete agreements are both unlawful and unenforceable under California Code. Employers often try to include broader terms to ensure greater protection for their trade secrets and other critical information, but language that is too general can work against the business in the long run. REEXAMINE THE AGREEMENTS Non-disclosure agreements are allowed under state law. However, employers must take great care when creating them. A proper non-disclosure agreement must be specific in its terms. This means employers must be precise in explaining: Which parties are involved and their obligations; How long it is enforceable; and What information is confidential. Employers must be explicitly clear about what employees cannot discuss. They should review the terms of their non-disclosure agreements or confidentiality clauses to ensure they are specific – and not leaning too close to a non-compete. Additionally, it is important to note that the more specific employers are in these agreements, the more likely it is that the courts will enforce it if the company faces legal issues in this area.

The critical laws that protect the ever-important trademark have been in place since 1946. These laws are essential to ensure businesses avoid the risks of counterfeit marks and secure their brand. Business owners must be aware of the recent additions to sustain and improve these protections. AMENDMENTS REINFORCE TRADEMARK PROTECTIONS At the end of 2020, federal lawmakers added a new set of regulations with the Trademark Modernization Act. The new law makes important amendments to the Lanham Act (1946). In particular, three things of note that the Act does is to: Reaffirm the presumption that businesses suffer irreparable harm when trademark infringement occurs, making it easier for them to obtain injunctions; Adjust the process of trademark prosecution allowing parties to submit evidence of potential conflicts with existing trademarks; and Create new ways to challenge and examine trademarks for non-use, and now includes non-use as a reason for canceling a trademark registration. The goal of these amendments is to target issues with fraudulent trademarks, as well as coordinate the legal process of resolving disputes after the divergence that occurred after the well-known case of eBay v. MercExchange, L.L.C., in 2006. WHAT DOES THIS MEAN FOR BUSINESS OWNERS? Trademark infringement damages businesses, and the changes to the Act should help businesses increase their trademark protection. For example, injunctions are a critical tool when it comes to stopping trademark infringement. They can prevent further damaging effects of trademark infringement and force the other party to stop any infringing actions. Yet, proving irreparable harm occurred can often pose a challenge. Reaffirming the presumption is critical to help businesses effectively defend their trademarks. As we have discussed in past blog posts, the risk of infringement seems only to increase with time and advances in technology. Hopefully, these changes will help to improve trademark protection processes in the modern world.