Labor and Employment Law Blog

Changes to Computer Professional Wage Rates

California's Computer Professional Exemption, as codified in Cal. Lab. Code § 515.5 was enacted in September of 2000.  Since then, the law has been revised several time to cover more and more computer programmers.  The latest revision took effect September 30, 2008.  This revision allows, for the first time, a fixed salary to be used to cover all overtime hours worked.  Previously, as the number of hours worked increased, so did the salary required to meet the requirements of the exemptions.  However, as of September 20, 2008, a flat salary of $75,000 per year will make a skilled computer programmer exempt from overtime.  This rate is set to automatically index on January 1 of each year.  As such, effective January 1, 2009, a fixed salary of $79,050 will suffice to make a skilled computer programmer exempt from overtime.  The corresponding hourly rate is $37.94.

For a complete description of all the requirements for this exemption, please visit my California Computer Professional Exemption page.

Yahoo CEO Jerry Yang is Entitled to Overtime

The general rule in California is that everyone is entitled to overtime unless they meet one of the narrowly defined exemptions.  This means that many nurses, field service engineers, computer programmers, and IT Engineers, are entitled to overtime pay. But, is it possible that Jerry Yang, the co-founder and CEO of Yahoo could also sue for overtime pay?  Surprisingly, the answer seems to be "Yes."

As surprising as this seems, it does not alter the fact that a person must meet all of the requirements of an exemption in order to be exempt from overtime.  While certain exemptions do not require that an employee be paid on a salary basis (such as interstate truck drivers and outside salespersons), others do.   In this case, it is not likely that Mr. Yang would qualify as an interstate truck driver or an outside salesperson, so the company would probably rely on the Executive Exemption -- he is, after all, the CEO.  However, this exemption requires, among other things, that the employee be paid on a salary basis of at least two times minimum wage.  Currently, this amounts to $640 per week.  If you make less than this, you simply can not be exempt from overtime under the Executive Exemption.    

Even if you make more than $640 per week, problems frequently arise when the employer makes illegal deductions from your paychecks.  For instance, if you have money deducted from your pay if you work less than 8 hours in a day or you are not paid for company holidays, you will not be seen as being paid "on a salary basis," and the exemption will not apply to you no matter how many people you supervise.

So, why is Mr. Yang entitled to overtime?  In a recent article on Jerry Yang's pay, it was reported that Mr. Yang only receives a salary of $1 per year.  As such, he does not meet the minimum salary requirement for the exemption, so he can not qualify for that exemption. 

It should be noted that Federal Law has an exemption for people who own more than 20% of a business.  This exemption does not require that a proper salary be paid.  However, Mr. Yang only owns 3.9% of Yahoo.  While this may make his net worth about $1.5 Billion, it still means that the exemption does not fit.   Fortunately for Mr. Yang, this means that he would also be entitled to liquidated damages on any unpaid overtime.

Some may consider this an interesting academic argument because Mr. Yang is unlikely sue for unpaid overtime and minimum wage violations.  However, with the Private Attorney General Act of 2004, it turns out that anyone who works at Yahoo can sue for civil penalties on his behalf -- as long as that person suffered at least one labor violation.  As such, if a IT worker at Yahoo is not paid overtime, not only can he sue for his own overtime, but he can sue for civil penalties for Mr. Yang not being properly paid his overtime.  Given that in addition to overtime violations, there are also minimum wage violations, pay check stub violations, meal break violations, and record keeping violations, the amount of these civil penalties could add up quickly.

In a recent case, my office used the Private Attorney General Act to sue on behalf of various computer programmers who were not paid overtime even though my client was not a computer programmer.  The Defendant tried to have the claims thrown out, but the Judge allowed them to stay in. (Attorneys who would like copies of the briefs can contact me.)  It will be interesting to see how the case ultimately develops, but the Private Attorney General Act does seem to offer some promise in addressing labor violations in which the victim is unlikely to actually sue.  While the case about Mr. Yang is illustrative of how the law might be used, the more practical applications that we are using it for is to sue for unpaid interns and other low paid employees who are either afraid or unwilling to assert their own rights to be properly paid.

For attorneys reading this, you should also note that I have used the salary basis issue to get overtime for contract attorneys.  There is an interesting issue about whether these attorneys are also entitled to liquidated damages, but I have never been able to test this out out, as these cases have all settled very quickly.

