Employee Handbook Compliance Review for Employers & Business Owners
Please contact us to schedule an appointment to review your existing employment Handbook, and/or company policies & procedures to ensure your business is California labor law compliant.
Welcome to the Law Offices of Chauvel & Glatt, LLP!
We are based in San Mateo, California, and serve the Peninsula and surrounding communities, including San Francisco to San Jose, as well as clients throughout Los Angeles, San Diego and San Bernardino Counties and the State of California. We’ve been providing legal services for more than 3 decades and specialize in the fields of Business Law, Real Estate Law, Employment Law, Estate Planning/Probate, Transportation Law, and Intellectual Property Law. We bring a wide range of knowledge and experience, with members of our team speaking English, Spanish and Tagalog.
Practice Areas
Our Team
Our attorneys enjoy working collaboratively and strive to keep matters as simple as possible. We share a desire to give you unparalleled customer service by being proactive and responsive to all your needs.
April Glatt
April Glatt
Natalia Cañas
Natalia Cañas
Derek Myers
Derek Myers
TJ Walsh
TJ Walsh
Joe Newman
Joe Newman
Ken Weinfield
Ken Weinfield
Our Expertise
- We provide legal advice relative to the myriad of employment-related requirements and rules that apply to employers under California labor law.
- We handle business formation and commercial transactions, as well as commercial litigation.
- We guide our clients through the creation of individual and family trusts, wills, trust administration and the probate process.
- Our firm advises established companies as well sole proprietors, start-ups, and independent contractors in relation to protecting their rights.
- We are well-versed in a wide variety of commercial and residential real estate matters to provide you full-service representation for all your property needs.
- Our attorneys specialize in the transportation and logistics fields and have a thorough understanding of carrier regulations and compliance issues.
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- Wage and Hour
Posted in: News
California has some of the most stringent wage and hour laws in the country, and employers must stay compliant to avoid costly penalties and legal disputes. The complexity of state labor laws, combined with frequent legislative updates, makes it essential for businesses to remain informed about their obligations.
For employers, failing to follow wage and hour laws can lead to lawsuits, government investigations, and reputational damage. Understanding these regulations and implementing best practices is crucial for maintaining a lawful and efficient workplace. Chauvel & Glatt can audit your workplace practices to ensure you are California Labor Compliant.
Understanding California’s Wage and Hour Laws
California’s labor laws generally offer greater protections to employees than federal laws under the Fair Labor Standards Act (FLSA). When state and federal laws differ, employers must follow the law that provides the highest level of benefits to employees.
For example, California’s minimum wage is always higher than the federal minimum wage. Additionally, California has unique rules regarding overtime, breaks, and employee classification that differ significantly from federal standards. Key wage and hour laws California employers must understand include but are not limited to:
Minimum Wage Requirements
California’s minimum wage varies depending on county and even local ordinances. As of 2025, the statewide minimum wage is $16.50 per hour for all employers, regardless of size.
Many cities and counties, such as San Francisco and Los Angeles, have higher minimum wage rates. Employers must follow the local minimum wage if it exceeds the state rate. Employers should monitor updates to local and state minimum wage laws and adjust payroll accordingly.
Overtime Rules in California
California’s standard overtime laws are also stricter than federal requirements. Employers must pay overtime as follows:
- 1.5 times the regular pay rate for hours worked over 8 hours in a single workday, or over 40 in a workweek, and the first 8 hours on the seventh consecutive workday in a workweek.
- 2 times the regular pay rate for hours worked over 12 in a single workday and or over 8 hours worked on the seventh consecutive workday in a workweek.
Meal and Rest Break Laws
California requires employers to provide unpaid meal breaks as follows:
- A30-minute meal break by the end of the 5th hour of work.
- A second 30-minute meal break if the employee works more than 10 hours in that same workday.
If an employee is not given a compliant meal break, the employer must pay an additional one hour of pay as a penalty for each missed break.
Similarly, employees are entitled to a paid 10-minute rest break for every four hours worked. Rest breaks should be provided in the middle of the work period whenever possible, and uninterrupted and free from work duties. Failing to provide proper meal and rest breaks can lead to wage claims, class-action lawsuits, and significant financial penalties.
Common Wage Violations and How to Avoid Them
California employers must comply with some of the nation’s strictest wage and hour laws. Even unintentional violations can lead to costly penalties, employee lawsuits, and government enforcement actions. Understanding the most common violations can help businesses avoid legal risks and ensure compliance with state labor laws.
