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Beebe v. Mobility

February 20, 2008


The opinion of the court was delivered by: Honorable Barry Ted Moskowitz United States District Judge


Plaintiff Jordana Beebe is a former employee of Defendant Mobility, Inc. d/b/a Flexcar. Plaintiff has filed a complaint alleging various violations of the California Labor Code such as failure to pay overtime, failure to provide meal and rest periods, failure to provide semi-monthly wages, failure to provide itemized wage statements, and failure to pay full wages upon termination. Plaintiff also alleges that Defendant required employees to sign a restrictive covenant in violation of Labor Code § 432.5, breached its employment contract with Plaintiff and engaged in unfair business practices. In her complaint, Plaintiff alleges that she brings this action on behalf of herself, as well as other former and present Flexcar employees, and seeks civil penalties pursuant to the California Private Attorney General Act (PAGA), Labor Code § 2698, et seq.

California law authorizes the Commissioner of the Labor and Workforce Development Agency (LWDA) to assess and collect civil penalties for specified violations of the Labor Code committed by an employer. (See e.g., Lab. Code, §§ 210, 558 and 1197.1). For the purpose of improving enforcement of existing Labor Code obligations, the Legislature enacted the PAGA to permit an aggrieved employee in a private action to collect civil penalties for Labor Code violations (suffered by the plaintiff and other employees) which previously could only be collected by state agencies in enforcement actions. Labor Code § 2699. The penalties collected in these private civil actions are to be distributed 75 percent to the State and 25 percent to the aggrieved employee. Labor Code § 2699(I). See Caliber Bodyworks, Inc. v. Superior Court, 134 Cal App. 4th 365, 374-75 (2005) for a more detailed background and explanation of PAGA.

Defendant Flexcar has filed the following three motions challenging various aspects of Plaintiff's Complaint : (1) motion to dismiss Plaintiff's sixth cause of action for violation of Labor Code § 432.5; (2) motion for summary judgment on Plaintiff's fourth cause of action for failure to provide bi-monthly wages; and (3) motion to strike. The Court examines each of these motions in turn.

1. Motions to Dismiss and Strike the Sixth Claim

A motion to dismiss for failure to state a claim will be denied unless it appears that "no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Fidelity Financial Corp. v. Federal Home Loan Bank of San Francisco, 792 F.2d 1432, 1435 (9th Cir. 1986).

In her sixth cause of action, Plaintiff alleges that Defendant required its employees to sign a restrictive covenant in violation of Business and Professions Code § 16600 which provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void." Plaintiff argues that this in turn violates Labor Code § 432.5 which prohibits employers from requiring employees to "agree, in writing, to any term of condition which is known by such employer . . .to be prohibited by law." In this cause of action, Plaintiff seeks penalties under the PAGA for the alleged violation of § 432.5. Defendant argues that this cause of action should be dismissed on the ground that the restrictive covenant at issue is lawful on its face.

Defendant's employment agreement contained the following restrictive covenant: Unless Employee receives the prior express written permission of Employer, Employee shall not, during the term of Employee's employment and the two (2) years after termination of his employment, solicit or attempt to solicit, directly or indirectly or by assisting others, any work, services, goods, or other business from any of (sic) Business Contacts of Employer with whom Employee had material contact in the two (2) years prior to his termination of employment. For purposes of this Agreement, "material contact" shall mean interaction between Employee and the Business Contact which takes place in an effort to continue and/or expand the relationship and/or service between Employer and the Business Contact, and which involves the use of Employer's confidential information. (Exhibit A)

The term Business Contact is defined as " non-public lists of actual or prospective clients, customers, suppliers, vendors, or investors provided to Employee by Employer or developed or learned by Employee while employed by Employer." (Id.)

California courts have held that covenants prohibiting employees from soliciting the clients of their former employer are void under §16600 except where the restriction is necessary for the protection of trade secrets. Thompson v. Impaxx, Inc., 113 Cal. App. 4th 1425, 1427 (2003); American Credit Indemnity Co. v. Sacks, 213 Cal. App. 3d 622, 634 (1989) ("In the absence of a protectable trade secret, the right to compete fairly outweighs the employer's right to protect clients against competition from former employees.") Whether information constitutes a trade secret is a question of fact. Thompson, 113 Cal. App. 4th at 1430-31. "Labeling information as trade secret or as confidential information does not conclusively establish that the information fits this description." Id.

Defendant contends that the restrictive covenant at issue is valid as a matter of law because it only prohibits solicitation of certain business contacts and does not "limit Plaintiff from engaging in an entire profession, trade, or business." (Defendant's Memorandum of Points and Authorities pps. 3- 4). The Court disagrees. As set forth above, California courts have clearly voided anti-solicitation clauses as unfair restraints of trade unless their purpose is the protection of trade secrets. See, e.g., Thompson, 113 Cal. App. 4th at 1429. Whether Defendant's covenant restricting solicitation of "Business Contacts" actually protects trade secrets or other confidential, proprietary material would be an issue of fact. On its face, the restrictive covenant prohibits employees from contacting Defendant's actual and prospective clients that are on a non-public list obtained through employment with the Defendant, if the employees had contact with the client involving the Employers' confidential information. In order to determine whether these restrictions are necessary for protection of the Defendant's trade secrets, the Court would need to resolve questions such as (1) whether these "non-public" customer lists contain information generally available through public sources or contain information requiring the expenditure of time, effort and/or prior business dealings; and (2) whether the secrecy of this "non-public" list provides Defendant with a "substantial business advantage." Morlife v. Perry, 56 Cal. App. 4th 1514, 1521-22 (1997). Because these are factual determinations which the Court does not engage in at this procedural stage, the Court concludes that Plaintiff's sixth cause of action should not be dismissed on this ground.

Nevertheless, the Court concludes that Plaintiff's sixth cause of action should be dismissed on the ground set forth in Defendant's motion to strike. The Court agrees with Defendant's argument that Plaintiff is not entitled to relief under Labor Code § 432.5 which proscribes only agreements that are "prohibited by law" rather than those that are void.

Plaintiff likens the instant case to Baker Pacific Corporation v. Shuttles, 220 Cal. App. 3d 1148, 1153 (1990) and urges the Court to be persuaded by its logic. In Baker, the defendant required its employees to sign a release for fraud and intentional acts as a condition of employment despite the fact that such releases are proscribed by Civil Code section 1668 as follows: "All contracts which have for their object . . . to exempt anyone from responsibility for his own fraud, or wilful injury . . . are against the policy of law." Id. at 1154. The Baker court rejected as circular and unintelligible defendant's argument that because such a release would be "of no force or effect," it could not be contrary to law. Id.

The Court finds that the Baker case is distinguishable from the instant case in one important aspect. Unlike Civil Code §1668 which pronounces proscribed releases "against the policy of the law," §16600 specifically states that covenants in restraint of trade will be void. Nothing in the statute precludes employers or employees from entering into restrictive covenants. § 16000 makes those agreements in restraint of trade unenforceable. Defendant therefore has a valid argument that §16600 voids restrictive covenants rather than prohibits them. A comparison to Civil Code § 1668 strengthens, rather than weakens, Defendant's position. The plain language of Labor Code § 432.5 appears to apply only to contracts that are specifically declared unlawful such as those declared ...

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