Written discovery is often insufficient to develop the best record for trial. Informal fact gathering can help tip the balance in your client’s favor. An attorney employing self-help, however, must be careful to stay within ethical and legal boundaries. This article identifies five pitfalls associated with informal discovery, whether conducted by lawyers directly or through private investigators.

FAILING TO PROPERLY INSTRUCT YOUR INVESTIGATOR

A frequent mistake made by attorneys is to fail to clearly instruct the investigator on the ethical and legal rules governing their conduct. Both ABA Model Rule 5-3 and California Rule of Professional Conduct 3-110 require an attorney to adequately supervise non-attorney investigators to ensure compliance with ethical standards for attorneys. The Model Rules go so far as to make the attorney liable for acts of the investigator that violate the Model Rules, if the attorney knows of or ratifies those acts. The rules seek to ensure that an attorney does not circumvent ethical standards by delegating to an investigator. Instructions must include what can or should be done, what is to be avoided, and whether and who the investigator can employ to perform the assigned tasks. Failure to properly instruct an investigator may lead to unethical behavior, which may result sanctions. In the worst cases, sanctions can include prohibiting the use of improperly-obtained evidence at trial, or even terminating sanctions. One of the authors of this article obtained a dismissal of a trade secret misappropriation lawsuit as a sanction when plaintiff’s private investigator trespassed on his client’s property dumpster diving in search of evidence of misappropriation. The private investigator was hired by the client directly. The lawyers were involved, but they failed to take precautions to ensure that the investigator acted lawfully.

To satisfy their ethical obligations, the lawyers in the above example could not simply instruct the investigator to avoid unlawful conduct. Attorney involvement must go beyond that, as illustrated by Stephen Slesinger, Inc. v. Walt Disney Co., 155 Cal. App. 4th 736 (Cal. Ct. App. 2007), in which a Los Angeles court awarded terminating sanctions based on unethical conduct by a private investigator who had been admonished by the plaintiffs to “obey the law.” Plaintiffs claimed royalty payments allegedly due for Winnie the Pooh Merchandise under a licensing agreement with Disney. The Court issued terminating sanctions after plaintiffs’ investigator was found to have stolen more than 6,000 pages of documents from garbage dumpsters located at multiple Disney document production facilities. In affirming the sanction, the appellate court ruled that plaintiffs failed to adequately supervise the investigator’s activities, that circumstantial evidence showed their knowledge or deliberate indifference to his trespasses, and that they were vicariously liable for his work. “In short, Sands’s deliberate misconduct is also the deliberate misconduct of [Stephen Slesinger, Inc.].”Id. at 769.

The perils associated with investigator misconduct can be greater still. California law holds both a company and its attorneys liable for negligent hiring, and vicariously liable for the intentional torts of a private detective agency committed in the course of employment. InNoble v. Sears, Roebuck and Company, a consumer alleged that she suffered personal injuries while shopping at Sears. 33 Cal. App. 3d 654, 663 (Cal. Ct. App. 1973). Defendants hired an investigator to obtain the address of a witness, plaintiff’s friend. The investigator ultimately gained admittance to plaintiff’s hospital room and secured the address “by deception.” Id. at 657. In reversing the trial court’s dismissal of the claims, the appellate court held that the company, its attorneys, the investigator, and the investigator’s employee could all be found liable for the employee’s “unreasonably intrusive investigation” violating the plaintiff’s right to privacy. Id. at 660.

A threshold factor in determining whether the retention of an investigator is negligent is whether the investigator is licensed. Noble, supra, at 664. In California, an employer can confirm an investigator’s license online by consulting the Bureau of Security and Investigative Services, an agency within the Department of Consumer Affairs. Confirmation of a license, however, is not itself sufficient to establish reasonable care in hiring. Attorneys should check references to confirm that a proposed investigator maintains an ethical practice. The California Association of Licensed Investigators may provide further guidance and recommendations for selecting an investigator.

When retaining a private investigator, one should maintain a professional, cordial relationship that emphasizes at all times that the interest to be served is to discover the truth, not to manufacture evidence, or to earn one’s keep by producing positive evidence. One of the authors once impeached an adversary’s forensic investigator with an e-mail communication in which the investigator’s supervisor instructed her, in substance, “to find something, because the client is paying us a lot of money to deliver results.” An attorney should never assume that an investigator will know to avoid such a communication.

Once retained, the attorney must set the parameters of the investigator’s conduct. Attorneys should develop a set of guidelines to review orally with the investigator, and consider developing a written contract that expressly states these expectations of professionalism.

PRETEXTING OR MAKING FALSE STATEMENTS

One ethical pitfall that occurs with some frequency is pretexting, which is the use of false pretenses as a method of discovery. Pretexting generally involves the use of information about an individual, such as a social security number, to impersonate the individual and mislead information providers into giving out additional information that would generally only be available to the authorized individual. Attorneys, and private investigators, when gathering facts, must avoid making false or misleading statements representing that they are authorized to obtain personal information when in fact they are not.