Misclassifying Employees as Exempt or Independent Contractors
One of the most frequent and expensive mistakes employers make is misclassifying employees as either exempt from wage and hour laws or as independent contractors rather than employees.
Exempt vs. Nonexempt Employees
To be classified as exempt, an employee must meet both a salary threshold and a job duties test under California law. Exempt employees are not entitled to overtime pay, meal and rest breaks, or certain wage protections. As of 2025, exempt employees must earn at least $68,640 annually and primarily perform executive, administrative, or professional duties which is a legal analysis.Employers that misclassify employees as exempt without meeting these requirements can face liability for unpaid overtime, break penalties, and other damages.
To avoid misclassification, employers in consultation with their legal advisor should regularly review job classifications to ensure employees meet both the salary and duties tests. If unsure, it is safer to classify workers as nonexempt to ensure compliance with wage and hour laws. HR teams and supervisors should receive training on these distinctions to prevent costly errors.
Improper Handling of Final Paychecks and Accrued Vacation Pay
California has strict rules on when an employee must receive their final paycheck. Missing these deadlines can lead to waiting time penalties, requiring employers to pay one day’s wages for each day the final paycheck is late, up to 30 days.
Terminated employees must receive their final paycheck immediately upon termination. Employees who resign with at least 72 hours’ notice must be paid on their last day, while those who quit without notice must receive final wages within 72 hours. Final paychecks must include all wages earned through the last day worked, including unpaid overtime and commissions, as well as accrued, unused vacation pay, which California considers earned wages. Employers cannot delay or withhold payment by requiring employees to return company property first.
To stay compliant, businesses should prepare final paychecks in advance for planned terminations or resignations with notice. HR and payroll teams should be trained to issue final checks on time and ensure vacation pay is included when applicable.
Failing to Reimburse Business Expenses
California law prohibits employers from shifting business costs onto employees. Under Labor Code Section 2802, businesses must reimburse workers for all necessary expenses incurred on the job.
Reimbursable expenses include cell phone and internet costs when used for work purposes, mileage and travel expenses for personal vehicles used on the job (reimbursed at the IRS rate of 70 cents per mile in 2025), and remote work expenses such as office supplies, printers, and required software.
Employers should implement a clear reimbursement policy that specifies eligible expenses and requires employees to submit reimbursement requests with documentation. Regular audits of reimbursement payments help ensure compliance and prevent potential wage claims.
Wage and hour violations can result in costly penalties, lawsuits, and reputational damage. Employers can mitigate risks by properly classifying employees, issuing final paychecks on time, and reimbursing all necessary business expenses. Proactive compliance measures, such as regular audits and HR training, help businesses avoid disputes and maintain a lawful workplace. Consulting an experienced employment attorney can provide additional guidance on wage and hour compliance, ensuring businesses remain protected.
What to Do If Faced with a Wage and Hour Claim
Despite an employer’s best efforts, wage and hour claims can still arise. Whether due to an oversight, a misunderstanding, or an intentional violation, these claims can lead to significant financial penalties and reputational damage. Employers must act quickly and strategically to address wage disputes and minimize liability.
Steps to Take If an Employee Files a Wage Claim with the California Labor Commissioner’s Office
- Review the Claim Carefully: When an employee files a wage claim with the California Labor Commissioner’s Office (DLSE), employers receive a notification outlining the alleged violation. Carefully review the details, including the time period covered, the employee’s allegations, and any requested payments.
- Gather Relevant Records: Accurate recordkeeping is critical, as California law generally favors employees when employers lack documentation. Employers should immediately collect all relevant documentation, including time records, payroll data, meal and rest break logs, employment agreements, or handbooks.
- Assess the Validity of the Claim: Employers should evaluate whether the claim has merit by comparing the allegations with available records. If a mistake was made, it may be best to settle early. If the claim is unfounded, employers should prepare a strong defense. This is something that should be considered in consultation with an employment attorney.
- Respond to the DLSE Notice: Employers typically have 10 days to respond to a wage claim. This response should be thorough and supported by clear documentation. Employers can dispute claims by demonstrating compliance or correcting any discrepancies.
- Prepare for the Settlement Conference: The DLSE will often schedule a settlement conference to resolve the dispute informally. Employers should bring all relevant records to the conference and be prepared to negotiate if appropriate. In addition, employers may choose to seek legal representation to ensure they don’t unknowingly admit to liability.
