Part 5 (The Final Entry): The California Courts In Action

This is where the action has been in 2009 employment law -- in the appellate courts. From commuting to class actions, tip pools to trade secrets, California’s courts were busy. In this, our final installment of the year in review, we look at just a few employment decisions we found particularly interesting.

On The Subject Of Commuting…:

A few commuting technicalities were cleared up for employees and employers in 2009, including a clarification of exactly what constitutes the commute. (And all this time I thought it was all that sitting in traffic I do twice a day, along with tens of thousands of my closest smog-spewing friends.)

For instance, in Jeewarat v. Warner Bros. Entertainment, Inc. (2009) 177 Cal. App. 4th 427, Warner Brothers was sued after one of its executives was involved in a tragic auto accident on his return home from the airport following a three day business conference. The employer sought to escape liability by arguing application of the descriptive “coming and going rule,” which generally protects an employer from liability for the acts of employees during their commute since the employees are not acting within the course and scope of their employment at the time. (Seriously, is this the best name they could come up with? Maybe it contrasts with the "standing around" rule?)

In any case, for every descriptive rule, there is an equal and opposite descriptive exception. The plaintiff pressed for application of the “special errand” exception, which holds the employee to still be acting within the course and scope of his employment when carrying out a “special errand” for the employer outside the normal work hours.

Was the drive home from the airport following a business trip – which happened to be along the very same commuting route traveled every day by the employee – part of the employee’s “commute,” or was it the tail end of the employer’s “special errand?” This was California, so you can guess how the appellate court ruled. Warner Brothers was on the hook.

But all was not bad for employers on the commuting front. In Rutti v. Lojack Corp. (9th Cir. 2009) 578 F.3d 1084, a Lojack technician who drove his employer-issued van to and from various job locations to install vehicle alarm systems, sought to have his commute time compensated.

This was not a wholly irrational argument since Lojack, as many employers do when giving their employees vehicles, had certain restrictions on the use of Rutti’s van – i.e., he had to drive directly from home to the first job location, and from the last job location to home, without making any personal stops (like dropping the kids off at school, or picking up a pizza for dinner) or carrying any passengers. He also had to keep his cell phone on and take job-related calls, if any (but, of course, no texting while driving!).

The Ninth Circuit analyzed the issues under federal law (the appropriately titled “Employee Commuting Flexibility Act”) and determined that the commute time, even in the company vehicle with restrictions attached, was not compensable. The court was less certain about application of California state law, but ultimately concluded that, while it was “a close call,” even under state law the commute was non-compensable. Employers dodged a bullet with this one…at least until a California state court looks at the issue. (For a more detailed summary of the case, see our earlier blog post here.)

Trade Secrets Galore

(A) Preemption: California has long lacked a citable case holding that the California Uniform Trade Secret Act (CUTSA) preempts other overlapping causes of action, such as breach of confidence, tortious interference, and unfair competition.

The void has finally been filled by K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal. App. 4th 939. This is an important opinion because the CUTSA remedies are different than those for the common law and statutory claims that are preempted.

For example, the 17200 unfair competition cause of action carries with it a four year statute of limitations whereas CUTSA is a three year statute. Further, punitive damages are limited to double damages under CUTSA, rather than the Constitutional limitation of “everything and the kitchen sink” applicable to the standard California tort claim. (For more details, see here.)

(B) Sylvester Stallone and Stolen Pudding: Trade secret litigators in California are only too aware of Code of Civil Procedure Section 2019.210 which requires a plaintiff to describe his trade secrets “with reasonable particularity” before he can commence discovery.

The statute has two primary goals: (a) “help the court shape discovery;” and (b) provide the defendant with sufficient notice of what he is alleged to have stolen so he can develop a defense.

This statute is also a trap for the unwary plaintiff: Describe the trade secret too specifically and whooops, there go the crown jewels. Describe it too broadly and the plaintiff will fail to satisfy the statute and be left with no discovery rights. It left for some frustrated plaintiffs.

In Brescia v. Angelin (2009) 172 Cal.App.4th 133, a case filed against Sly Stallone and his co-defendants in the high protein pudding business, the court clarified the trade secret designation requirements, making the plaintiff’s disclosure burden easier. (For the fun details, see here.)