Until recently, a number of statutes covered pretexting activities only with respect to certain records. For example, the Gramm-Leach-Bliley Act of 1999, 15 U.S.C. § 1681q, prohibited the use of pretexting to acquire personal financial information from financial customers or institutions. The Fair Credit Reporting Act, 15 U.S.C. § 1681q, enacted in 1968, barred individuals from obtaining consumer information under false pretenses from a consumer reporting agency. Enacted in 1914, the Federal Trade Commission Act, 15 U.S.C. § 45, prohibited unfair or deceptive acts or practices affecting commerce, which covered many aspects of pretexting but did not give the FTC authority to seek civil penalties in certain cases.

No law specifically banned the use of pretexting to obtain telephone records until Congress enacted the Telephone Records and Privacy Protection Act (TRPPA) of 2006, 18 U.S.C. § 1039, making it a crime to knowingly and falsely obtain “confidential phone records information,” punishable by a fine and up to ten years’ imprisonment. Congress’s findings supporting the TRPPA describe pretexting as fraud on a material fact that persuades someone to disclose information: pretexting occurs when “a data broker or other person represents that they are an authorized consumer and convinces an agent of the telephone company to release the data.” Telephone Records and Privacy Protection Act of 2006, Pub. L. No. 109-476, § 2, 120 Stat. 3568 (codified at 18 U.S.C. § 1039). Even greater penalties may be assessed under state law against the use of fraudulent statements to obtain consumer and employee telephone records information, as is the case with California Penal Code § 638, enacted several months before the TRPPA. Section 638 subjects any person who attempts to procure telephone calling records through fraud or deceit to a penalty of a $10,000 fine and up to one year of jail time.

Rules of professional conduct regarding pretexting provide some guidance, but also leave a considerable grey area that cautions restraint. Ethics rules do not define wrongful pretexting in terms of what specific activity is acceptable. A case from New Jersey illustrates what are likely the outer limits of what a court is willing to define as an ethical misrepresentation in the context of gathering facts in aid of litigation. In Apple Corps Ltd. v. International Collectors Society, Yoko Ono’s counsel hired investigators to investigate whether a postage stamp company was violating the terms of a settlement agreement with John Lennon’s estate concerning stamps bearing the rock star’s image. 15 F. Supp. 2d 456 (D.N.J. 1998). The investigators posed as consumers and placed orders by phone with the stamp company for products not authorized under the settlement agreement. The stamp company sold the products to the investigators, which was the critical piece of evidence showing the stamp company’s violation of the settlement agreement. After the plaintiffs sought a contempt order and injunction, the stamp company motioned for ethical sanctions against plaintiff’s counsel, claiming their behavior was deceitful. The Apple Corps court held that the phone calls did not violate ABA, New York or New Jersey ethics rules prohibiting fraud and deceitful conduct, although the investigators did not identify their purpose in calling. The court held that rules prohibiting deception are not violated where lawyers and their investigators “act as members of the general public to engage in ordinary business transactions with low-level employees of a represented corporation” to detect violations of the law. Id. at 474-75. To what extent the conduct approved in Apple can be generalized to all cases is open for debate. Arguably, undercover investigative acts that verge on pretexting, such as those undertaken by the Apple Corps attorneys, appear to be accepted only in those narrow areas where courts or ethics boards have expressed some approval, as in the contexts of housing discrimination and trademark disputes, where the potential violations would otherwise not easily be detected or proven.

In contrast to Apple Corps, the Oregon Supreme Court held that an attorney’s false representations to investigate a potential claim did violate Oregon’s misconduct rule prohibiting “fraud, deceit or misrepresentation.” In re Gatti, 330 Ore. 517 (Or. 2000). Gatti, a lawyer, sought to investigate whether Comprehensive Medical Review (CMR), a company that conducts claims reviews for State Farm Insurance Company, employed unqualified reviewers and used an improper cost-cutting formula to determine whether to grant medical coverage for chiropractic services. Gatti, posing as a chiropractor, called a reviewer who worked for CMR to ask questions about his qualifications. Then Gatti called a CMR executive and falsely stated that he himself had performed medical examinations, was interested in working as a CMR claim reviewer, and had been referred to CMR by both State Farm and the chiropractor-reviewer Gatti had called. The court held that the Oregon Bar could prosecute Gatti based on a disciplinary rule prohibiting knowingly misrepresenting one’s identity with the intent that it be acted upon, in circumstances where disclosing one’s real identity would have influenced the recipients’ conduct. Id. at 527-28. In response to the In re Gatti decision, which met with a critical response from the state bar, Oregon adopted a new professional rule, now Rule 8.4(b), permitting attorneys to supervise lawful covert activity in the investigation of violations of law or rights, where the supervising lawyer in good faith believes there is a reasonable possibility of unlawful activity.

The differences in conduct engaged in by Yoko Ono’s attorneys and Gatti are important. One conclusion to be drawn is that an investigator’s failure to identify her true objectives is acceptable if she is acting as a member of the general public, doing something that members of the public typically can do in relation to a particular transaction. In such a situation, the investigator is not lying to the investigation target, nor is she tricking the target into acting differently or giving out information that would not otherwise be given in such a situation. However, where an investigator lies about his identity or poses as someone else in order to mislead the target into disclosing information that would otherwise be withheld, then such activity is treated as violative of the rules of professional conduct. Model Rules of Professional Conduct 4.1, 4.4(a), and 8.4(c) give detail to the ethical standards against deceit. In Gatti, as part of his investigation of potential violations, the attorney went further than merely inquiring about the prerequisites to become a CMR reviewer. He lied to his targets, falsely identifying himself as a licensed chiropractor, to gain confidences that, likely, would not have otherwise been revealed to him. This affirmative step, coupled with its material effect on whether information would otherwise have been given, is what separates Gatti’s investigation from that of Yoko Ono.