- Defend Against a Formal Hearing: If no settlement is reached, the case proceeds to a formal hearing before a Labor Commissioner’s hearing officer. Employers must present evidence, call witnesses if needed, and make legal arguments supporting their position.
- Comply with the Final Decision: If the Labor Commissioner rules in favor of the employee, the employer may be required to pay back wages, penalties, and interest. If the employer disagrees with the ruling, they may file an appeal in civil court.
How the California Labor Commissioner Handles Disputes
The California Division of Labor Standards Enforcement (DLSE) oversees wage and hour claims, investigating complaints and enforcing state labor laws. The DLSE process generally follows these steps:
- Filing of a Claim: Employees file complaints for unpaid wages, missed breaks, overtime violations, or improper classification.
- Notification and Response: Employers receive notice and must respond within 10 days.
- Settlement Conference: The DLSE attempts to resolve the dispute through negotiation.
- Formal Hearing: If no settlement is reached, a hearing officer reviews the evidence and makes a legally binding decision.
- Enforcement of Judgment: If the employer is found liable, they must pay or appeal within 10 days.
Failure to comply with a DLSE decision can lead to wage garnishments, liens, and additional penalties.
Preventative Measures to Reduce Legal Risks and Financial Penalties
Employers can take several proactive steps to minimize the risk of wage and hour claims:
- Maintain Accurate Records: Keep precise time and payroll records for at least four years to defend against claims.
- Regularly Audit Payroll Practices: Periodic compliance reviews can help catch and correct errors before they become legal issues.
- Train Managers and Supervisors: Ensure managers understand wage laws, including overtime and break requirements, to prevent unintentional violations.
- Clearly Define Policies in Employee Handbooks: A well-drafted employee handbook should outline meal breaks, overtime procedures, and timekeeping policies. The handbook should also be updated each year to ensure that all policies are up to date.
- Work with a Skilled Attorney: Consulting an employment attorney can help employers navigate California’s complex labor laws and respond effectively to claims.
By implementing these measures, employers can significantly reduce their exposure to wage and hour disputes.
Seek Professional Legal Counsel for Complex Wage and Hour Issues
California’s wage and hour laws are among the strictest in the nation, requiring employers to be diligent in their compliance efforts. From correctly classifying employees to ensuring proper overtime pay and break periods, the risks of noncompliance are high. Employers who fail to follow the law face lawsuits, costly penalties, and damage to their business reputation.
To avoid these risks, businesses should:
- Stay informed about legal updates affecting wage and hour compliance.
- Implement robust timekeeping and payroll systems to track employee work hours and breaks.
- Train managers and HR personnel to enforce compliance policies consistently.
- Seek legal counsel to ensure policies and practices align with current laws.
Proactive compliance is the best strategy for avoiding and minimizing your risk against wage and hour disputes. By taking preventative steps, maintaining accurate records, and responding appropriately to claims, employers can protect their businesses and foster a fair, law-abiding workplace.
For organizations seeking help with wage and hour requirements in California, the professional employment law attorneys at Chauvel & Glatt, LLP, are available for consultation. Chauvel & Glatt, LLP attorneys are dedicated to representing employers – never employees. These skilled lawyers can advise California businesses on the most effective way to protect against wage and hour claims and represent companies should claims be filed. To learn more about how Chauvel & Glatt, LLP, may assist your organization, schedule your consultation today.
The content of this blog is provided for informational purposes only and is not intended as legal advice. Every legal matter is unique, and the information presented here may not apply to your specific situation. Reading this blog does not create an attorney-client relationship between you and Chauvel & Glatt, LLP. For personalized legal assistance or advice, please contact a qualified attorney. If you would like to discuss your legal needs, we invite you to contact our office to schedule a consultation.
- Employee Misclassification, Employment Law, Independent Contractors
Posted in: News
California has some of the strictest worker classification laws in the country, and the passage of Assembly Bill 5 (AB 5) has only reinforced the state’s commitment to worker protections. For small and medium-sized businesses, ensuring compliance with these laws is crucial to avoid costly misclassification lawsuits, penalties, and regulatory scrutiny.
The distinction between an independent contractor and an employee is more than just a label—it determines whether a worker is entitled to labor protections, such as minimum wage, overtime pay, and benefits. Misclassification can result in severe consequences, including back wages, tax liabilities, and potential civil lawsuits. Let’s break down the laws regarding employment classification in California.
