Employers on a rampage: Dealing with litigation bullies

By Jeremy Pasternak

A Google search of the term “workplace bullying” produces 1,860,000 results; obviously there is a great deal of talk about the issue. But as of this writing, it is not unlawful in the State of California. Employers have the right to treat their employees poorly, as long as in doing so they do not trample on those employees’ legal rights.

But what about another form of bullying, in which the legal process itself is used by an employer to extract some form of concession or achieve an advantage during litigation or through the threat of it? These attacks come in two forms: 1) responses to an employee-plaintiff’s claims (generally, counter-claims), and 2) threatened (or actual) litigation in the absence of a claim by the employee. Those in the first category are designed to scare employees into abandoning their claims, not filing them in the first place or at least scaring them to the extent that their settlement positions soften; in short, literally putting them “on the defensive.” Those in the second category are employed as business strategies, to thwart competitive activity and the like.

This article will examine some of the more common tactics in these categories and explore how they can be addressed.

These claims include those brought (or threatened) pursuant to the California Uniform Trade Secrets Act, Civil Code § 3426 et seq., and for common-law claims of the breach of “duty of loyalty,” (also statutory, based upon Calif. Labor Code § 2860 et seq.) “breach of fiduciary duty” and the like. They can also be based on contracts; particularly in the tech and similar industries, employees are subject to non-disclosure and confidentiality agreements which themselves may broadly define trade secret.

More often than not, these claims arise as threats of cross-complaints in response to demand letters. Usually they are based on an allegation that the employee has taken and is utilizing some sort of information from the employer; however, claims of actual “theft” are sometimes made as well. Because it includes both elements, the following real-life example is illustrative.

The employee, a high-level sales person, had been told that commission plans were being “suspended” just days after he had landed the biggest deal in his employer’s history. Concerned he was going to be deprived of commissions, he began to forward to his personal email address various documents which proved he had generated this sale and what it was worth to the company, and – in turn – the value of his commissions. This effort was discovered and the employee was immediately terminated for “stealing” company documents.

Upon receipt of a demand letter, the company threatened a cross-complaint for conversion, violation of the Uniform Trade Secrets Act, and violation of Business and Professions Code § 17200 (which was particularly ironic, given that this was one of the causes of action we would later assert in connection with the failure to pay the commissions). Obviously, there is no telling for sure the extent to which these threats were strategic, emotional, both, or something else entirely.

Any lawyer’s natural reaction would be to explore defenses (not to mention take umbrage). But the smart answer is don’t defend it at all. Give the materials back. First, although they are of course evidence, that does not mean there is a “right” to keep them. (See Pillsbury, Madison & Sutro v. Schectman (1997) 55 Cal.App.4th 1279, 1289

One might think the employer’s claims referenced above could simply be defeated as a SLAPP suit. Putting aside for a moment the driving concept above, that it is better to “take away” a fight where there is nothing to gain, the answer is: “No, it could not be.”

Whether or not a cross-complaint is subject to an anti-SLAPP motion has nothing to do with what motivated it. Yes, in these circumstances the only reason an employer-defendant is threatening a cross-complaint was because they had been threatened with a lawsuit in the first place, and that first threat was an exercise of the First Amendment petition right (more clearly if it was filed, obviously). But the actual requirements of SLAPP are often misunderstood.

The two necessary prongs of a successful anti-SLAPP motion are: 1) that the complaint or cross-complaint attacks an exercise of a free speech or petition right; and 2) a lack of probability on the merits.(Code Civ. Proc. § 425.16(b)(1).)

But there is a difference between “attacks” and “motivated by.” In the scenario above, it may be (of course it certainly was) that the cross-complaint was motivated by the lawsuit. But the actual causes of action – unfair competition, conversion, trade secret, etc. – do not themselves address the exercise of any type of free speech or petition right. And that is what is required. Again, the conduct of taking documents is not privileged in some way. (See Pillsbury, Madison & Sutro v. Schectman  supra, 55 Cal.App.4th at 1289.) Similarly, if your client really did unlawfully utilize trade secret information, that fact and the attendant causes of action do not disappear just because the employer didn’t care until you sued it. The same is true of other claims. As long as they can be tenably asserted and do not directly address free speech or petition rights, the employer is entitled to make the claim, regardless of the fact that they didn’t care until your client made theirs.