Defense Attorneys Continue to Drive Employers out of California

There are a couple of things that inevitably come in to my office nearly every week.  The first is a letter form an attorney representing an employer stating that my lawsuit is "frivolous" and that plaintiff's attorneys are driving employers out of California. The second is a question from an employer who is pretending to be an employee so they can get some free legal information. 

I am always a bit curious as to why some defense attorneys waste their time telling me that a lawsuit is "frivolous."  I will point out that these letters generally come from smaller law firms where the attorney does not know the first think about wage and hour law. However, even if they don't know the law, from a common sense point of view, the attorney should know that I take the vast majority of my cases on a contingency basis, as do most other plaintiff's attorneys.  Any lawsuit is going to take a good amount of time and money.  So, why would a defense attorney think that I would take a lawsuit that I have no hope of winning? I will also point out that a skilled attorney can eliminate a frivolous lawsuit with little effort, especially one in the wage and hour area.  If the lawsuit is indeed frivolous, simply respond with the information that the employer is required by law to provide, and I will figure it out soon enough.

There also isn't any basis to the claim that California's employment laws are discouraging employers from doing business here.  California has had significant employment growth for some time.  One defense attorney responded to this by saying that it was not that jobs were leaving California, they simply are not coming in as fast as they would without plaintiff's attorneys such as myself.  He responded that California's growth rate would be "double" what it was, if it were not for these wage and hour laws.

I can only say that if his statement is true, he should be thanking plaintiff's attorneys such as me.  California has one of the best economies in America.  If its growth rate indeed doubled, it would currently employ over 41 million workers as opposed to the 16.7 that it currently employs.  California would have a population of about 83 million people and produce about 1/4 of America's economic output.  We would have approximately 104 representatives in the House of Representatives out of a total of 435. (Using the time period in the above linked report). Needless to say, traffic here would be pretty bad.

I will also point out that even if you feel that the "double" estimate provided by one defense attorney was simply an exaggeration, any smaller number would reach the exact same results -- it would just take more time.  That is, any systematic advantage that one State has over other States, in terms of economic growth, will eventually make that State dominate over all others.  So, there really isn't too much merit to the argument that plaintiff's attorneys are driving any businesses out of California.

However, I do have some evidence that defense attorneys make it difficult for employer to do business here. About each week, I receive an email from an "employee."   It reads something like this, "I work for a large company, and it seems like the company wants to do the right thing.  They are telling me that ....., but I think that ......."  (Insert some current issue of employment law). "Can you tell me which of these is correct?" Now, you can say I am just being paranoid in thinking that employers are posing as employees just to get some free information.  However, in a good number of cases, the person forgets to turn their signature block off.  I received one just his last week that was an "employee" looking for information about the scheduling of the 10 minute break periods.  The signature block was from the V.P. of Human Resources for a major corporation.  It may be that the V.P. of Human Resources of a major corporation is really concerned that she is not personally receiving a proper 10 minute break, but I suspect that she was really looking for some information on how to pay her employees. 

Of course, it is good that an employer is genuinely interested in paying their employees properly, but it would be even better if the defense bar could properly and economically educate their clients about these laws.  I am certain that the company mentioned above could afford competent defense counsel -- in fact they were probably working with several different ones.  However, they still found it easier to surreptitiously pose as an employee and ask a plaintiff's attorney for advice than to pick up the phone and talk to one of their defense attorneys that they deal with all the time.

Now it may be that employers really just hate plaintiff's attorneys and would rather ask the devil himself for advice rather than a plaintiff's attorney.  But given that I get so many questions from employers, this really makes me wonder what their opinion of defense attorneys is.          

Prestigious Law Firm Winston & Strawn cites Law Offices of Michael Tracy for Willingness to Take Smaller Overtime Cases

The case of Carrera v. Bally Total Fitness Corporation is a class action case for labor law violations.  The basic allegations are the Ballys is violating various provisions of the labor laws, but mainly overtime and meal breaks.  The issue is that there is an arbitration agreement in place that attempts to disallow class actions.  In the recent case of Gentry v. Superior Court 42 Cal.4th 443 (2007), the California Supreme Court ruled that class actions can only be prohibited based on an evaluation of the following factors: (1) the modest size of the potential individual recovery, (2) the potential for retaliation against members of the class, (3) the fact that absent members of the class may be ill informed about their rights, and (4) other real world obstacles to the vindication of class members' right to overtime pay through individual arbitration.