Prudent counsel will err on the side of avoiding misrepresentations, and will instruct an investigator to conduct themselves accordingly.

USING AN INVESTIGATOR TO COMMUNICATE WITH A REPRESENTED WITNESS

Another pitfall in using a private investigator is the possibility that she will communicate with someone already represented by counsel in connection with the matter at issue. Ethical rules prohibit an attorney from communicating about the subject of the representation with a witness the attorney knows to be represented by another lawyer, without the consent of the witness’s counsel. The same rules apply to private investigators. The ABA states the rule this way: “Since a lawyer is barred under Rule 4.2 from communicating with a represented party about the subject matter of the representation, she may not circumvent the Rule by sending an investigator to do on her behalf that which she is herself forbidden to do.” ABA Comm. on Ethics and Prof’l Responsibility, Informal Op. 95-396 (1995). Comment 4 to Model Rule 4.2 also states: “A lawyer may not make a communication prohibited by this Rule through the acts of another.” Likewise, California Rule of Professional Conduct 2-100(a) prohibits a member from communicating “directly or indirectly” with a party known to be represented in the matter. The consequences of violating this rule include both professional and evidentiary sanctions.

That is not to say that all inadvertent or unwitting contacts with a represented party will result in sanction. Many courts would find no violation if the investigating attorney does not actually know that the witness is represented in the matter at the time of the communication. InJorgensen v. Taco Bell Corp., the trial court declined to find unethical conduct in connection a pre-litigation investigation in which plaintiff’s investigator interviewed Taco Bell employees before the plaintiff had filed a complaint. The Court held that it was not possible for the attorney to know that Taco Bell was represented in the as-yet-unfiled matter. 50 Cal. App. 4th 1398 (Cal. Ct. App. 1996). The court did not require the attorney to contact Taco Bell’s in-house counsel to determine whether Taco Bell was actually represented in the matter before making contact. This rule will not be the same for every jurisdiction. Some jurisdictions that follow the ABA Model Rules will impute knowledge of a witness’s representation to an attorney under certain circumstances. See, e.g., Featherstone v. Schaerrer, 34 P.3d 194 (Utah 2001). Therefore, counsel considering such contacts must be careful to research the rules of the applicable jurisdiction.

This rule against ex parte communications extends to any person or witness represented by counsel in a matter to which the conversation relates, including potential parties. With respect to represented organizations and companies, the Model Rules distinguish between communications with a company that is represented, its low level employees, and its former employees. The Model Rules do not require the consent of the organization’s counsel for communications with former employees. The attorney or investigator, however, must be careful to avoid eliciting the substance of privileged communications. Prior consent of corporate counsel in many instances is not required for communications with low-level employees, since the Rule only prohibits communication with an employee who “supervises, directs or regularly consults with the organization’s lawyer concerning the matter or has authority to obligate the organization with respect to the matter or whose act or omission in connection with the matter may be imputed to the organization for purposes of civil or criminal liability.” Model Rules of Prof’l Conduct R. 4.2 cmt. 7. Many states have adopted rules and standards similar to the ABA Model Rules on organizational employees. See, e.g., Cal. Rules of Prof’l Conduct R. 2-100(b)(2). In 2002, the ABA narrowed the scope of the ex parte communications rule with respect to organizational employees. The prior standard prohibited communication with any person “whose statement may constitute an admission on behalf of the organization,” which some courts had interpreted broadly to bar ex parte communications with any witness who could bind the organization in a legal, evidentiary sense.See Am. Bar Ass’n Annotated Model Rules of Prof’l Conduct R. 4.2 (5th ed. 2003). Even when communications with a current low-level employee are not barred by the ex parte rule, however, an attorney or investigator must be mindful of interactions with other rules, such as Model Rule 4.4, which prohibits the use of discovery methods that violate the legal rights of the organization, such as attorney-client privilege.

Before interviewing or communicating with a third party or potential witness, consider whether the contact falls within the ethical rules. Has a complaint been filed? Do you know whether the third party is represented? How does your jurisdiction define knowledge of representation, and whether a particular witness is represented by corporate counsel? Is the witness a low-level employee of an adverse party? If so, did they engage in any acts or omissions which might be imputed to their employer for liability purposes? These rules apply regardless whether the “ex parte” contact is initiated by an attorney, investigator or other person supervised by the attorney or investigator.

FAILING TO PRESERVE ATTORNEY-CLIENT PRIVILEGE

Another pitfall in using a private investigator is the potential loss of the attorney-client privilege or work product protection. Under both federal and California law, attorney work product and attorney-client privilege are granted to a private investigator as the agent or representative of attorney. United States v. Nobles, 422 U.S. 225 (U.S. 1975); Rodriguez v. McDonnell Douglas Corp., 87 Cal. App. 3d 626 (Cal. Ct. App. 1978).