This is another not-uncommon cross-complaint. It is more easily subject to an anti-SLAPP motion because it is more likely actually connected to the client’s claims. To illustrate, we will start with an almost ridiculously-obvious (but still real) example:

The employee-plaintiff sued for sexual harassment and wrongful termination. This drew a cross-complaint for defamation and intentional infliction of emotional distress. Although the cross-complaint was on a form complaint which included very little detail, it did include the following allegations: “Plaintiff filed a completely baseless complaint against defendants with the intent to extort a settlement from the Defendants/Cross Complainants.” The date of the “incident” was the date of the filing of the complaint.

Admittedly, that one was a no-brainer: “It is well established that filing a lawsuit is an exercise of a party’s constitutional right of petition” and that it is therefore protected by the anti-SLAPP statute. (Chavez v. Mendoza (2001) 94 Cal.App.4th 1083, 1087; see also Phillipson & Simon v. Gulsvig (2007) 154 Cal.App.4th 347, 358; Navellier v. Sletten (2002) 29 Cal.4th 82, 90 [“A claim for relief filed in [] court indisputably is a ‘statement or writing made before a … judicial proceeding.’”]; Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1121 [“the Legislature’s intent consistently has been to protect all direct petitioning of governmental bodies Y including Y courts.”].)

The above employer’s counsel may not have even known about the anti-SLAPP statute or for that matter, the litigation privilege, California Civil Code § 47 (which makes privileged the filing of a lawsuit, statements made in discovery and the like, and essentially establishes that the only real response to “bad lawsuit” is a malicious prosecution action).

On the other hand, the employer’s counsel may have been well-aware of all of this, but thought that the threat of a cross-complaint would frighten the young employee-plaintiff, who was only 19 or 20 at the time; this was her first “real job.” That anti-SLAPP motion was granted without any hesitation from the court and sanctions/attorneys’ fees were ordered in the neighborhood of $14,000.

But again, that is an obvious example. A colleague has related to me a story involving a more sophisticated means of bringing a similar cross-complaint. In a sexual harassment case against a small employer, the plaintiff had a “contemporaneous report” witness, her lifelong best friend. The defendant filed a cross-complaint against both the plaintiff and the witness/friend claiming they had made defamatory statements while at a children’s birthday party. Arguably, this also could have been subject to an anti-SLAPP motion, insofar as the women were obviously discussing the case. But that would satisfy only the first prong of such a motion (the relation to the petition right) and that motion might ultimately have been defeated; after all, the statements were at a birthday party, not in connection with official proceedings. But it still seems an ill-advised tactic; there is a difference between surviving SLAPP and prevailing, and the case would obviously be born of malicious intent and surely would inflame a jury. Even if the jury didn’t believe the harassment occurred, they still would likely be offended by the cross-complaint. It is also quite an all-or-nothing defense, because if the jury does find harassment, the defamation case necessarily loses, because “truth” is a defense.

But at the point the cross-complaint is first filed, the response is not legal, but strategic. Given that the premise of that cross-complaint is to create settlement pressure (particular in light of the high risk it presents at trial), the response must simply be to hold fast. When the settlement discussions begin, the plaintiff’s lawyer must make clear this is not a basis for discount (and maybe a basis for increase). Remember, you have a sympathetic position and presumably a judge will take any hook to hang their hat on so as to see it your way, as will a jury. The defense lawyer knows that

A still more sophisticated form of this defense tactic goes like this: The defense lawyer apparently makes it a standard practice to ask harassment plaintiffs at deposition if they have discussed the harassment with family members. When they confirm that they did, the attorney hits them with a cross-complaint for defamation.