The attorney for the employees argued that because wage and hour claims are typically small, it would be difficult for these employees to find individual representation.  I am not certain why he made this argument because it was picked up on by the defendants and exploited. 

The brief for the Defendant was written by Paul Coady, an attorney with Winston & Strawn, LLP.  For those that listen to my pod cast, you are used to me making fun of various defense attorney arguments.  However, this brief was actually well done.  It focused the Judge's attention on an issue that should not have been relevant  had the Plaintiff's attorney not made it the hallmark of his case.  In addition, the attorneys actually did some original research to back up their claims.  A lot of these defense firms just cut and paste the same arguments over and over again.  In most cases, I could write their brief for them in a fraction of the time it takes them to write it.  So, it is good to see some members of the Defense bar stepping up and giving us Plaintiff's attorneys a challenge. 

In any case, Mr. Coady and his associates combed through all the wage and hour filings in Los Angles County, Central Distinct (the main Los Angles Courthouse, or Stanley Mosk).  They found 127 of these smaller overtime cases, and specifically noted one of my cases and cited it as an example of a firm willing to take small cases (they also mentioned 4 other firms).  Now, 127 cases is not a lot for Los Angeles.  I did a simple query on my database and found out that I had filed 23 cases in Los Angeles Central Distinct in 2007.  I had actually filed a couple more, but those got removed to Federal Court, so they were not counted in the query.  In any case, this makes up about 1/5th of the total filings for Los Angeles.  My goal is to get up to 1/2 of the total filings in Los Angeles County, and so far 2008 is off to a good start.

What all of this shows is that firms such as mine can and do represent employees who have smaller claims.  However, just because you have small claim does not mean that you will get a small recovery.  Frequently, there are various penalties that can be assessed that can dramatically increase this amount.  My firm currently is using the Private Attorney General Act to help with these types of cases.   In addition, arbitration agreements can dramatically increase your potential recovery in a small case, but listeners to my podcast already know that. 

This does not mean that class actions are not necessary.  In the case mentioned above, it was really just a mistake to mention anything about attorneys not being willing to take small wage and hour cases.  The better argument would be to focus on the economic reality that if a large company is not subject to class actions, they will have an economic incentive to violate the law.  The reasoning is simple: if you have 100 employees, can you can save $1,000 per year by not paying them overtime, this is saving the company $100,000 per year.  Now, every year, a couple of them will sue for overtime, and they will need to be paid.  This might cost the company, with attorneys fees any everything $20,000 per year.  What company would not pay $20,000 per year so that they can save $100,000 per year? 

The simple fact is that many employees do not assert their rights to be properly paid.  This is not necessarily because of retaliation, but probably because many people do not want to be involved with a lawsuit.  I probably talk to 5 people a week that have valid claims against a company that will never pursue them, even when they no longer work for the company, and even if the matter can be resolved privately in arbitration.  Thus, the class action is still needed to properly vindicate the rights of these employees and ensure that all employers are playing on a level playing field.

Though I completely disagree with the reasoning in Winston & Strawn's brief, their legal writing was very well done.  This will definitely help them in the soon to be released Employment Defense Firm Rankings.

Arbitration: Be careful what you wish for

Many employers utilize mandatory arbitration agreements, claiming that they "make the process more efficient."  I find that they tend to drive up the cost of litigation because the employer must pay the fees for the arbitrator that can run several thousand dollars a day.  As such, many employers simply choose to settle the case rather then paying the exorbitant arbitrator's bill -- which I guess is making the process more efficient.

The main problem with arbitration agreements comes up with class actions.  Because class actions are going to be expensive no matter what, many employers feel that they can receive more favorable treatment in arbitration.  In general, the defendant will try to push a class action into arbitration, and the plaintiff will try to keep it in court.  However, as the case of Long John Silver Restaurants v. Erin Cole shows, arbitration is not always in the employer's interest.

In a recently published decision out of the 4th Circuit, the court refused to overturn an arbitrator's decision even though the decision would likely never have stood up in court.  Normally, FLSA claims must be brought under something called a collective action.  A collective action is similar to a class action except that employees must "opt-in" in order to be part of the class.  That is, in a normal class action, a letter is mailed to all class members, and unless they affirmatively opt-out -- that is, mail back the form saying they do not wish to be part of the class, then they are part of the class and the company will have to pay for their damages, if they are proven.  In a collective action, a letter is sent to all potential class members, and each of the must mail in a letter stating that they wish to take part in the litigation.  If they do not mail the letter, then they are not part, and the company does not have to pay them anything.