To avoid waiver of any privileges, it is important that an investigator undertake the same precautions as an attorney. In Roberts v. Americable International, Inc., the plaintiff asserted work product and attorney client privilege with respect to tape recordings of conversations between plaintiff and the individual defendant manager made secretly by the plaintiff for use in an employment discrimination case. 883 F. Supp. 499 (E.D. Cal. 1995). Plaintiff asserted attorney-client privilege and work product protection. The court denied the privilege assertion because none of the recorded communications was for the purpose of seeking legal advice. The court ruled the materials were not attorney work product because the recordings did not reveal the mental processes of the attorney or investigator— neither of whom were parties to the taped conversation. In the same vein, the court in Laxalt v. McClatchy required two investigators retained by defendants in connection with a libel action to respond to the plaintiff’s deposition questions seeking to discover facts including the identity of witnesses and documents pertinent to the case and other information obtained during their employment with defendants. 116 F.R.D. 438 (D. Nev. 1987). The court drew a line, however, at requiring investigators to point out which witnesses they had interviewed, and to state which documents they had been shown by defendants, since this type of information was likely to reveal the type of mental impression and trial strategy that the work product doctrine protects.

Secret recordings pose a number of problems including waiver. While the ABA no longer considers it to be an ethical violation to secretly record another party, such recordings may violate other applicable regulations. ABA Comm. on Ethics and Prof’l Responsibility, Formal Op. 01-422 (2001). Where secret recording violates state law, as in California under Penal Code section 632, or under professional rules relating to fraud and deceit, work product protection does not apply. Even when the recordings are lawful, attorneys should keep in mind the evidentiary issues they raise, including the quality of the recording and authentication.

Even when a privilege applies to an investigator’s work, it may be waived under the same rules and exceptions applicable to attorneys. By listing a private investigator as a witness, a party is deemed to waive the work product privilege with respect to matters covered in the investigator’s testimony. Nobles, 422 U.S. at 225. In jurisdictions with a crime-fraud exception, the attorney-client privilege will not extend to work performed by an investigator in aid of a fraud or crime. See, e.g., In re Fulton County Grand Jury Proceedings, 244 Ga. App. 380 (Ga. Ct. App. 2000). Voluntary disclosure to others and failure to timely assert work product protection or attorney-client privilege are other common sources of waiver.

DISQUALIFYING YOURSELF AS A WITNESS

Both Model Rule 3.7 and California Rule 5-210 prohibit an attorney from acting as a witness on a contested issue in a case the attorney is a likely witness, but do not disqualify other members of the attorney’s firm. Courts typically weigh the prejudice to the opposing side against the hardship of retaining new counsel to the client employing the attorney-witness. Most jurisdictions permit disqualification only with respect of performing the role of advocate at trial, and not with respect to pretrial activities or preparation outside the courtroom. California’s attorney-witness rule is more limited and only applies where the attorney’s testimony will be delivered in front of a jury. Another consideration is the party calling the attorney-witness: some courts, including in California, hold that the advocate-witness rule disqualifies an attorney only where she is a necessary witness for her own client, and many courts find no disqualification where opposing counsel merely announces an intention to call the attorney as witness without showing additional necessity. California allows the attorney-witness prohibition to be waived by the client. Even where a jurisdiction allows waiver, however, a prudent attorney should be cautious about asking juries to assess the attorney’s own credibility.

FOR MORE INFO CONTACT JACQUELINE BEAUMONT

A new California Senate Bill recently passed in the Senate Labor Committee, and it is intended to amend Labor Code 512 to “clarify” existing law. There is no question that existing law could benefit from clarification. What is less certain is whether SB 1539 actually provides the much needed clarity, or whether it adds further confusion and, thereby, further ammunition for litigation. Discussed below are a few of the key areas of existing law that SB 1539 hopes to “clarify.” Ultimately, these authors believe that SB 1539 does provide some needed clarification but that it continues to leave employers in the dark — and thus exposed to costly litigation — with respect to some key aspects of the meal period laws.

By way of background, existing statutory law does not define what it means to “provide” a meal period. Labor Code Section 512 simply mandates that employers must provide their employees with a 30 minute meal period if they work more than 5 hours in a workday, and another 30 minute meal period if they work more than 10 hours in a workday. Although the Industrial Welfare Commission (“IWC”) Orders also set forth various requirements for meal periods, they are likewise silent in defining what it means to “provide” a meal period to employees.

The California Appellate Court in Brinker Restaurant Corporation v. Superior Court, No. D049331, 2008 WL 2806613 (July 22, 2008), recently tussled with trying to interpret whether an employer’s duty to provide a meal period means the employer must ensure its employees actually take a meal period, or whether an employer satisfies its obligation by simply making a meal period available to its employees. In a closely watched case, the appellate court held that an employer is only required to make meal periods available to employees. In Brinker, the appellate court found that the trial court “incorrectly assumed that, in order to render an informed certification decision, it did not have to resolve the issue of whether Brinker had a duty to ensure that its employees take their meal periods.” (Id. at *16.) The appellate court reasoned that the trial court did not properly evaluate whether common questions regarding plaintiffs’ meal period claim predominate over individual issues. Thus, the appellate court held that class certification was improper. (Id. at *23) (The trial court’s decision was wrong “because meal breaks need only be made available, not ensured, individual issues predominate in this case and the meal break claim is not amenable class treatment.” Id at 58))…)

Employment lawyers have certainly paid close attention to the Brinker case because it casts doubt on the decision in Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, which had previously suggested that an employer’s obligation to provide its employees with meal periods is not satisfied by assuming that the meal periods were taken. Instead, Cicairos suggested employers have an affirmative duty to ensure that the employees take meal periods. The appellate court in Brinker distinguished Cicairos and limited the case to its facts. (Id. at *22) (stating that the Cicairos court “only decided meal breaks must be provided, not ensured”).)