Per the authorities and discussion above, this is obviously less subject to an anti-SLAPP motion insofar as the statements are between a plaintiff and an uninterested family member as opposed to a presumably interested witness. The litigation privilege, California Civil Code § 47(c) does allow for a “common interest privilege” which is reserved for persons with an actual “common interest” (such as co-plaintiffs); because employee-witnesses to sexual harassment are protected by the Fair Employment and Housing Act, and because, at least theoretically, they might
have their own claims, it might apply to an employee-witness but not the “friend” described above, and certainly not the family member.

On the other hand, it is also unclear how a statement to a completely uninterested family member or friend, if repeated, does any harm whatsoever to the defendant/ cross-complainant. The viability of the case is poor. But again, the intent is not actually to win, and so again the response is good settlement strategy, not an anti- SLAPP motion or other legal defense.

At the end of the day, these hyper-aggressive tactics are thankfully rare, and do not appear effective at doing much more than allowing defense counsel an opportunity to try and prove to their clients how tough they are.

D. Criminal Charges

Rule of Professional Conduct 5-100 prohibits threatening criminal sanction in order to gain an advantage in a civil dispute. But what about the employer who actively pursues it on their own?

Another tactic is the police report. Real scenario: Client complains of discrimination and is fired shortly thereafter. While being walked out, he is reminded that he must return company property (an expensive consumer product he was allowed to “check out”), and he assures management he has done so

The next day the employee is visited at his home by a law enforcement officer accompanied by a company manager, who accuses him of stealing company property. The fact that my client is a young African-American man was not lost on him, me, or, I expect, a jury; unlike the “theft of documents” scenario set forth above, there was no connection between the accusation of stealing and the events relating to the termination.

The responsive “tactic” here is fairly simple: Do nothing. There was no evidence of anything actually having been stolen and so the police did not follow up on the matter. If anything, this will simply serve the interests of the case because the employer’s actions tend to corroborate the underlying case: Race discrimination and retaliation. interests of the case because the employer’s

Obviously, that situation can’t be avoided; but in others, it can. Consider those situations in which the employee does have company property, unrelated to the litigation, like a computer that had been provided by the employer. We who represent employees have all heard the lament, “But they told me that the laptop was mine to keep!” Appropriate response: “I don’t care, if we’re doing this case it’s worth a hell of a lot more than the stupid laptop. Return it before they call the cops on you.”

The message is (nearly) always the same: take the argument away from them.

Here, we will address claims that are truly anti-competitive in nature. In other words, claims that are not even necessarily
sparked by an employee-rights claim in the first place, but rather serve particular business purposes, usually to stifle competition.

Non-compete clauses are generally unenforceable per Business & Professions Code § 16600. That section has been given a broad reading by the California courts, which have used it to invalidate clauses which violate even the spirit of the non-compete prohibition. (See generally Edwards v. Arthur Anderson LLP (2008) 44 Cal.4th 937, and its progeny, including The Retirement Group v. Galante (2009) 176 Cal.App.4th 1226, 1235; Dowell v. Biosense Webster, Inc. (2009) 179 Cal. App.4th 564; and Fillpoint LLC v. MAAS (2012) 208 Cal.App.4th 1170.)

An obvious way for employers to get around the code section is our old friend from earlier in the article: trade secret.

The California Supreme Court recently granted review in the case of Parrish v. Latham & Watkins (2015) 238 Cal.App.4th 81 (S228277/B244841B review granted 10/16/15). Both the facts of the case as well as the holding (whether it stands or not) are instructive.

The Latham & Watkins case is a malicious prosecution action. In the underlying case, the employer-plaintiff sued two former employees who were going into competition with their employer. According to the appellate opinion (from the subsequent malicious prosecution case), those employees appear to have done all they could to make clear they would not be using any trade secret information, and the verdict seems to bear out a contention that the employer stuck its head in the proverbial sand precisely because it wanted to pursue the case. (Id. at 89, 90-91.) And it further appears that, to some extent, the employer was successful. Per the opinion, a third party (Raytheon) had been in discussions about providing to the employees’ new company the technology they needed for their venture, the same form of technology they were allegedly taking from their former employer (logic being, if what they were using was acquired from a third party, they weren’t using their former employer’s trade secrets). But those discussions ended when Raytheon management learned of the trade infringement suit. (Id. at 88.)