Understanding AB 5 and the ABC Test
AB 5, which took effect on January 1, 2020, codified the California Supreme Court’s landmark decision in Dynamex Operations West, Inc. v. Superior Court (2018). This decision significantly narrowed the circumstances under which a worker could be classified as an independent contractor. AB 5 introduced the ABC test, making it the default standard for determining worker classification.
The law was enacted to address concerns about companies misclassifying workers as independent contractors to avoid providing benefits, unemployment insurance, and workplace protections. While independent contractor arrangements can provide flexibility, they can also leave workers vulnerable to exploitation if improperly classified.
AB 5 has had a significant impact on various industries, including ride-hailing services, trucking, entertainment, and freelance work. While some businesses have successfully adapted, others have faced legal battles and significant financial penalties for misclassification.
The ABC Test: The Core of Worker Classification
AB 5 introduced the ABC test, which presumes that a worker is an employee unless the hiring entity can prove all three of the following conditions:
(A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract and in fact. This means the worker must be able to perform their work without significant oversight from the employer. If the business controls how, when, or where the worker performs their tasks, the worker is likely an employee.
(B) The worker performs work that is outside the usual course of the hiring entity’s business. This is the most challenging part of the test for many businesses. If the worker provides services that are integral to the company’s main business operations, they are likely an employee. For example, a bakery hiring a freelance cake decorator to design specialty cakes may fail this test because decorating cakes is part of the bakery’s core business.
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. The worker must be independently providing similar services to other businesses, not just working for one company. For instance, a freelance graphic designer with multiple clients and their own website or business license is more likely to qualify as an independent contractor.
Failing to satisfy any one of these prongs means the worker must be classified as an employee.
Overview of AB 2257 and Its Modifications to AB 5
The strict ABC standard led to unintended consequences, particularly for freelancers and gig workers. The passage of AB 2257 in September 2020 addressed these concerns by modifying the law to include additional exemptions and clarifications to AB 5.
While AB 5 still governs worker classification, AB 2257 created new exemptions, allowing more workers to be classified as independent contractors under a less restrictive test.
The exemptions under AB 2257 allow certain professionals and industries to bypass the ABC Test and instead be classified under the Borello Test—a more flexible standard that focuses on multiple factors, including the level of control a hiring entity has over a worker and whether the work is project-based. These exemptions include:
1. Freelance Writers and Journalists
AB 5 originally placed strict caps on freelance writers, limiting them to 35 submissions per client per year before they would have to be classified as employees. This caused major disruptions in the journalism and publishing industries.
How AB 2257 changed the law:
- The 35-submission cap was eliminated, allowing writers and journalists to freely contract without an arbitrary restriction.
- Freelance editors, copy editors, and content creators are also exempt, provided they have control over their work and do not replace regular employees.
- Independent photojournalists and videographers are exempt as long as they don’t shoot video content for scripted content like television shows or advertisements.
Industries Impacted:
- News agencies, magazines, and online publications.
- Freelance journalism, blogging, and editorial work.
- Content marketing and advertising industries.
2. Musicians and Performing Artists
AB 5 caused serious issues for musicians, bands, and performing artists, making it difficult for venues to book independent talent without the burden of classifying them as employees.
How AB 2257 changed the law:
- Musicians, composers, and songwriters can now work as independent contractors.
- Live performers, bands, and solo artists who perform original music at venues or private events are exempt.
- Recording artists and session musicians are covered under exemptions, allowing them to work with studios without being classified as employees.
- Event organizers and booking agents can hire musicians on a contract basis without violating AB 5.
Industries Impacted:
- Live entertainment and music venues.
- The recording industry and music production.
- Independent performers and artists.
3. Certain Business-to-Business Relationships
One of the biggest concerns with AB 5 was that it harmed small business owners and independent professionals who worked with other businesses on a contractual basis.
How AB 2257 changed the law:
- Expands the business-to-business exemption for independent contractors operating as sole proprietors or LLCs.
- Allows freelancers and independent businesses to work with companies without being classified as employees, as long as they control their work and pricing, they provide services directly to the hiring business, not its clients, and they maintain separate business locations and handle their own expenses.
Industries Impacted:
- Independent consultants and marketing professionals.
- Graphic designers, IT professionals, and web developers.
- Business services like bookkeeping, administrative support, and coaching.