The California appellate court in Brinker, however, was not the first court to distinguish Cicairos. The United States District Court, Northern District, essentially disagreed with Cicairos and granted summary judgment in favor of the employer. (See White v. Starbucks (N.D. Cal. 2007) 497 F.Supp.2d 1080.) Faced with a putative class action for alleged meal period and rest break violations, Starbucks successfully argued that employers cannot be required to actually make sure that all employees take their 30 minute meal periods, because doing so would create an unreasonable and unworkable strict liability standard. (See id. at 1088 (it “cannot be the rule that employers must ensure that a meal period is actually taken, regardless of what an employee does, because that would create a strict liability standard”).) Accepting Starbuck’s argument, the Northern District limited the Cicairos case to the facts presented. (Id. at 1088.) Ultimately, the district court concluded that “the California Supreme Court, if faced with this issue, would require only that an employer offer meal breaks, without forcing employers actively to ensure that workers are taking these breaks.” (Id. at 1088-89 (reasoning that “the employee must show that he was forced to forego his meal breaks as opposed to merely showing that he did not take them regardless of the reason”); see also Kenny v. Supercuts, Inc., No. C-06-07521, 2008 WL 2265194 at *7 (N.D. Cal. Jun. 2, 2008) (denying class certification in meal period case and following Starbucks).)

The Central District also adopted the reasoning in Starbucks. In Brown v. Federal Express Corp., 249 F.R.D. 580 (C.D. Cal. 2008), the Central District held that California law only requires employers to make available a meal period, “not ensure that employees take advantage of what is made available to them.” (Id. at 585.) The court further stated: “It is an employer’s obligation to ensure that its employees are free from its control for thirty minutes, not to ensure that the employees do any particular thing during that time.” (Id.) The court specifically declined to rely on Cicairos: “This Court is not persuaded of the contrary holding in Cicairos.” (Id. at 586.) Instead, the Central District court relied on dicta in Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, implying that an employer is not required to ensure that an employee take a meal period so long as the employer does not force its employee to work through a meal period. (Id.; see also Salazar v. Avis Budget Group, Inc., No. 07-CV-0064, 2008 WL 2676626 at *4 (S.D. Cal. 2008) (denying class certification in meal period case and following Brown, Kenny, and Starbucks). )

In light of the uncertainties left in the wake of recent California and federal case law, SB 1539 would provide some needed statutory clarity. Specifically SB 1539 defines “providing the employee with” a meal period as “giving the employee an opportunity to take,” such that the requirement that an employer “provide an employee with” a meal period is satisfied when the employer provides the employee with an opportunity to take the meal period. SB 1539 thus rejects a strict liability standard and employers could rest assured that they do not have an affirmative obligation to self police their employees or hire employees whose sole function it is to have a stopwatch to ensure that employees actually take their scheduled meal periods. SB 1539 suggests that the Legislature never intended to require employers to police their employees in this manner. Thus, SB 1539’s clarification is appropriate and needed, especially given the appellate court’s decision in Cicarios.

Unfortunately, SB 1539 does not address the implication in Brinker that a meal period may commence after the first five hour work period. The ambiguity in Brinker is that the appellate court interpreted the language of Section 512(a) literally and stated that it “generally requires a first meal period for every ‘work period of more than five hours per day.'” (Emphasis in case). This language-taken to its “literal” extreme-seems to imply that a first meal period may commence any time during the “day” after the employee works for five hours. However, it was generally understood prior to Brinker that a first meal period cannot commence after 6 hours of work (or 5 to be conservative), based on the language in Labor Code Section 512(b), which provides: “Notwithstanding subdivision (a), the Industrial Welfare Commission may adopt a working condition order permitting a meal period to commence after six hours of work if the commission determines that the order is consistent with the health and welfare of the affected employees.” The IWC does not appear to have adopted a regulation allowing a meal period to commence after six hours, so this implies that a meal period must commence prior to 6 hours of work. Still, this issue is unclear and the provisions of the Labor Code, the IWC regulations, and case law is evolving and changing. Even the Brinker case discussed above may not stand if the California Supreme Court has a different perspective on the issue.

In addition to the meaning of “provide” a meal period, SB 1539 also attempts to clarify existing law regarding on-duty meal periods. Existing law, as stated in Labor Code Section 226.7 prohibits an employer from requiring its employees to “work” during any meal period mandated by an applicable Industrial Welfare Commission Wage Order. Labor Code Section 226.7 further states that if an employer fails to provide a meal period, then the employer must pay an additional hour of pay at the employee’s regular rate of compensation. Based on the plain reading of this statute, an employer cannot “require” (e.g., command, compel, etc.) an employee to “work” during his or her meal period. The Legislature’s intent apparently was to give employees a choice to “work” during their meal period, so long as the employer does not “require” them to “work.”