Though the plaintiff-employer survived summary judgment, the case resulted in a defense verdict following a bench trial, the court found the case was brought in bad faith, and the court sanctioned the plaintiff-employer with attorneys’ fees per the California Uniform Trade Secrets Act, Civil Code § 3426 et seq.

Those are the facts. The law pertaining to the case touches on much of what has been discussed above. In response to the malicious prosecution suit, Latham & Watkins (the only defendant therein) brought an anti-SLAPP motion. They claimed that the trial court’s denial of summary judgment meant there could be no malicious prosecution suit (pursuant to the “Adverse Interim Judgment Rule”); in essence, that the denial meant there was probable cause
for the suit. The case was dismissed on an anti-SLAPP motion (these things circle back, don’t they?) and the appellate court upheld the ruling. That is what will be heard by the California Supreme Court, i.e., whether the rule should apply even in light of the subsequent bad-faith finding.

The case provides a cautionary tale for both sides. Although California’s non-compete prohibitions are robust, they cannot always save an employee-defendant from the weight and consequences of even an unsuccessful trade-secret claim. As for employers, Latham & Watkins may (or may not) evade the malicious prosecution case, but its former client (the employer) is still on the hook for the $1.6 million in attorneys’ fees awarded by the trial court (assuming they did not recover them following a demand letter alleging malpractice). (Parrish v. Latham & Watkins (2014) 176 Cal.Rptr.3d 596, 604.)

It is very common for employees who have resigned their employment or are terminated therefrom (again, particularly those
who are working for “IP”-type companies) to, upon or shortly after their exit, receive a tersely worded letter from company counsel “reminding” them of their duties of confidentiality. Sometimes these letters are sent as a matter of course. But sometimes it is clear from the face of them they are more targeted. They are both bullying.

The responsive tactic here is really dictated by the facts of the case. Obviously, if your client is going to work in a very different industry, there is no problem. You can simply point out (or not) to corporate counsel that there is nothing to worry about and no opportunity for breach.

On the other hand, what if that client is going to be in the same industry? Then you really do face an “interested” former employer. It may want to ensure that this employee does not gain some sort of competitive advantage in the marketplace (for example, by knowing customer pricing such that he can underbid customers) in which case the former employer’s interest is not unfair. However, it may also be that the former management is simply annoyed that talent has left and wants to create difficulty for the employee and/or create a chilling effect such that other employees do not try to jump ship in the future.

Often in these instances, the company’s letter is cc’d to counsel for the new employer. Sometimes, counsel for the original employer only threatens to contact the new employer. The effect is presumably intended to be the same: to either chill that employee’s exercise of their right to seek and hold employment or to actually obstruct it by creating the appearance of a “problem” that the new employer does not want to deal with.

The best tactic is to be ahead of the problem. If the client has come to you early enough, you can advise that they gently bring up with their potential new management the expectation that something like this is coming down the track. Hopefully, the employee will end up actually making an ally of their employer who sees this letter for what it is, as a means of intimidation and market control rather
than some sort of bona fide legal concern (it is from a competitor, don’t forget). And there is nothing wrong with coordinating your efforts with counsel for the new company. Although they might say, “keep me out of it,” they should at least appreciate the deference. And this situation (being in front of it) is not as rare as you might think; again, the first step is often a letter to the former employee.

The broadly-construed language of California Business and Professions Code § 16600 has been extended to employment agreements which prohibit ex-employees from soliciting their former co-workers to come to the employer.