4. Referral Agencies and Professional Services
AB 2257 provides clearer exemptions for referral agencies that connect clients with independent professionals for specialized services.
How AB 2257 changed the law:
- Referral agencies, such as those that connect customers with independent cleaners, dog walkers, or event planners, are exempt from AB 5 restrictions.
- However, the professionals they refer must meet specific independence requirements, including:
- Setting their own rates.
- Choosing their own clients.
- Providing their own tools and supplies.
Industries Impacted:
- Home services (cleaning, repair, moving).
- Personal services (tutors, dog walkers, fitness trainers).
- Consulting and professional networks.
How Exemptions Work and Additional Requirements for Businesses
While AB 2257 expanded exemptions, it did not eliminate all restrictions on independent contracting. Businesses and workers must still comply with California law when structuring their relationships.
1. Independent Contractors Must Meet the Borello Test
Even with an exemption from the ABC Test, workers must still satisfy the Borello factors, which examine:
- Who controls the manner and means of work.
- Whether the worker supplies their own tools and materials.
- Whether the worker has an independent business or offers services to multiple clients.
2. Contracts and Documentation Are Key
Businesses hiring independent contractors must have clear agreements in place outlining:
- The scope of work and payment terms.
- The independent nature of the relationship.
- Acknowledgment that the worker is responsible for their own expenses and taxes.
3. Industry-Specific Compliance May Still Apply
Even for exempt professions, businesses should check if other state or federal labor laws apply. Some industries, like transportation and healthcare, still face strict classification rules even after AB 2257.
How Small and Medium Employers Can Stay Compliant with California’s Independent Contractor Laws
Misclassifying employees as independent contractors can lead to serious legal and financial repercussions, including:
- Civil penalties and back wages: Businesses may be required to pay unpaid wages, benefits, and penalties for violating wage and hour laws.
- State audits and fines: The California Labor Commissioner’s Office and Employment Development Department (EDD) conduct audits that can lead to hefty penalties.
- Potential lawsuits: Workers can sue for misclassification, seeking damages for unpaid wages, denied benefits, and emotional distress.
- Tax liabilities: The IRS and state tax agencies may impose penalties for failure to withhold payroll taxes.
As a result, California’s strict independent contractor laws can present significant challenges for small and medium-sized businesses. Ensuring compliance with AB 5 and AB 2257 is critical to avoiding lawsuits, audits, and penalties. Below is a comprehensive guide on how companies can evaluate their workforce, properly classify workers, explore alternative staffing solutions, and defend against misclassification claims.
Evaluating Your Current Workforce
Before making any hiring or classification decisions, businesses should conduct a thorough assessment of their existing workforce to ensure compliance with California law.
Conducting an Internal Audit of Worker Classifications
A worker classification audit helps identify potential misclassification risks before legal issues arise. Employers should:
- Identify all independent contractors currently working for the company.
- Evaluate job duties to determine if workers meet the ABC test requirements.
- Review past hiring practices to ensure consistency in classification decisions.
- Consult with HR professionals or legal counsel if misclassification risks are identified.
If a worker fails any part of the ABC test, they may need to be reclassified as an employee.
Reviewing Contracts and Job Descriptions
Businesses should carefully review all contracts and job descriptions to ensure they align with independent contractor classification. This includes:
- Ensuring contracts clearly state that the worker is an independent contractor.
- Defining job duties to reflect independence—workers should not perform tasks central to the company’s core business.
- Avoiding language that suggests employer control over work schedules, methods, or supervision.
A properly structured contract alone does not determine independent contractor status—the actual work relationship must also meet legal requirements.
Assessing the Level of Control Over Independent Contractors
One of the most critical factors in classification is how much control the business exercises over the worker. To maintain independent contractor status:
- The worker should set their own hours and work schedule.
- They should use their own tools and equipment.
- They should work for multiple clients, not just one company.
- Payment should be structured per project, not on an hourly or salary basis.
If a business exerts too much control, the worker is likely an employee, even if they are labeled an independent contractor.
Best Practices for Properly Classifying Workers
If a worker qualifies as an independent contractor, businesses should take proactive steps to maintain compliance and minimize misclassification risks. To align with AB 5, businesses should:
- Clearly define independent contractor roles to ensure they fall outside the company’s usual business operations.
- Ensure contractors operate their own businesses and work with multiple clients.
- Limit oversight and control over how contractors complete their work.
- Avoid long-term contractor relationships that resemble employment.