Notwithstanding the Legislature’s intent, the IWC has stated that unless the employee is relieved of all duty, the meal period must be considered “on duty” and counted as “time worked.” This means that an employee who is relieved of all duty during his or her meal period would be considered “off-duty,” although no California case has engaged in this analysis or clarified what it means to be “relieved of all duty.” Further, according to the IWC, on-duty meal periods are only permitted if (1) the nature of the work prevents an employee from being relieved of all duty, and (2) when the employee agrees to an on-the-job meal period in writing. Thus, if an employee is not relieved of all duty and the foregoing requirements are not met, the employer is vulnerable to liability under Labor Code Section 226.7 for failing to provide a meal period in accordance with an applicable IWC Wage Order.

Although Labor Code Section 226.7 seems to allow employees the flexibility to agree to work during their meal periods, the language of applicable IWC Wage Orders is ambiguous because the language fails to offer any guidance for determining when a meal period is considered on-duty versus off-duty. Conspicuously, there is no definition or guidance provided for determining when an employee is “relieved of all duty.” One reasonable interpretation is that a “working” meal period (i.e. a meal period during which an employee is actually performing duties and tasks for his or her employer) is equivalent to an “on-duty” meal period. If, however, the IWC’s definition of “on-duty” means something less than being engaged in “work,” then it is unclear whether the IWC’s requirements are properly based on statutory authority and/or whether they are consistent with statutory authority and case law. For example, an employee would not seem to be “on-duty” if he or she was required to remain on premises (and thus was entitled to compensation for such time) during a paid lunch period but was not required to do any work?

While SB 1539 plainly states that an “off-duty meal period” means a meal period that lasts 30 minutes during which time the employee is relieved of all duty, it fails to provide a much needed definition of the phrase “relieved of all duty.” Notably, Labor Code Section 512 currently does not include the term on-duty or off-duty, but the IWC Wage Orders generally define on-duty meal periods as those meal periods where the employee is not relieved of all duty. Thus, the “current law” regarding on-duty versus off-duty meal periods remains unclear because, as discussed above, there is no statutory distinction or explanation of what it means to be on-duty or off duty.

While not answering the question of what it means to be relieved of all duty, SB 1539 does set forth a definitive list of conditions under which an employee would be allowed to take an on-duty meal period. Specifically, SB 1539 allows “on-duty” meal periods if (a) the employees are covered by an IWC Wage Order that authorizes an “on-duty” meal period, (b) the employee and employer enter into an on-duty meal period agreement, (c) the employee is allowed to eat while on-duty, (d) the meal period is counted as time worked, and (e) the nature of the work prevents the employee from being relieved of all duty based on one of the following 6 enumerated statutory conditions:

1. The employee is working alone, or is the only person in the employee’s job classification, or there are no other qualified employees who can “reasonably relieve the employee of all duty;”
2. The nature of the work or the relevant circumstances make it “unreasonable” or unsafe to take a break;
3. State or federal law requires them to be on duty;
4. Work product or process will be destroyed;
5. Work product is perishable, including the delivery of those products; or
6. The employee works in a 24-hour care facility for children, the elderly, or the disabled.

Based on the language above, SB 1539 appears to expand and codify the IWC Wage Order provisions governing on-duty meal period requirements.

As discussed above, arguably the bigger problem is that SB 1539 does not establish a test for determining whether an employee is “relieved of all duty.” Without any California legal authority on this issue, employers are left without a clear answer. Employers can argue, however, that the test for determining whether an employee is relieved of all duty should depend on whether the employee is actually working. This argument is reasonable, given the plain language of Labor Code Sections 226.7 and 512 (and SB 1539), as well as certain language found in California case law. In Madera Police Officers Association v. City of Madera (1984) 36 Cal.3d 403, 410, for example, the California Supreme Court said that “no one question is likely to be dispositive of the question of whether the employee was working during lunchtime.” Also, the court in McFarland v. Guardsmark, LLC, 2008 WL 698481 (N.D. Cal. 2008), stated that “where the employee agrees to take an ‘on duty’ meal period, and gets paid for working during the time he is eating, there is no ‘waiver’ of the meal period.” (Id. at *6.) This language supports the argument that an on-duty meal period is one where the employee is “working,” and if the employee is not “working” the meal period should be treated as an “off-duty” meal period. Although no California case appears to define the term “work,” the U.S. Supreme Court has defined the term “work” as “physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business.” (Tennessee Coal & RR Co. v. Muscoda Local No. 123 (1944) 321 U.S. 590, 598.)

The California Legislature should consider clarifying the intended meaning of when an employee is “relieved of all duty,” and clarify that an employee is not automatically “on-duty” if the employee is required to remain on the premises. Federal law specifies that “[i]t is not necessary that an employee be permitted to leave the premises if he is otherwise completely freed from duties during the meal period.” (29 C.F.R. § 785.1.9) Federal courts have relied on three different tests to determine whether an employee is completely relieved of his or her duties. The first test asks whether or not the employee’s time spent during the meal period is primarily for the employer’s benefit. (Henson v. Pulaski County Sheriff Dep. (8th Cir. 1993) 6 F.3d 531; Hahn v. Pima County (2001) 24 P.3d 614, review denied Jan. 8, 2002.) The second test focuses on whether the employee is completely free of any work-related tasks, and is used in non-law enforcement cases. (Kohlheim v. Glynn County (11th Cir. 1990) 915 F.2d 1473.) The third test looks at whether the employees are primarily engaged in work-related activities during meal breaks. (Armitage v. City of Emporia (10th Cir. 1992) 982 F.2d 430; Lamon v. City of Shawnee (10th Cir. 1992) 972 F.2d 1145, 1157.)