In Fillpoint, LLC. v. Maas (2012) 208 Cal.App.4th 1170, the court examined an employment agreement which included both non-compete and non-solicitation clauses. The non-solicitation clause prohibited the former employee from “employing or soliciting for employment any of [the employer’s] employees or consultants.”
(Id. at 1183.) The court expressly held that the “nonsolicitation covenant contained in the employment agreement was void and unenforceable under California law.” (Id. at 1173, 1183.) The court reasoned:

The employment agreement’s covenant not to compete for an additional year, including its broad nonsolicitation agreement, cannot be reconciled with California’s strong public policy permitting employees the right to pursue a lawful occupation of their own choice. (Id. at 1183.)

This emphasizes an important policy reason these clauses are not enforceable: They restrict not only the rights of the employee-defendant, but also those of the employee who was allegedly “solicited”; it is that employee’s right “to pursue a lawful occupation” which is being interfered with.

Although the case is clear, employer-side attorneys still try to argue that the clauses can be enforced. And what one has to remember is that they don’t care if they are right. Parrish v. Latham & Watkins is again instructive in that regard. The employer’s case went down in flames; it had to pay $1.6 million in attorneys’ fees and costs. It was found to have brought the case in bad faith. But it still achieved what was apparently its goal: To chill competition. So what an employee’s counsel has to remember is this: you can’t get the employer to back down simply by arguing the merits of the case, because that’s not the point to them.

So what “hooks” do employers hang their hats on for the purposes of having a suit they can at least file?

First, the  Fillpoint court recognized that in very limited circumstances, non-compete clauses are permissible pursuant to Business & Professions Code § 16601. But this section applies to the sale of a business and/or its good will. That is a very limited exception that obviously will not apply to the typical employee. In Fillpoint the employee had sold significant stock back to the former employer, and even this was not enough. So this exception is unlikely to be a problem, even in the context of an employer-side lawyer straining to find a basis for suit.

Second, employers attempt to point to the 1985 case of Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268, 274, which did allow for non-solicitation clauses on the basis they do not conflict with Business & Professions Code § 16600. But as the Edwards court would hold twenty-three years later, a modern view of the statute is
much broader. And no case post-Edwards has upheld Loral. Unfortunately, it is not referenced in Fillpoint; had it been, even the strained argument would no longer exist.

How, then, does the employee’s attorney fight this? I propose two answers.

First, use business concerns. These cases are brought solely to achieve a business end. Find a contrary business interest. Per Fillpoint, the non-solicitation clause is not just unenforceable but, per Section 16600, is unlawful. California Labor Code § 432.5 states:

No employer, or agent, manager, superintendent, or officer thereof, shall require any employee or applicant for employment to agree, in writing, to any term or condition which is known by such employer, or agent, manager, superintendent, or officer thereof to be prohibited by law.

Violation of Section 432.5 is in turn a violation of California’s Private Attorneys General Act (PAGA), California Labor Code §§ 2698-2699. PAGA permits an aggrieved employee to step into the shoes of the State’s Labor Commissioner and seek civil penalties for the State and aggrieved employees for each violation of another Labor Code provision. A plaintiff suing under the PAGA “does so as the proxy or agent of the State’s labor law enforcement agencies.” (Arias v. Superior Court (2009) 46 Cal.4th 969, 986.) (The same facts would give rise to a claim for an unfair business practices claim under Bus. & Prof. Code § 17200.)

What this means is that an employee suing for declaratory relief to invalidate such a clause may do so not only on their own behalf, but on behalf of similarly-situated employees, and may do so without doing so as a class representative. This means not only that there is no need to obtain traditional, costly, and time consuming class certification, but also that there is no numerosity requirement. Moreover, PAGA actions are exempt from arbitration agreements which include class-action waiver language. (See Is-kanian v.CLS Transp. Los Angeles, LLC, (2014) 59 Cal.4th 348.)