Conventional wisdom in employment practice says that only 25% of employees will mail in the opt-in form. Thus, collective actions definitely favor the employer because it means they will only have to pay 25% of what they should pay.  In the court systems, FLSA claims can only be brought as collective actions.  Thus, if you have an overtime violation that spans several states, you might pursue it as a collective action, rather than try to coordinate several class actions across multiple states.

Fortunately, the arbitrator in the Long John Silver case decided to eliminate the overhead of the collective action. He determined that because the employees had all signed an arbitration agreement that allowed for class actions, this served as a waiver of the obligation to bring a collective action.  Thus, the plaintiffs had the remedies of the FLSA with the procedures of a class action -- the best of both worlds.  Note that this reduced the cost of the litigation processes, but it greatly increased the amount of damages the employer had to pay.

Interestingly, rather than praising this arbitrator for streamlining the process and reducing the cost of litigation, the employer tried to have the arbitrator's decision overturned by a Court.  It seems that employers love arbitration, until they get ruled against, then they will force the battle into court.  In any case, the Court decided that the arbitrator was within his rights to eliminate the requirement for the opt-in, and the employer would have to live with the arbitrator's decision.

This was an interesting case for a number of reasons.  Most important though is that employees should not be afraid to raise a claim just because they have an arbitration agreement in place.  In many cases, this can work to the employee's advantage.  Also, many employers are willing to waive arbitration.  In fact, I just had a trial on a case in which a valid arbitration agreement was in place, but both sides decided to waive the agreement and go to court. In other cases, I have had to compel arbitration because the employer did not want to arbitrate, even though they were the ones that insisted that an arbitration agreement be signed when the employee first began work.

Also, a thanks to reader, Joe, who brought this case to my attention.

$1.1 Million in Attorneys Fee for $30,300 in damages

Many readers of my blogs and the gotovertime website know that a major tool that employees have in getting employers to comply with the law is that the employee can frequently recover attorneys fees if they prevail.  Frequently, defense attorneys discount this by stating that judges "never" award attorneys fees in excess of the amounts that are recovered.  However, a recent case illustrates that this is simply not the case.  In Harman v. City and County of San Francisco, 158 Cal. App. 4th 407, the Plaintiff was awarded $30,300 in damages for racial discrimination.  The appellate court then upheld an award of $1,113,905 in attorneys fees. In particular the Court held that "[t]he law does not mandate, however, that attorney fees bear a percentage relationship to the ultimate recovery of damages in a civil rights case." 

This is an extremely useful case because frequently, defendants can make mountains out of mole hills.  If plaintiffs were limited to recovering only a percentage of the amount recovered, it would eliminate effective representation for any claims less than a couple hundred thousand dollars.  Many employment cases simply will not amount to over $100,000, so plaintiffs' attorneys are reluctant to take them.  Hopefully, this case will set a good precedent that plainitffs are entitled to their full attorney fees, even if the actual value of the case is small. 

I will point out that to many individual plaintiffs, such as many of the ones I represent, $30,000 is no small amount.  Without the proper award of attorneys fees, many of these people would not be able to receive adequate legal representation.

It is also interesting to note that the attorneys fees in the Harman case were paid largely to a conservative legal foundation, The Pacific Legal Foundation.  The Pacific Legal Foundation lists its goals as representing individuals who have "grown weary of overregulation by big government, overindulgence by the courts, and excessive interference in the American way of life." (See http://www.pacificlegal.org/?mvcTask=about).  Hopefully, they will put the $744,756.75 that they were awarded to use in insuring that the courts are open to all employees who rights have been violated.    

Changes to California Labor Laws for 2008

With the new year come new laws in the labor and employment field. The following are some of the key changes for 2008:

1. Minimum Wage increases to $8.00 per hour.  I did see a couple a new minimum wage cases last year when it increased to $7.50, but the main impact is in minimum rates based on minimum wage.  For instance, in order to be exempt as an Executive, Administrative, or Professional employee, you must be paid on a salary basis that equals two times the minimum wage for a 40 hour week. Thus, in 2008, this is $640 per week or $33,280.

Another area that is greatly affected by this increase is commissioned sales people.  In order to be exempt as a commissioned sales person, you must make at least 1 1/2 times the minimum wage for all hours worked and have 50% of your income come from commissions.  For 2008, if you work a 60 hour week, you must make at least  $720 in order to be exempt from overtime.  If you make less than this, you automatically qualify for overtime.  As a note, there are many non-retail sales positions that are entitled to overtime, even if they make more than the minimum required.  For instance, loan officers  and stock brokers generally qualify for overtime.