While a written contract alone does not determine classification, it is an essential part of protecting a business. A strong independent contractor agreement should specify that the worker is an independent contractor, not an employee. It should also define project-based work rather than ongoing employment, ensure the contractor has the right to take on other clients and avoid clauses that impose excessive control over the worker’s tasks or schedule.
In addition, businesses should maintain detailed records to support independent contractor classification, including:
- Invoices from contractors showing project-based payment structures.
- Payment records proving that contractors were not paid hourly.
- Email communications demonstrating the worker’s independence.
- Proof of the worker’s separate business operations, such as websites or marketing materials.
Proper documentation is essential in defending against EDD audits or legal claims.
Defending Against Misclassification Claims
Suppose your business faces an EDD, IRS, or Labor Commissioner audit. In that case, it is crucial to seek legal guidance from an experienced employment law firm. A California employment law attorney from Chauvel & Glatt, LLP, can assist you during this process by:
- Reviewing worker classifications and ensuring compliance.
- Assisting in responding to audits and investigations.
- Developing a legal defense strategy against misclassification claims.
- Helping your business implement best practices to avoid future issues.
By taking proactive steps and seeking legal guidance, businesses can mitigate misclassification risks while maintaining workforce flexibility.
Take a Proactive Approach to California Employment Classification
Worker classification under California’s strict independent contractor laws is a complex and evolving issue. Small and medium-sized businesses must stay informed about AB 5, AB 2257, and the ABC test to avoid legal pitfalls.
By conducting proper workforce evaluations, maintaining clear contracts, and consulting legal professionals when necessary, employers can mitigate risks and ensure compliance. Given the high stakes of misclassification lawsuits, taking proactive steps now can prevent significant financial and legal consequences down the road. At Chauvel & Glatt, LLP, we pride ourselves on supporting businesses like yours with the complexities of independent contractor classification laws. Whether you are currently facing an audit or you want to implement best practices for employee classification, our employment law attorneys are available for a consultation. Schedule your appointment today to discuss your needs and discover more about how Chauvel & Glatt may be able to support your business.
- Employment Law, Hiring, Intellectual Property
Posted in: News
Trade secrets are the lifeblood of many businesses, driving innovation and providing a competitive edge in crowded marketplaces. From proprietary processes and formulas to client lists and marketing strategies, these intangible assets often determine a company’s success. However, the theft of trade secrets can have devastating effects, causing financial losses, reputational harm, and a weakened competitive position. While intellectual property (IP) laws provide a framework for protecting trade secrets, employment practices play a critical role in safeguarding this valuable information.
At Chauvel & Glatt, LLP, we understand that protecting trade secrets requires a proactive and comprehensive approach, particularly in the employment arena. By implementing well-crafted agreements, policies, and preventive strategies, businesses can minimize the risk of trade secret theft and ensure that they are prepared to respond effectively if a breach occurs.
The Importance of Trade Secret Protection in Employment Practices
Trade secrets are unique forms of IP that derive their value from being unknown to competitors. Unlike patents, trade secrets are not publicly disclosed, meaning their protection relies on maintaining confidentiality. Employment practices play a vital role in safeguarding these assets for several reasons:
1. Employees Are Key Holders of Confidential Information
Employees often work directly with sensitive information. Without proper safeguards, they may inadvertently or intentionally disclose trade secrets, especially during transitions such as hiring, promotions, or terminations. Strong employment practices ensure employees understand their responsibilities and the legal implications of misusing confidential information.
2. Maintaining Confidentiality Is Central to Trade Secret Protection
For information to qualify as a trade secret, businesses must demonstrate that they have taken reasonable steps to keep it confidential. Employment policies, such as confidentiality provisions, employee handbooks, and signed non-disclosure agreements (NDAs), serve as evidence of these efforts. Without these measures, it becomes difficult to claim legal protection in the event of a breach.
3. Mitigating the Risk of Departing Employees Taking Secrets
When employees leave, they might take valuable knowledge to a competitor or use it for personal gain. Employment agreements with confidentiality provisions and well-conducted exit interviews help mitigate this risk by clearly defining post-employment obligations and retrieving any company-owned property or materials.
4. Aligning Workforce Behavior with Legal Compliance
Educating employees about their obligations under trade secret and IP laws through training and communication fosters a culture of compliance. Employees who understand the importance of protecting this information are less likely to engage in actions that could expose the company to legal disputes.
