June 19, 2015

HBO’s Silicon Valley had an employment law slant this week.

Here’s why it matters to your practice.

silicon valley californiaSpoilers ahead for fans of comedy TV series Silicon Valley.

The world of HBO’s Silicon Valley is very different from the world most of us live in. There, so-called “brogrammers” live in “hacker hostels,” churning out code and drinking inhuman amounts of Mountain Dew while attempting to invent the next Facebook before they turn 25. That’s why I was surprised this past Sunday to see a poorly understood but very real California employment law cause the downfall of a company called Hooli—the show’s imaginary stand-in for tech giants Apple and Google.

And while it may have been awhile since you or I last skateboarded around Palo Alto, or competed in the TechCrunch Disrupt conference to dazzle an angel investor with our latest startup idea, Hooli’s demise can still be learned from.

In Silicon Valley’s season 2 finale, protagonist Richard Hendricks has been involved in lengthy (and expensive!) litigation attempting to prevent Hooli from stealing his million-dollar idea, an app called Pied Piper. Although Richard invented Pied Piper, he used a computer owned by Hooli to test it once, leading Hooli to claim they actually own the rights. Richard’s employment contract with Hooli gives Hooli the rights to anything Richard created using Hooli’s computers.

If you have any associate agreements or hygienist agreements, this next part is for you.

Hooli is poised to win in arbitration—and to shatter Richard’s dreams—when the arbitrator, in a surprise ruling, voids the employment contract.

How could that happen? Well, Hooli also went after Richard for wrongful solicitation: Richard had hired an ex-Hooli employee. Unfortunately, in California, it is against the law to have a non-solicitation or non-compete clause in an employment contract. Since Hooli tried to enforce an illegal contract clause, the arbitrator voided the entirety of the employment contract. Oh, and by the way, Hooli probably had to pay for Richard’s legal expenses, too.

So Richard gets to retain ownership of Pied Piper after all. We love it when our hero wins the day on TV, but this is not exactly a good thing for real-life employers.

See, California law is so restrictive that the presence of just one illegal non-compete or non-solicitation clause can allow a judge or arbitrator to void the entire employment contract. Do not pass “Go,” do not collect $200, void. And it doesn’t matter how reasonable or well-intended the policy is; California has drawn a line in the sand on this. What Silicon Valley portrayed perfectly is the absolute chaos that results from an employer’s contract being thrown out. Not only was Richard’s agreement voided, every Hooli employment agreement with this type of language could be voided, as well.

The implications of this situation are horrifying for employers. Just imagine: Not only would you find yourself needing to re-write every offending agreement, but you’d need to do so as fast as humanly possible. Your employees aren’t likely to suffer while everything is in limbo, but your business is vulnerable every minute it operates this way. Negotiating new agreements with all of your employees from this position would be challenging, to put it mildly.

Now, as an employer, you probably don’t want the healthcare providers who work for you leaving and poaching all your patients. You can’t have a non-solicitation agreement, but providers (as with all employees) are still restricted from directly going after your patients under privacy laws, such as HIPAA and state trade secret laws. Providers should be aware of HIPAA’s restrictions on use of patient information sufficiently enough to know they can’t steal a patient list for their personal use. Even so, we recommend having a carefully crafted employment contract that reminds them of these privacy restrictions—without creating a non-solicitation or non-compete clause.

“But Dr. Smith told me…”

It’s possible you’ve heard of cases where a CA non-solicitation or non-compete was upheld in binding arbitration. Keep in mind: An arbitration decision is usually going to be correct, but it will always be final. Legal decisions are bungled all the time. So while this type of case might occasionally be heard by an arbitrator who is more concerned with beating the traffic home than getting it right, don’t ever bet on it.

And, before you say it, having a policy in place “just to scare your employees” and thinking you won’t enforce it is not an option either. You can be sued just for having the policy.

So if your practice is located in California, and you have any kind of policy or contract like this on the books, it’s time to have it re-evaluated. Very few things are black and white when it comes to employment law, but the lesson Hooli taught us is clear: In California, non-solicitation and non-compete clauses are a bad idea.

P.S. Love Silicon Valley Season 2!

Friendly Disclaimer: This information is general in nature and is not intended to provide legal advice or replace individual guidance about a specific issue with an attorney or HR expert. The information on this page is general human resources guidance that is believed to be current as of the date of publication. Note that CEDR is not a law firm, and as the law is always changing, you should consult with a qualified attorney or HR expert who is familiar with all of the facts of your situation before making a decision about any human resources or employment law matter.

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