This presents a difficult business proposition for the employer. Obviously, it values that non-solicitation clause: It went through the trouble of writing it and making all employees sign it, and is now trying to use it against your client. But if it presses the issue, it risks losing the efficacy of that clause altogether, not only as to your client, but as to all its current and former employees. Of course, it also risks the penalties PAGA carries, which are $100.00 per employee for the first pay-period and $200.00 per employee for each subsequent pay period. (Labor Code § 2699(f)(2).) Seventy-five percent of the penalties go to the State (Section 2699(I)), but this is little solace to the employer who pays them. The plaintiff may also recover attorneys’ fees and costs. (Section 2699(g)(1).) But it is really the invalidation of the clause which is the biggest threat, because it would deprive the employer of the “tool” it used to threaten suit in the first place. So if the employer decides to press this “business interest” it risks being able to press it ever again.

Second, use the facts. If your employee really did not solicit anyone, the case is a non-starter. Even here, employers and their counsel will “stretch,” and try to come up bases to bring the claim. But as with the return of documents discussed above, the focus should not be on the law (which is, in fact,  on your side) but on taking the argument away from the employer.

Hopefully, the employee has come to you first and you have had the opportunity to counsel them not to solicit former employees. This is not as rare as it might seem. Remember, the premise here is that the clause exists, that it exists as a prophylactic, and that the employer has “reminded” the employee of his obligations. Hopefully, the client engages you at that point, and you can advise your client that the record needs to be clear they did not solicit anyone.

Again, Parrish v. Latham & Watkins is instructive. Even a lawyer who is comfortable stretching the law will take a second look before proceeding with a case they should know has no facts to support it. If you can show that your client did not solicit, prove it. And make it clear you are doing so outside the context of a privileged settlement communication. Make it clear where you are going. And remember who you are dealing with. There are plenty of employer-side counsel who are tough and have guts. But generally speaking, they aren’t risk-takers, and their business model is not built around that. They’d much rather bill their hours without the risk of getting sued, and if they are made to see the personal stake they are risking in their client’s meritless case, they are far less likely to take it. Consider language in your communications along these lines: “Given this evidence, even were there truly a good-faith dispute on the law (and there is not), there is simply no factual basis for such a claim; therefore it would lack probable cause.”

Clauses such as the following are very common, especially among H1-B visa employees brought here from oversees: I agree that I shall be employed with employer for no less than one year. If I do not maintain employment with my employer for one year, and if my employer has incurred legal fees in connection with my relocation, I agree that if I do leave before one year, I shall owe my employer $10,000.00.

Obviously, the employer doesn’t really believe it is going to get that money; most employees subject to such clauses are tech or IT industry workers making five-figure incomes. And as with the other tactics discussed above, the ostensible purpose isn’t the real one; the goal is to scare the employee into sticking around.

Along with co-counsel, we recently resolved a case addressing just such a clause. The employer’s attorney had sent our client a letter demanding the $10,000.00 payment (our client had for his own personal reasons decided to leave his employer, consequences be damned). We brought various causes of action, including one for declaratory relief. The suit was premised on the following theory:

First, the liquidated damages clause is an unenforceable penalty: “The amount set as liquidated damages must represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained ….” (Ridgley v Topa Thrift & Loan Ass’n (1998) 17 Cal.4th 970, 977978 [internal citations omitted].)

Second, the clause is a violation of Section 16600: Precisely because the clause is there to “compel an act” (i.e., not leave) it acts as an unlawful non-compete and a restraint on trade.

Third, and for the same reasons, the clause is a violation of Section 17200.

Fourth, it is a violation of the Labor Code and implicates PAGA: See above; it is an unlawful clause per Labor Code § 432.5.

That case resolved with an agreement to reimburse all aggrieved employees of the penalties referenced above, a stipulation that the clause would not in the future be included in agreements and would not be enforced to the extent it already existed, and notification to implicated employees of the same. In the end, nothing actually needed to be refunded because (surprise, surprise) the company had never actually collected per the clause, demonstrating that it was never anything more than an attempt to bully in the first place.

No doubt these are not the only forms of “legal bullying” employers use and they are sure to come up with more in the future. Just remember that some fights are not worth having, either for us or for the other side.