5. Addressing Modern Challenges Like Remote Work
The rise of remote work and reliance on digital tools increase the risk of trade secret theft. Employment practices that include policies on acceptable use of technology, data security, and proper handling of company information ensure that trade secrets remain protected, even in a decentralized work environment.
6. Proactive Risk Management
Proactively managing risks through employment practices is far more cost-effective and efficient than dealing with trade secret theft after it occurs. Preventive measures reduce the likelihood of a breach and strengthen a company’s legal position should a dispute arise.
By embedding IP protection into employment practices, businesses can minimize vulnerabilities and demonstrate that they have taken reasonable steps to secure their valuable IP. This approach not only helps prevent theft but also positions the business to respond effectively in the event of a breach. Working with experienced employment attorneys ensures that these practices are tailored to the company’s unique needs and aligned with applicable laws.
Consequences of Poor IP Management Practices
Trade secret theft can have far-reaching consequences for businesses, particularly when critical proprietary information falls into the hands of competitors or unauthorized individuals. The damage caused by stolen IP goes beyond immediate financial loss and can have long-term implications for a company’s operations, reputation, and competitive position. Here’s how IP theft harms businesses:
1. Financial Loss
The most immediate impact is monetary. Competitors who acquire stolen trade secrets can replicate products, services, or processes without incurring the original research and development costs. This undermines the company’s ability to recover its investment and maintain profitability.
2. Loss of Competitive Advantage
Trade secrets are often the backbone of a company’s unique value proposition. When this information is stolen, the business may lose its edge, especially in competitive markets. For example, suppose a competitor gains access to proprietary technology or customer lists. In that case, it can erode market share and disrupt the company’s operations.
3. Reputational Damage
A company’s inability to safeguard sensitive information can harm its reputation among clients, partners, and investors. Customers may lose trust in the company’s ability to protect their data or interests, leading to a decline in business relationships.
4. Legal Costs
Proving trade secret theft and seeking legal remedies through litigation can be expensive and time-consuming. Businesses must demonstrate that the information was a trade secret, that reasonable measures were taken to protect it, and that it was misappropriated—all of which require significant legal resources.
5. Operational Disruptions
Dealing with the aftermath of intellectual property theft often diverts attention and resources from day-to-day operations. This distraction can lead to reduced productivity, delayed projects, and strained internal resources.
Risks and Vulnerabilities in the Employment Arena
The employment context presents several points of vulnerability where trade secrets are at risk. These risks often stem from employee behavior, inadequate policies, and modern work trends.
1. Onboarding New Employees
When hiring employees, especially those from competitors, there’s a risk they may bring trade secrets from their former employers. This could lead to unintentional misuse, exposing the new employer to legal disputes and complicating their operations.
2. Departing Employees
Employees leaving a company pose one of the greatest risks to trade secrets. Disgruntled or opportunistic employees may attempt to take client lists, proprietary strategies, or other confidential information to benefit themselves or their new employers.
3. Remote Work and Digital Access
The rise of remote work and reliance on digital tools has created new vulnerabilities. Employees may access sensitive information on personal devices or unsecured networks, increasing the risk of unauthorized sharing or accidental exposure.
4. Insider Threats
Not all intellectual property theft is external. Employees with legitimate access to sensitive information may intentionally or unintentionally misuse it. Insider threats are particularly challenging because they often involve trusted individuals who understand the value of the information.
5. Lack of Clear Policies
When businesses fail to implement clear and enforceable employment policies, employees may not understand their obligations regarding trade secret confidentiality. This lack of awareness increases the risk of inadvertent breaches.
6. Conflicts of Interest
Employees who work with or consult for competitors while still employed can create conflicts of interest that put trade secrets at risk. Without disclosure policies or conflict checks, these situations may go unnoticed until significant damage is done.
7. Poor Exit Procedures
Improper handling of employee offboarding can lead to the loss of sensitive information. If companies fail to collect company devices, deactivate accounts, or remind employees of their confidentiality obligations during exit interviews, trade secrets may leave with the departing worker.
Employment Strategies to Prevent Trade Secret Theft
Preventing stolen trade secrets requires a comprehensive employment strategy that integrates clear communication, legally enforceable agreements, and regular oversight. Below are key measures businesses should take:
1. Confidentiality Agreements and NDAs
Trade secret NDAs (non-disclosure agreements) are foundational tools for protecting sensitive information. These agreements should clearly define what constitutes a trade secret, specify the obligations of employees to protect that information, and outline penalties for breaches. Requiring NDAs during onboarding and for specific projects can ensure all employees understand their responsibilities.