In the meantime, employers in California can argue that SB 1539 implies an employee must be actually engaged in work (i.e. performing actual duties) for a meal period to be considered on-duty. On the flip side, a meal period during which an employee has no obligation to do actual work should be considered a bona fide meal period even if they are subject to some small degree of employer control. (E.g., if they are required to remain on premises but are otherwise relieved of all duties.) This interpretation is consistent with the common understanding of the term “work.” It is also reasonable since no California court has defined an on-duty meal period. Although the case of Bono Enterprises, Inc. v. Bradshaw (1995) 32 Cal.App.4th 968 upheld a DLSE policy that an employee who has a duty or obligation to remain on the premises during meal periods is not “free of all duty.” The California Supreme Court’s opinion in Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 574, disapproved of Bono Enterprises and held that the DLSE’s policy discussed in Bono Enterprises was an invalid regulation that was not adopted in accordance with the Administrative Procedures Act (“APA”), Gov. Code, §§ 11340 et seq. Further, subsequent courts have seemed to limit the holding in Bono Enterprises to the rule that “an employee who is subject to an employer’s control does not have to be working during that time to be compensated” under the IWC’s definition of “hours worked.” (See Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 578 (emphasis added).) In other words, the Bono Enterprises holding that an employee must be paid for all time spent under his or her employer’s control is still good law, however, no case has reasoned that remaining under an employer’s control means that the employee is not relieved of all duty such that an employer would have to pay the employee a penalty for failing to provide a meal period.

In short, SB 1539 is a step in the right direction, but it may need to further “clarify” the requirements and legal standards for on-duty meal periods to provide the much needed guidance that employers and the courts are seeking.

FOR MORE INFO CONTACT JULIE TROTTER

When Sugden’s law partner, Scott Ferrell, is in the trenches on a complex intellectual property case, he says he usually logs off the computer and hits the pillow around 1 a.m. When Ferrell awakes a few hours later, he says, “it’s common for me to have a dozen new emails from Dave” about the case that Sugden typed out while he was sleeping. Colleagues say Sugden’s near round-the-clock work approach and sharp legal wit has helped build the type of resume claimed by only the most seasoned practitioners.

Though Sugden’s been a lawyer just seven years, he already has racked up four multimillion-dollar judgments. His biggest was a $47 million punitive damages verdict two years ago on behalf of telecommunications giant Nortel Networks.

He also won $5 million, $10 million and $20 million “consent judgments” for the company in the past few years – awards in which a defendant corporation agrees to pay a judgment when faced with hard evidence on claims, such as warranty fraud and illegal product marketing.

Sugden this month was named sole managing partner of his 24-attorney litigation boutique, Call & Jensen in Newport Beach. He also found time to write a widely praised book on brand protection focusing on the concept of gray marketing – a phenomenon in which a company’s products are illegally distributed.

“Dave has a Herculean work ethic,” Ferrell says.

A native of Vancouver, B. C., Sugden moved to California to play baseball at Pepperdine University, where he earned a history degree in 1998. He earned his law degree there three years later, gravitating to the field after watching his father practice business litigation while growing up. He joined Call Jensen & Ferrell right out of law school. He said the partners let him cut his teeth quickly on complex cases.

“As a young lawyer, I hit the ground running,” Sugden says. “I got in trial and got deep experience almost immediately, helping me grow relatively quickly for my age.”

While Sugden said his dogged work schedule has helped fuel his big results, he said another secret to his success is being respectful of everyone, whether it be jurors, judges or opposing counsel.

Lu Pham, a Dallas-based attorney who faced off against Sugden last year, called him “one of the best lawyers I’ve ever worked against.” Pham agreed to the $20 million consent judgment after Sugden argued that Pham’s client, Alliance Telecom, had stolen Nortel’s software. Pham said Sugden was “well prepared.”

“Not only does he know the law, he knows his facts inside and out,” Pham said.

In several instances, Sugden has convinced judges to allow him to go into defendant companies with the U.S. marshal’s office to conduct “surprise searches and seizures” of evidence, such as incriminating emails and other documentation. He says such evidence has dramatically bolstered his arguments and led to big awards.

Sugden tries to leave the office by 5:30 p.m. to spend time with his wife, Marni, a marketing executive, and their two children, Charlotte, 4, and Audrey, 3. He says he tucks the kids in bed and then logs back on the computer, working into the middle of the night. He says he catches a “few” hours of sleep before heading back to the office around 9 a.m. “The hours are long,” Sugden says.“But fortunately I like the work, so it’s not too bad.”

FOR MORE INFO CONTACT DAVID R. SUGDEN

Not long ago, brand owners could take comfort in the intrinsic barriers hampering black marketers. While most large cities have places known by their dwellers to be sources of cheap goods of dubious origin, consumers have to consciously decide to explore these markets in addition to or in lieu of conventional establishments. Canal Street in New York’s Chinatown is a well-known example. The street is lined with densely packed shops offering watches, purses, and other luxury items at prices that are corruptively low. Until relatively recently, these markets did not pose a significant threat to brand owners. The remote locations of these markets created a sufficient bulwark to market entry. As a result, brand owners knowingly conceded that a small percentage of its would-be buyers bought cheap knock-offs instead.

