Special Employment-Special Employment-LawLawIssues Confronting Issues Confronting Technology CompaniesTechnology Companies

Jeffrey S. Sloan, Esq.Jeffrey S. Sloan, Esq.Partner, Labor and Employment GroupPartner, Labor and Employment GroupChair, SF Technology Practice GroupChair, SF Technology Practice Group

Technology Companies --Who Are They and Why Are They

Different?

All Technology Companies Share...

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 ContractorsProtecting Intellectual PropertyHiring Competitors’ EmployeesNew Sexual Harassment Laws

Wage/Hour IssuesImmigration Issues

Advantages to UsingIndependent Contractors vs. Employees

cheaper labor costs fewer regulations and less administration minimized risk for lawsuits greater flexibility for expansion greater access to necessary workers

The TestsIndependent Contractor or Employee?

Source: Advising California Employers § 4.6 Independent Contractors (CEB 2000)

How the Issue Gets Raised?

random audit tip from hostile (former) employee independent contractor

files for unemployment or disability

The “Right to Control” Test

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

duration of service work for others job location method of payment realization of profit/loss intent of the parties

Disadvantages to UsingIndependent Contractors vs. Employees penalties for misclassification

– taxes, financial penalties and criminal charges new reporting requirements under State law

– 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”

– 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

employee– company owns copyright, – BUT costs/risks of employment

independent contractor– advantages from using independent contractors– BUT less copyright protection– PLUS risk of misclassification

Cal. Lab. Code § 3351.5(c) Cal. Ins. Code § 686

Legal Issues Facing Technology Companies

Using Independent ContractorsProtecting Intellectual PropertyHiring Competitors’ EmployeesNew Sexual Harassment Laws

Wage/Hour IssuesImmigration Issues

Trade Secrets Protection

information– formula, program, method, process, technique

etc.– Rolodex® and Palm Pilot® data– customer/pricing information– marketing/business plan– “negative” information

derives value from being secret reasonable efforts to maintain secrecy

Misappropriation of Trade Secrets

improper– acquisition– use– disclosure

liability– person who misappropriates– new employer– others who benefit from misappropriation

Remedies for Misappropriation

monetary damages injunctive relief punitive damages attorneys’ fees criminal charges

– Cal. Pen. Code § 499(c)– Federal Economic Espionage Act of 1996

What If No Misappropriation Has Occurred?

“inevitable disclosure” doctrine– California does not recognize

Electro Optical Indus., Inc. v. White,76 Cal. App. 4th 653 (1999) (ordered depublished byCA Supreme Court on April 12, 2000)

what the future holds?

Practical Steps to Protect Trade Secrets

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

“solicitation”– requires active requests or appeals– passive acceptance of business not enough

enforceability– during and after employment– even when not tied to trade secrets?

remedies for breach– damages– injunctive relief

Obtain Copyright, Patentand Trademark Protection

copyright– fixed in a “tangible medium of expression” – “works made for hire”– 75/100 years protection

patent– useful and novel ideas– 20 years protection

trademark– 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

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.”

covenants not to compete are generally invalid

employees can quit and compete limitations imposed by trade secret laws

Hiring Without Violating Trade Secrets Law

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 LawsImpact Technology Companies

Cal. Gov’t Code § 12940(j)(3)– expands liability to co-workers– old law only supervisors– technology co-workers may be “deep pockets”

Cal. Gov’t Code § 12940(j)(1)– 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 prior federal law (1991)

– hourly employees can qualify for exemption– helped create computer consulting industry

prior state law (1998)– Silicon Valley complained about overtime costs– overtime only if > 40 hours per week

AB60 (1999)– organized labor furious– daily overtime reinstated– BUT only salaried employees qualify for

exemption

AB60’s Impact on Technology Companies

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)

reinstated certain highly-compensated computer workers to exempt status regardless of hourly or salary pay

to be exempt under SB88– 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)

– primarily engaged in one of the following duties...

application of systems techniques and procedures to determine hardware, software or system functional specs;

design, development, documentation, analysis, creation, testing or modification of computer systems or programs; or

documentation, testing, creation or modification of programs related to the design of software or hardware

The Solution -- SB88 (2000) some jobs automatically excluded

– 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?– 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

severe shortage of skilled workers H-1B visas

– used to recruit foreign skilled workers– limited to 115,000 per year– Silicon Valley lobbies for eased visa restrictions

“American Competitivenessin the 21st Century Act” (2000)

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

consult with experienced immigration attorney

act quickly -- first-come, first-served use appropriate employment agreement

– “liquidated damages” provision develop immigration compliance program

– monitor I-9 documentation

Thank you.Thank you.

Jeffrey S. Sloan, Esq.Jeffrey S. Sloan, Esq.Partner, Labor and Employment GroupPartner, Labor and Employment GroupChair, SF Technology Practice GroupChair, SF Technology Practice Group