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To Terminate or Not to Terminate

Termination of employment document

Termination of employment document

 

California Labor Code §1400 affords us the following definitions: under Sec. (c) layoff means a “separation from a position for lack of funds or lack of work.” This means that there is no fault on the part of the employee for a layoff and the employee may be eligible for unemployment and other benefits.

The same paragraph, Sec. (f) defines the word “termination” as “the cessation or substantial cessation of industrial or commercial operations in a covered establishment.” Thus TERMINATION and LAYOFF are the same, but while the former refers to the termination of the business, the latter terminates the employee. Again, there is no stigma attached to “termination.”

What does “being fired” mean in this context? The state of California follows the “at will” presumption, which means that in the absence of an employment contract, there is a presumed “at will” employment. Under “at will” an employee can be fired for any reason or no reason at all, but the reason, if any, may not be unlawful. Unlike with a layoff or termination, the term “I was fired” usually carries the stigma of “for a cause,” such as being late to work, or not performing one’s duties. Employers who are “firing” their at will employees for “lack of funds or lack of work” should therefore use the term layoff or state that they are “terminating” the employment.

The most common “unlawful reason” for firing an employee is usually some kind of public policy violation, which may amount to “wrongful termination.” If there is an apparent “causal connection” between the policy violation, there may be sufficient grounds for a “wrongful termination” action. This causal connection is often in the form of a retaliation against the employee for something he or she has rightfully done:

If an employer discharged an employee in violation of rights granted by the First Amendment to the US Constitution.

If an employer violates his or her own discharge policy (written or implied).

If an employer the employment-related provisions in the Bankruptcy act or Fair Credit Reporting Act.

If an employer violates of a federal or state discrimination law.

If an employer discharged or fired an employee in retaliation for whistle blowing, wage garnishing, exercising union rights, serving in a military, and legally taking a leave under the Family and Medical Leave Act.

Interestingly, some courts (though not all) also recognize the Good Faith and Fair Dealing exception to At-Will Employment. This is a contract concept, which states that although employees are employed “at will,” there is a covenant of good faith and fair dealing between them and the employer, prescribing the latter to treat them fairly: the employer may not be transferring employees to prevent them from collecting sales commissions, misleading them about their chances for promotions and wage increases, fabricating reasons for firing an employee when the real motivation is to replace that employee with someone who will work for lower pay, repeatedly transferring an employee to remote, dangerous, or otherwise undesirable assignments to coerce the employee into quitting without collecting severance pay or other benefits that would normally be due.

 

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Non-Compete Clauses

non-competeA Non-compete clause limits the employment of the employee after termination for a specific amount of time in a given area and field of expertise. Its purpose is typically to: (1) protect trade secrets, and (2) limit employees who possess the knowledge and skills in the given area.

(1) Trade secrets are limited by a non-disclosure agreement, which contains a list of particular secrets of the trade. It may also contain sales strategies and client lists. (2) Employment limitation is focused on the market niche and geographic area, usually for up to three years. Overbroad limitations will be stricken and deemed unenforceable, especially where they are overly restrictive.

A provision should be included, which clearly states that “in the absence of any provision thereof deemed unenforceable,” the remaining portion of the Agreement shall be enforced.

What is more, non-compete agreements must involve some give-and-take (consideration). If a non-compete is signed only after the employment began, without any extra payment or advantage to the party, the proffering party (employer) is running the risk of the clause being stricken by the court (for lack of consideration). The employer is traditionally the drafter of the non-compete, thus bears the burden of proof that any restriction is reasonable and necessary to protect against unfair competition.

In California, the employer must show that the non-compete agreement actually concerns proprietary information (objectively understood, not merely because the employer says so). If this information, be it client lists or sales tactics or pure data, can be obtained by some other means (e.g. internet search), the non-compete will be deemed invalid.

Finally, the employer may not force the employee to sign a non-compete under threat of termination. Such a forced clause would be held unconscionable and invalid, and the employer would be liable to the employee for damages in a wrongful termination action.

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