California Labor Code Section 925 Misappropriation of Trade Secrets

Employers faced with an apparent misappropriation of trade secrets by former employees must decide in which jurisdiction to bring an action. ineffective against them unless they have an attorney negotiating the terms on their behalf. (Cal. Lab. Code § 925.) A recent decision by the California Court of Appeals underscored this point and found that where a California employee is sued by the employer for trade secret misappropriation in a separate state on basis of an out-of-state forum selection clause, the employee may separately sue in California to override the provision, despite pending litigation in a sister state (To see LGCY Power, LLC c. Superior Court, 75 Cal. App. 5th 844 (2022).)

With the ever-growing movement toward remote work, more and more out-of-state employers may find themselves in California court to sue or defend against claims arising out of an employment contract that was apparently meant to be litigated outside of California. Therefore, these employers should consider filing their offensive claims, such as those for misappropriation of trade secrets or breach of contract, in California to avoid the cost and risk of inconsistent results that may result from concurrently overlapping litigation in their State of origin and that of other related countries. employee claims in California.

California Labor Code § 925

Section 925 of the Labor Code, subsection (a), affects contracts of employment entered into after January 1, 2017. Under Section 925, an employer cannot require an employee who principally resides and who works primarily in California, as a condition of employment, that he agrees to adjudicate a claim arising in California outside of California. Nor can the employer deprive such employee of the protection of California law for claims arising in California. Further, any provision of an employment contract that violates paragraph (a) is voidable by the employee, and if voided, the dispute “shall be adjudicated in California and California law shall govern the dispute.”

However, the California legislature has provided an exception to paragraph (a). Choice of law and choice of court clauses favoring states other than California will be valid if the employee was independently represented by counsel when negotiating the terms of the employment contract, including choice of law and choice of forum. (Cal. Lab. Code § 925(e).)

LGCY Power, LLC c. Superior Court

LGCY Power, LLC, a Utah-based limited liability company specializing in the sale of residential solar power systems, sued seven employees who left to form a competing solar company. The basis of LGCY’s allegations was that the employees misappropriated LGCY’s trade secrets in violation of Utah’s Uniform Trade Secrets Act and violated the non-competition, non-solicitation and confidentiality provisions of their employment contract. Each of the agreements contained Utah choice of law and forum clauses.

All employees responded to the complaint and four of the seven employees filed a counterclaim against LGCY for violating their collective agreements. However, Sewell, a California resident who worked primarily in California as a sales representative, opted instead to file a separate lawsuit in California, alleging the same claims as his colleagues in their countersuit, although he replied to the Utah Complaint. and continued his defense there.

Although the court found that Sewell’s claims related to the same transaction or event as LGCY’s case in Utah (the employment contract), and although Sewell had already responded to that complaint, the Superior Court of California overturned LGCY’s objection to dismiss Sewell’s action, and the Court of Appeal upheld it. The court first held that even though Sewell had signed his contract of employment before the entry into force of section 925 of the Labor Code, the court held that the contract of employment had subsequently been amended orally and that, therefore, the law governed the agreement. The court further ruled that Section 925 of the Labor Code provided an exception to California’s mandatory cross-complaint rules and that Sewell need not bring its claims as a cross-complaint in the lawsuit. Utah. Finally, the court held that an employee can request that the contract be canceled even after the employer has taken legal action and the employee’s mandatory claims would otherwise have been due.

Take away food LGCY Power, LLC

Simultaneous litigation in two states can be costly for foreign employers of California residents who may find themselves traveling extensively, needing two different attorneys, and possibly incurring the cost of two different lawsuits. Therefore, especially with more out-of-state employers hiring California employees who can work remotely, employers should consider bringing any action against an employee in a California court to avoid the case. leading a state action in multiple states. An experienced lawyer should be consulted before making such decisions.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 88

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