Special Employment-Law
Issues Confronting
Technology Companies
Jeffrey S. Sloan, Esq.
Partner, Labor and Employment Group
Chair, SF Technology Practice Group
Technology Companies -Who Are They and Why Are They Different?
All Technology Companies Share...
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a foundation of ingenuity and creativity
a purpose to refine, develop, market and profit
from their ideas
a speed of operation
a need for specialized skills of a relatively small
universe of potential workers
Legal Issues Facing Technology Companies
Using Independent Contractors
Protecting Intellectual Property
Hiring Competitors’ Employees
New Sexual Harassment Laws
Wage/Hour Issues
Immigration Issues
Advantages to Using
Independent Contractors vs. Employees
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cheaper labor costs
fewer regulations and less administration
minimized risk for lawsuits
greater flexibility for expansion
greater access to necessary workers
The Tests
Independent Contractor or Employee?
Source: Advising California Employers § 4.6 Independent Contractors (CEB 2000)
How the Issue Gets Raised?
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random audit
tip from hostile (former) employee
independent contractor
files for unemployment or disability
The “Right to Control” Test
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right to control
can terminate at will
distinct occupation
level of supervision
industry practice
own tools and resources
services do not have
to be rendered personally
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duration of service
work for others
job location
method of payment
realization of profit/loss
intent of the parties
Disadvantages to Using
Independent Contractors vs. Employees
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penalties for misclassification
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new reporting requirements under State law
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taxes, financial penalties and criminal charges
Cal. Unemp. Ins. Code § 1088.8
must report contractor name, contract date/amount
penalties for not reporting
loss of control and lack of continuity
BEWARE -- The “Microsoft Problem”
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Vizcaino v. Microsoft Corp., 120 F.3d 1006 (9th Cir. 1997)
(applied “right to control” test and reclassified independent contractors as
employees, resulting in access to 401(k) plans and stock option plans)
The “Works Made for Hire” Dilemma
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employee
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company owns copyright,
BUT costs/risks of employment
independent contractor
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advantages from using independent contractors
BUT less copyright protection
PLUS risk of misclassification
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Cal. Lab. Code § 3351.5(c)
Cal. Ins. Code § 686
Legal Issues Facing Technology Companies
Using Independent Contractors
Protecting Intellectual Property
Hiring Competitors’ Employees
New Sexual Harassment Laws
Wage/Hour Issues
Immigration Issues
Trade Secrets Protection
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information
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formula, program, method, process, technique etc.
Rolodex and Palm Pilot data
customer/pricing information
marketing/business plan
“negative” information
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derives value from being secret
reasonable efforts to maintain secrecy
Misappropriation of Trade Secrets
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improper
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acquisition
use
disclosure
liability
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person who misappropriates
new employer
others who benefit from misappropriation
Remedies for Misappropriation
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monetary damages
injunctive relief
punitive damages
attorneys’ fees
criminal charges
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Cal. Pen. Code § 499(c)
Federal Economic Espionage Act of 1996
What If No Misappropriation Has Occurred?
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“inevitable disclosure” doctrine
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California does not recognize
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Electro Optical Indus., Inc. v. White,
76 Cal. App. 4th 653 (1999) (ordered depublished by
CA Supreme Court on April 12, 2000)
what the future holds?
Practical Steps to Protect Trade Secrets
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identify and safeguard
use effective non-disclosure agreement
conduct exit interviews
demand departing employees return property
notify departing employee’s new employer
use separation agreements
Non-Solicitation Agreements
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“solicitation”
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enforceability
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requires active requests or appeals
passive acceptance of business not enough
during and after employment
even when not tied to trade secrets?
remedies for breach
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damages
injunctive relief
Obtain Copyright, Patent
and Trademark Protection
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copyright
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patent
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fixed in a “tangible medium of expression”
“works made for hire”
75/100 years protection
useful and novel ideas
20 years protection
trademark
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indicates source of origin
Legal Issues Facing Technology Companies
Using Independent Contractors
Protecting Intellectual Property
Hiring Competitors’ Employees
New Sexual Harassment Laws
Wage/Hour Issues
Immigration Issues
California Law Favors Employee Mobility
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Cal. Bus. & Prof. Code § 16600
“Except as provided in this chapter, every contract by
which anyone is restrained from engaging in a lawful
profession, trade, or business of any kind is to that
extent void.”