(C) Trade Secrets, Inevitable Disclosure, and $1.6 Million In Sanctions: In some jurisdictions, the inevitable disclosure doctrine (which allows a court to enjoin a former employee from working for a competitor in a position that makes it inevitable he or she will have to use or disclose the former employer’s trade secrets) is alive and well. That would, of course, not include California where the doctrine is dead and buried.

Indeed, not only is the doctrine rejected in California, a plaintiff can be sanctioned for even prosecuting the claim in a California. Such was the hard and painful $1.6 million lesson learned by the plaintiff in Flir Systems, Inc. v. Parrish (2009) 174 Cal.App.4th 1270.

There, the plaintiff sought to prevent a former employee from starting up a new competitive business under the theory that the new business’ product could not be produced without utilizing the plaintiff’s trade secrets (use of the trade secrets was inevitable). Because there was no evidence of any actual misuse of trade secrets, the trial judge determined the action to have been brought in bad faith, based as it was on the discredited inevitable disclosure doctrine, and awarded the defendants $1.6 million in attorney’s fees and costs as a sanction under the California Uniform Trade Secret Act. This was upheld on appeal. (Fun details found here.)

Tip Pooling Cases A Hot Item

How much trouble can a 15% tip really cause? Apparently a lot, judging by the rash of tip pooling cases that were reported in California, including Budrow v. Dave & Buster’s of Cal., Inc. (2009) 171 Cal. App. 4th 875 (2009), Grodensky v. Artichoke Joe’s Casino (2009) 171 Cal. App. 4th 1399, Etheridge v. Reins Int’l Cal., Inc. (2009) 172 Cal. App. 4th 908, and Chau v. Starbucks Corp. (2009) 174 Cal.App.4th 688. We’ll look at Chau as representative of these.

California Labor Code Section 351 forbids employers and their agents from sharing in any tips left by patrons for the employees. Sounds simple enough. At least that’s what Starbucks thought when it allowed its hard working shift managers – who stand shoulder to shoulder with their non-management brother (and sister) baristas, steaming the soy and pressing the espresso, doling out caffeinated charm to an often charmless public –to share in the tip pool.

The San Diego superior court thought otherwise, classified the shift managers as “The Employer,” and hence not allowed a share of the tips, and ordered Starbucks to return the shift manager’s share to the other baristas. On a class basis, this amounted to a “return” of nearly $100 million.

The appellate court wisely reversed: Shift managers earned the tips doing the same work as the other employees, so they get to share in the tips. (A short summary and update of the case can be found here and here.)

(On a related note, the California Supreme Court is getting in on the “tip” act and will rule in Lu v. Hawaiian Gardens Casino, Inc. (S171442) whether Labor Code Section 351 provides employees with a private right of action.)

No Punitive Damages On Labor Penalties

It is nice to know that not everything an employer does in California subjects it to possible punitive damages. In a case decided late in 2008 (and finalized in 2009 after the Supreme Court denied review), the appellate court confirmed that Labor Code wage and hour violations relating to meal and rest breaks, pay stubs, and minimum wage laws do not give rise to punitive damages. Brewer v. Premier Golf Props. (2008) 168 Cal.App.4th 1243. (They do, however, give rise to attorney's fees under Labor Code § 218.5 "because it is now settled that compensation for missed meal and rest breaks are wages.")

Strategies For Defeating Wage and Hour Class Actions

Addressing the issue head-on for the first time, the California appellate court in Chindarah v. Pick Up Stix (2009) 171 Cal.App.4th 796, allowed an employer, when faced with a California wage and hour class action, to pick off the putative class members one employee at a time through a settlement agreement and release.

After the representatives for the plaintiff class refused the employer’s settlement offer in mediation, the employers made the same offer personally to the individual putative class members, and over 200 accepted the settlement and signed releases. Seeing the size of their potential recovery shrink before their very eyes, the class action plaintiff’s attorneys challenged the releases on the grounds that under the California Labor Code Section 206.5 employees cannot waive their right to receive earned wages.

The Court acknowledged the Labor Code section, but noted that the right to receive wages was in dispute, and “there is no statute providing that an employee cannot release his clam to past overtime wages as part of a settlement of a bona fide dispute over those wages.” (The Court was careful to note that this strategy may or may not work under the federal FLSA statutory regime, depending on the jurisdiction.) (For more details, see here.)