In our last issue of Perspectives, we summarized recent non-compete-related legislation in a California employer alert entitled “New Prohibitions and Penalties Concerning Noncompetition Clauses.” However, many employers continue to have questions about the practical takeaways regarding this legislation. So, here is a refresher summary focusing on the most impactful takeaways.
Effective January 1, 2024, California legislators strengthened and created a private right of action / penalty enforcement mechanism regarding the already broad prohibition against employee non-compete agreements. The legislation (AB 1076 and SB 699) appears in the California Business & Professional Code amended Section 16600 and newly enacted Section 16600.5.
The main takeaways are:
- Written notices must be sent to any employees employed after January 1, 2022 (including former employees), that any non-compete clauses or agreements previously reached are void. Employers were required to send these notices by February 14, 2024. Obviously, that deadline has passed but the old adage, it’s better late than never, definitely holds true here. Employers should first determine if they have agreements or policies violating the non-complete law. If they do, then they should send notices as soon as possible, and ask for forgiveness for any delay, if questioned by an agency, judge or jury at a later date. Some employers may be understandably hesitant about or even decidedly against sending notices at all because of concern for the potential snowball effect of possible claims or lawsuits by affected employees. That is a business decision which should be discussed with trusted legal counsel so that practical, business considerations may be considered and weighed against the potential risks of litigation and attendant damages exposure.
- Employer’s inclusion of non-complete clauses or any requirement that employees enter into non-compete agreements that do not satisfy limited statutory exceptions (most notably, the sale of business/goodwill exception) is considered an unfair business practice.
- Employees may bring private actions against employers to enforce these provisions and recover attorneys’ fees and penalties (up to $2,500 per violation for failure to give notice), if successful.
The practical implications of California’s recent non-compete legislation developments remain to be seen. Many employers were already aware of and avoided including prohibitory non-compete clauses or agreements in their onboarding documents. Other employers who may use nonsolicitation of customers / clients restrictive covenants should have experienced legal counsel review those provisions to make sure that they are not simply disguised non-competes. The key distinction is to make sure that any nonsolicitation of customer / client provisions are limited to the protection of the employer’s trade secrets. A similar examination and analysis should be applied to nonsolicitation of employees / no-raiding provisions.
We will continue to keep our employer clients updated as these and the myriad of other ever-changing developments occur in California’s employment law arena.
Employer-mandated procedures for employees to enter, leave and use the worksite may constitute compensable time:
On March 25, 2024, the California Supreme Court issued an important decision in Huerta v. CSI Electrical Contractors holding that employer-mandated controls and procedures for entering / leaving a worksite and taking meal breaks constitutes compensable hours worked. In this instance, compensation was found appropriate for (1) time spent driving to, through and from the employer’s security entrance gate at the beginning and end of each workday (where the guards scanned each worker’s badge and sometimes inspected vehicles) and (2) meal breaks in which employees were prohibited from leaving the worksite.
The takeaway is that anything an employer mandates concerning the daily work activities of its employees needs to be carefully considered as compensable hours worked even if the amount of time is relatively small and which used to be considered noncompensable “de minimus” time. That is no longer accurate.
July 1, 2024, workplace violence prevention plan and training requirements:
Effective July 1, 2024, SB 553 (to be codified as California Labor Code Sections 6401.7 and 6401.9) will require virtually every California employer to implement a comprehensive workplace violence prevention plan. The new law also requires employers to provide “interactive” training when their workplace violence prevention plans are first established and annually thereafter. Therefore, employers are expected to implement a compliant plan, maintain a log of violent incidents and ensure employees are trained by July 1, 2024.
The new law will be enforced by CAL/OSHA. The essential elements of a compliant workplace violence prevention plan are outlined in Labor Code Section 6401.9 and summarized in the Fact Sheet recently published by CAL/OSHA. Our firm is available to assist you in developing a compliant plan and providing requisite training. Please contact me for more details.
Federal Agency Guidance on AI-Related Wage and Hour Compliance Issues:
The April 29, 2024, Field Assistance Bulletin (FAB) from the U.S. Department of Labor’s Wage and Hour Division (WHD) provides guidance on the application of the Fair Labor Standards Act (FLSA) and other federal labor standards as employers increasingly use artificial intelligence (AI) and automated systems in the workplace. The FAB highlights potential compliance challenges with federal labor laws when using AI without proper human oversight. Specifically, the FAB cautions that AI systems used for tracking work hours, monitoring breaks, calculating wages for different work rates and duties, processing leave requests under the Family and Medical Leave Act (FMLA), and other functions could lead to violations of the FLSA, FMLA, and other laws if not implemented with responsible human supervision. While the guidance does not identify any California-specific implications, employers in California must ensure their use of AI complies with both federal and state labor laws, including California’s stringent wage and hour regulations and leave requirements. For additional details, please contact me with any comments or questions about these or any other employment law issues.
We would expect the California Department of Labor to provide AI-related / California-specific, wage and hour guidance soon.
Scherer Smith & Kenny LLP remains available to assist you with these and any other employment law-related questions you may have. For additional information, please contact Denis Kenny at denis@sfcounsel.com, Ryan Stahl at rws@sfcounsel.com, John Lough, Jr. at jbl@sfcounsel.com, or Jaclyn Tran at jaclyn@sfcounsel.com.