2. Employment Agreements with Confidentiality Provisions
Beyond standalone NDAs, employment agreements should include trade secret confidentiality clauses. These provisions emphasize that the employee’s duty to protect sensitive information continues even after their employment ends. They should also outline the consequences of violating these terms, including potential legal action.
3. Employee Handbooks and Policies
A comprehensive employee handbook can reinforce trade secret confidentiality by outlining expectations for the handling of sensitive information. These handbooks should detail acceptable use policies for company devices, procedures for reporting potential breaches, and guidelines for remote work security.
4. Conflict of Interest Policies
Conflict of interest policies help prevent employees from engaging in activities that could compromise trade secrets. These policies should:
- Require employees to disclose outside work or consulting engagements.
- Prohibit working with competitors while employed.
- Include mechanisms to monitor and address conflicts of interest.
By identifying and addressing potential conflicts early, businesses can reduce the risk of employees sharing trade secrets with competitors.
5. Regular Training and Communication
Employees must understand the importance of trade secret protection and their role in safeguarding it. Training should cover:
- Identifying and protecting trade secrets.
- Proper use of technology and secure handling of information.
- Legal and ethical consequences of trade secret theft.
Regular training refreshes knowledge and fosters a culture of compliance.
6. Secure Remote Work Environments
With the rise of remote work, businesses must implement policies to ensure the security of intellectual property outside the office. Best practices include:
- Enforcing the use of secure company-approved devices and networks.
- Implementing encryption and multi-factor authentication for sensitive files.
- Providing training on data security and phishing risks.
7. Exit Interviews and Post-Employment Obligations
Exit interviews provide an opportunity to remind departing employees of their confidentiality obligations and retrieve company property, including devices and files. Businesses can also consider post-employment restrictive covenants, such as non-compete or non-solicitation agreements, where enforceable.
8. Use Post-Employment Restrictive Covenants Where Enforceable
Restrictive covenants such as non-compete and non-solicitation agreements can protect trade secrets after employment ends. While these agreements must comply with local laws, they can prevent former employees from working with competitors or soliciting clients using confidential information.
What to Do When Trade Secrets Are Stolen
Despite best efforts, trade secret theft can still occur. When it does, swift and decisive action is critical. Businesses should:
- Identify the Breach: Determine what information was accessed, how it was obtained, and by whom.
- Secure Evidence: Preserve emails, security logs, and other documentation that may be relevant in proving the theft.
- Seek Legal Counsel: Consult an experienced trade secret employment attorney to evaluate your options and develop a strategy for mitigating harm.
- Pursue Legal Remedies: Depending on the situation, this may include filing a lawsuit for trade secret misappropriation, seeking injunctive relief, or pursuing damages.
The Role of Chauvel & Glatt, LLP, in Trade Secret Protection
At Chauvel & Glatt, LLP, we specialize in helping businesses navigate the intersection of trade secret protection and employment law. Our team understands the importance of strong employment practices in safeguarding sensitive IP and minimizing risks. We work closely with clients to draft tailored agreements, develop comprehensive policies, and provide training to ensure their IP remains secure.
If theft occurs, we are prepared to act swiftly to protect your business through litigation, negotiation, or other legal remedies. With decades of experience in trade secret confidentiality and employment policies, we are committed to delivering practical and effective solutions that protect our clients’ most valuable assets.
Protecting Your Business’s Future
Trade secrets represent more than proprietary information—they are the foundation of your competitive advantage. By integrating strong employment practices with a proactive legal strategy, businesses can significantly reduce their risk of stolen trade secrets and ensure they are prepared to handle potential breaches.
If you’re ready to take the next step in protecting your trade secrets, contact Chauvel & Glatt, LLP to discuss your company’s concerns and start to plan for the future. Our experienced attorneys can provide the guidance and support you need to safeguard your business against threats and secure its future success.
The content of this blog is provided for informational purposes only and is not intended as legal advice. Every legal matter is unique, and the information presented here may not apply to your specific situation. Reading this blog does not create an attorney-client relationship between you and Chauvel & Glatt, LLP. For personalized legal assistance or advice, please contact a qualified attorney. If you would like to discuss your legal needs, we invite you to contact our office to schedule a consultation.