2. Another change that was probably long overdue requires employers to stop printing your Social Security Number (SSN) on your check.  Effective January 1, 2008, the employer is allowed to print no more than the last 4 digits of your SSN.  Alternately, the employer can print a "employee id" that is different from your SSN.  In addition, you are entitled to any damages that you suffer as a result of this number being printed, but it appears that these damages would be capped at $4,000.  Given that proving these damages is difficult, if you suffer any damages at all, you are entitled to $50 for the first pay check and $100 for each additional paycheck.  These damages can be a mere slight inconvenience.  For instance, if you spend the time to cross off the SSN on each pay check stub that you receive, this would likely entitle you to the $100 for each check.

3. As discussed previously, the Computer Professional Exemption is changing in 2008.  A large number of  computer programmers are losing their right to overtime pay.  Interestingly enough, this has actually caused a increase in the number of programmers who are asserting their rights.  Just in the last month, my office has had a dramatic increase in the number of people filing claims for unpaid computer overtime. 

4. Military Spouse leave.  Another long overdue change in the law allows spouses of military personnel to take 2-weeks of unpaid leave to spend time with their family when the military spouse returns from deployment.   Most likely, this law will not give rise to significant litigation, but if you are a military spouse, you may need to remind your employer of what your rights are.

Schwarzenegger Terminates Overtime for Many Computer Programmers

On October 11, 2007, Governor Arnold Schwarzenegger signed a law that eliminates the right to overtime for many computer programmers in California effective January 1, 2008.  Historically, California has always provided overtime pay to computer programmers.  During this time of overtime pay, the computer industry in California grew far more than other states and drove the economy in Silicon Valley. 

The first time that computer programmers were exempted from overtime was under the 2001 law. However, this law required a very high wage to be paid to programmers in order for them to be exempt from overtime. 

This year, a bill sponsored by the National Association of Computer Consultant Businesses puts an end to computer overtime for many programmers.  The proponents of the law stated that the current law was putting California businesses at a "competitive disadvantage."  Interestingly, there was no explanation about why so many companies would locate their computer programmers in California despite this alleged "competitive disadvantage."

What the law does is reset the minimum pay required in order to be exempt from overtime from $49.77 to $36 per hour.  Under the old rate, only highly compensated individuals were exempt from overtime.  Now, even entry level computer programmers will be able to be exempt from overtime. 

Fortunately, the law still retains the requirement that $36 per hour be paid for every hour worked.  Thus, it is not the case that simply earning a salary of $74,880 per year will automatically make you exempt.  This salary would only make you exempt if you never worked more than 40 hours in a single week (essentially, you would just be exempt from daily overtime -- that is, you would work more than 8 hours in one day, as long as you worked less hours the next day).  If you worked 45 hours in any week, you would need a salary of $84,240 in order to keep you above the $36/hour limit.  I have a complete breakdown of the salary required for different work weeks on my California Computer Professional Exemption page.

It will be interesting to see how this new law plays out. Previously, many computer programmers were reluctant to sue for unpaid overtime.  However, with the law now taking it away, I would predict that it will cause even more lawsuits as employees want to receive the money they are entitled to while they still can.  Given that employees can still go back four years for past unpaid overtime, I doubt the law will have the desired affect.

Unpaid Internships - Common but Illegal

A common, but frequently unreported labor violation is the use of unpaid interns in violation of minimum wage and possibly overtime laws.  The scenario is fairly typical: a company offers an opportunity to ‘break into the business’ in exchange for the intern working for free.  You see many examples of this in the entertainment industry.  In fact, despite jobs sites such as Craigslist prohibiting the posting of unpaid “internships,” you can almost always find one posted.  Some companies try to get around the law by requiring that the internship be part of a college program.  However, there is no exception to the law allowed just because the “intern” may receive college credit.  While it might be possible for a college credit course to require some type of training for a company, the vast majority of these internships are in violation of Federal as well as California labor laws.

In order to qualify as an unpaid internship, the requirement is simple:  no work can be performed that is of any benefit at all to the company.  That is, you can not deliver mail, sort files, file papers, organize a person’s calendar, conduct market research, write reports, watch television shows and report on them, read scripts, schedule interviews, or any other job that assists the employer in any way in running their business.   