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covenants not to compete are generally invalid
employees can quit and compete
limitations imposed by trade secret laws
Hiring Without Violating Trade Secrets Law
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conduct pre-hire investigation
analyze competitors’ business and potential
employee’s duties there
warn potential employee not to take computer
files or documents upon departing
include trade secret warnings in offer letters,
employment agreements and other documents
avoid “focused” hiring
Legal Issues Facing Technology Companies
Using Independent Contractors
Protecting Intellectual Property
Hiring Competitors’ Employees
New Sexual Harassment Laws
Wage/Hour Issues
Immigration Issues
Sexual Harassment Laws
Impact Technology Companies
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Cal. Gov’t Code § 12940(j)(3)
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expands liability to co-workers
old law only supervisors
technology co-workers may be “deep pockets”
Cal. Gov’t Code § 12940(j)(1)
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independent contractors can sue for sexual
harassment
old law no protection
erases an advantage?
Legal Issues Facing Technology Companies
Using Independent Contractors
Protecting Intellectual Property
Hiring Competitors’ Employees
New Sexual Harassment Laws
Wage/Hour Issues
Immigration Issues
Overtime Exemptions for Computer Workers
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prior federal law (1991)
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prior state law (1998)
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hourly employees can qualify for exemption
helped create computer consulting industry
Silicon Valley complained about overtime costs
overtime only if > 40 hours per week
AB60 (1999)
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organized labor furious
daily overtime reinstated
BUT only salaried employees qualify for exemption
AB60’s Impact on Technology Companies
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already well-paid hourly computer workers
automatically get overtime
overtime costs skyrocket
computer work relegated to 8 hour days to avoid
triggering overtime
computer workers’ independent schedule
threatened
The Solution -- SB88 (2000)
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reinstated certain highly-compensated computer
workers to exempt status regardless of hourly or
salary pay
to be exempt under SB88
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engaged in intellectual/creative work requiring
discretion or individual judgement
highly skilled in application of information to
computer systems, analysis and programming
paid at least $41 per hour
primarily engaged in one of the following duties...
The Solution -- SB88 (2000)
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primarily engaged in one of the following duties...
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application of systems techniques and procedures to
determine hardware, software or system functional specs;
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design, development, documentation, analysis, creation,
testing or modification of computer systems or programs; or
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documentation, testing, creation or modification of programs
related to the design of software or hardware
The Solution -- SB88 (2000)
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some jobs automatically excluded
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entry-level employees unable to work independently
employees engaged in operation, manufacture, repair
or maintenance of computer hardware
an engineer, drafter, machinist or professional who is
highly dependent on computers, but is not in
computer systems analysis or programming position
technical writers, web content authors, etc.
employee who creates special effects imagery for
motion pictures
what to do?
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review and revise job descriptions
Legal Issues Facing Technology Companies
Using Independent Contractors
Protecting Intellectual Property
Hiring Competitors’ Employees
New Sexual Harassment Laws
Wage/Hour Issues
Immigration Issues
Technology’s Labor Needs
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severe shortage of skilled workers
H-1B visas
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used to recruit foreign skilled workers
limited to 115,000 per year
Silicon Valley lobbies for eased visa restrictions
“American Competitiveness
in the 21st Century Act” (2000)
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H-1B visas increased to 195,000 per year
universities, colleges and non-profits exempt
increased portability
1-year extensions granted after 6-year term
visa fees increased from $610 to $1110
Strategies for Hiring Foreign Workers
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consult with experienced immigration attorney
act quickly -- first-come, first-served
use appropriate employment agreement
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“liquidated damages” provision
develop immigration compliance program
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monitor I-9 documentation
Thank you.
Jeffrey S. Sloan, Esq.
Partner, Labor and Employment Group
Chair, SF Technology Practice Group