2007-23

Class Action Waiver in Arbitration Agreement is Not Enforceable

 In another important case affecting the use and application of arbitration agreements in the employment setting, the California Court of Appeal recently ruled that a provision in an employment arbitration agreement waiving the employee’s right to pursue a class action was unenforceable.

 In Murphy v. Check ‘N Go of California, Inc., the employee worked as a salaried retail manager at a payday lending company. The employee filed suit claiming that she and others in the retail manager position were improperly classified as exempt employees. The employer sought arbitration relying on a “Dispute Resolution Agreement” (the “Agreement”) that the employee signed during her employment. The Agreement provided four exclusive means of resolving employee disputes with the company, including arbitration All employees were required to sign the agreement and employees were not told they could opt out of the Agreement or revise it in any way.

 At issue was the following provision contained within the Agreement, which stated that “neither you nor we may file or maintain a lawsuit in a court and neither you nor we may join or participate in a class action or representative action ….” The Agreement also noted in bold text: “Before signing this Dispute Resolution Agreement, you should carefully review the entire agreement and, if you want, consult with an independent attorney.”

 The court ultimately concluded that the class action waiver should not be enforced because it was “patently one-sided” and because individual employees would have encountered difficulty securing legal representation for individual cases due to the relatively small sums of money involved. The court also stated that class actions are necessary in wage and hour cases to deter employers from intentionally misclassifying their employees.

 Employers should review any existing employee arbitration agreements to ensure that no class action waiver is included in the agreement. Such a provision may work to invalidate the entire agreement. If a class action waiver is included in the agreement, employers should consider use of a new agreement not containing that provision and re-issuing the new agreement, if appropriate for the particular organization.

 Please contact your Firm contact if you have any questions about this important decision and/or the appropriateness of an arbitration agreement for your workplace.

Employers Need to Take Reasonable Measures to Maintain Secrecy of Information They Want to Protect

 In San Jose Construction, Inc. v. S.B.C.C., Inc. the California Court of Appeal looked at the issue of whether information taken by an employee upon his departure from a construction company constituted trade secrets.

 Richard Foust was previously employed by plaintiff San Jose Construction (“SJC”) as a project manager. Foust was offered employment with South Bay Construction Company (“SBCC”), a competitor of SJC. While still employed with SJC, Foust took several pieces of information with him before leaving to go work with SBCC. The information Foust took included project budgets, customer lists, proposals, bids, and responses to requests from various owners and architects. Foust also gave his assistant a diskette on which she downloaded the contents of computer folders. He then uploaded the information onto the SBCC system and placed copies of the documents in project binders.

 SJC filed suit against both Foust and SBCC, alleging misappropriation of trade secrets, intentional interference with prospective economic advantage, statutory and common-law unfair competition, and interference with contract.

 To claim the protection of a “trade secret,” SJC must show that: (1) the information taken derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) SJC made reasonable efforts to maintain the secrecy of the information.

 The court ultimately found that the case would proceed to trial because there was a reasonable dispute as to whether the information had independent economic value and whether SJC made reasonable efforts to protect the information from disclosure.

 Here, the court noted that under California law, courts are reluctant to protect customer lists when they contain information which is readily ascertainable to the public. However, where the employer has expended time and effort identifying customers with particular needs or characteristics, courts will prohibit former employees from using this information to capture a share of the market. The more difficult information is to obtain, and the more time and resources expended by an employer in gathering it, the more likely a court will be to protect the information as a trade secret.

 SJC sought to protect its overall compilation of information by requiring its employees to sign a confidentiality agreement and only allowing “authorized employees” access to customer and financial information. The court ultimately concluded that the question of whether such measures by SJC were sufficient to qualify the information as a trade secret needed to go to the jury to be resolved.

 Employers should take appropriate steps to ensure that information they desire to protect as a trade secret is the subject of reasonable efforts to maintain its secrecy. At a minimum, employers should require employees to sign a confidentiality agreement. In addition to a broad confidentiality policy, employers must take care to follow the policy and safeguard the information by limiting access to those who need it.

 Please call your Firm contact if you have any questions about this recent decision.

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