Examples of internships that have been legal are where the job is a “dummy” job.  For example, there was a case of an internship for working on a train.  The company had the interns driving trains from one end of their yard to the other under close supervision.  The moving of the trains was completely unnecessary and was just being done to train the potential employees. As such, no “work” was being performed, so the internship was legal.  On the other hand, if the workers were moving the trains as part of the regular re-positioning of the trains, but were still performing it under close supervision, they would be required to be paid for the work.

Thus, if in the entertainment industry, you read scripts that have already been read and rejected by the company and the company will not use your input in any way but is simply instructing you on how to read scripts, then they would not need to pay you for your time.  However, if you read the scripts and perform any work that is used by anyone in the company to make any type of decision about that script, then you must be paid for your time.

Another common type of unpaid internship is in martial arts schools that require students to teach classes in order to receive additional belts.  This practice is illegal unless the student is paid for the time.  Because the act of teaching a class is work that benefits the employer, it must be paid for.   

The U.S. Department of Labor has outlined a list of criteria that ALL must be met in order for an internship to be unpaid.

1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
2. The training is for the benefit of the trainee;
3. The trainees do not displace regular employees, but work under close observation;
4. The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion the employer’s operations may actually be impeded;
5. The trainees are not necessarily entitled to a job at the completion of the training period; and
6. The employer and the trainee understand that the trainees are not entitled to wages for the time spent in training.

From the above list, #4 is really the key one – all the others will follow from whether the employer derives any immediate benefit from the activities.

The main reason that you do not see more lawsuits regarding unpaid internships is that the interns are very unlikely to sue.  In most cases, they fear being blacklisted, as they will undoubtedly need to use the internship as a reference to get any future work.

This is where California’s Private Attorney General Act comes in.  Because this law allows anyone at the company to sue for labor violations, even if they themselves are not affected by the violation, it is now possible for these companies to be brought into compliance with the law.  If you work for a company that uses unpaid interns and would like to put an end to this illegal practice, you should consider bringing a Private Attorney General cause of action.

Of course, if the internship is work, not only minimum wage must be paid, but also California overtime (8 in a day / 40 in a week) as well as meal and rest breaks.

Another Non-Compete Thrown Out

In VL Systems v. Unisen, a Californian Court of Appeals has thrown out another type of non-compete agreement.  The general rule in California has been that an employer could not forbid an employee from working for other companies, including competitors, as long as no trade secrets were in jeopardy.  However, savvy employers have long used a loophole to get around this rule, especially in the "consulting" business. In this arrangement, an ultimate client would hire a consulting company to provide temporary labor.  The consulting company would then hire an employee and pay her a fraction of what they were getting paid by ultimate client.  The employee would work at the ultimate client site, frequently along side other employees of ultimate client.  While the consulting company might try to put a "non-compete" agreement in the contract with the employee, many employees know that these non-compete agreements are illegal.  Instead, the consulting company would put it in the contract with the ultimate client.  That is, if ultimate client hired one of consulting companies employees, they would then have to pay a significant amount of money.  Thus, not a "non-compete" because it doesn't actually prevent the employee from working wherever she wants -- or so the argument went. 

The facts of this case are a little different from the general scenario outlined above, so the holding may be a little more limited than most employees of consulting companies would hope for.  In this case, the employee (David Rohnow) worked for the consulting company, but worked on projects other that Star Trac's (ultimate client). Star Trac used the consulting company to provider workers, but never used David directly.  They did have a clause in their contract that required a significant penalty is they hired any of consulting company's employees.  Star Trac posted a job listing on the internet, David applied and was hired.  The consulting company then sued for the $60,000 penalty that they felt they were due.

The court threw out the clause in the contract that required a penalty to be paid in the event that ultimate client hired any of consulting company's employees.  It held that such a clause was simply a non-compete clause dressed up differently.  That is, it does not matter how a non-compete clause is structured. The courts will look at the end result, and if it looks like a non-compete, it will be treated as a non-compete.

Employees should be cautioned that the court did make note that it was important that (1) Employee never worked directly for ultimate client while at consulting company, (2) that Employee was only with consulting company for a short period of time, and (3) that no time or money was spent on training Employee for these particular jobs.  Thus, it is likely that non-hire clauses that are designed to prevent any of the above three issues from occurring may still be enforceable.

As a side note, it appeared that consulting company was paying employee on a salary basis in violation of California overtime laws, but that was not the subject of this lawsuit.