Many brand owners justified their tolerance of these bazaars on the belief that someone shopping for a twenty-dollar Rolex watch is not even a would-be customer. This customer is simply looking for a cheap gimmick or perhaps his or her economic reality precludes any possibility of buying a genuine product for several thousand dollars more. Brand owners were also untroubled because the knock-offs were so obviously inferior to the genuine goods they sought to mimic. While a Guci purse may have looked just like a Gucci purse from across a dimly lit cocktail lounge, a casual glance in an unobstructed environment could quickly distinguish the two. Because such a terse inspection could expose these products as feeble imitations, brand owners concluded that no real threat existed.

Times have changed. Customers looking for bargains found in the black or gray market now have the ability to virtually browse anywhere there is an Internet connection. Equally vexing for brand owners is the modern difficulty of spotting illegitimate products. Indeed, the obstacles that were once sufficient to relieve concern for brand owners have been removed. The gray and black market economies have enjoyed incredible growth extending their reaches from Canal Street to our laptops.

A LITTLE PERSPECTIVE

In 2005, Arnold Schwarzenegger joined his friend and fellow action star Jackie Chan in Hong Kong to promote a campaign against film piracy in China. The 30-second anti-piracy public service announcement featured both actors in leather jackets zooming down a road on motorcycles, dodging exploding cars and other hazards. “When you buy pirated movies and music, you support criminals!” Mr. Chan says. Mr. Schwarzenegger adds, “Let’s terminate it!” Today, many countries are haplessly devoid of the necessary resources and infrastructure to adequately protect intellectual property. Countless articles and books can be found lamenting the lack of international enforcement to protect American innovation. It is worth remembering, however, that America is an ex-pirate itself:

• [O]ne of the undeniable reasons [Charles] Dickens had gone to America [in 1841] was to work for the acceptance of International Copyright so that his books, among those others to be sure, would no longer be pirated by unscrupulous American publishers. It was a mission in which he entirely, humiliatingly failed, and a copyright agreement between England and the United States was not concluded until 1891. Gehard Joseph,Charles Dickens, International Copyright, and the Discretionary Silence of Martin Chuzzlewit, 10 Cardozo Arts & Ent. L.J. 523 (1992).

Assaults on innovation are nothing new. What is novel is how easy mounting these assaults has become. Today, laser printers, scanners, and computer graphics software allow fraudsters with limited budgets and sophistication to mass produce fake labels, trademarks, and other documentation. Other technologies similarly allow for low cost replication of CDs and DVDs. These latter technologies hurt many industries beyond music and film. Software and hardware products (that require software) are similarly duplicated further depriving revenues to the legitimate brand owner.

Technological progress has also made transporting pirated products faster and easier. Advancements in cargo containers, better roll-on and roll-off tools, superior port management, and even modern refrigeration techniques have all played a role in improving worldwide shipping. In addition, companies like UPS, FedEx, and PayPal provide business owners with a litany of tools to make efficient the machine of national and international commerce. From tracking products and confirming delivery to ensuring payment and tracking invoices, the world’s smallest business can now seamlessly participate in the global economy. These tools remove what were once barriers to market entry and create a much more level playing field. Because technological innovation is unbiased, the modern tools of transportation and logistics assist marketers just as they assist brand owners.

In this era of fast and easy duplication, the realities of globalization are forcing companies to have a paradoxical business strategy. While intellectual property is enduring a season of heightened vulnerability, American businesses are essentially forced to share their secrets with outsourced foreign partners to remain viable. Less than honorable partners may over-manufacture genuine goods, manufacture their own copycat goods, or share secret processes to other individuals or companies. The accounts of American businesses getting burned by foreign deceit are endless. And yet, remaining domestic for all operations is rarely a viable option. Brand owners must therefore be willing to go overseas but prudent enough go overseasprepared.

The speed and simplicity in which people communicate, buy, sell, and ship products across oceans and borders have paved the way for a worldwide outburst of infringement. While many brand owners were savvy to take advantage of the benefits modern globalization offered, the attendant harm to brand integrity caught most companies completely flat footed.

MOVING FORWARD

Because the bells of globalization and modern technology cannot be un-rung, brand owners must learn to capitalize and cope with the rewards and risks in this new economy. To generalize, American businesses have done a fine job capitalizing on the rewards. Where American companies have fallen short has been with respect to stepping-up efforts to protect their brands and intellectual property. The benefits of global expansion reach far beyond legitimate trade. Illegitimate trade has been equally eager to take advantage of the efficiencies and economies of scale that globalization offers. As a result, threats to brand owners in the form of black or gray market activity have skyrocketed in size and scope since the 1990s. Revenues derived from counterfeiting and piracy have increased by more than 400 percent since the early 1990s. During the same time period, legitimate trade only increased by 50 percent.

There are few, if any, industries immune from attack. From the luxurious to the mundane and the simple to the complex, there is now a global network of illegitimate traders willing to copy or divert genuine products for their own profits’ sake. Given the ease in which these illegitimate products can be bought and sold, it is important that brand owners take preventative action.

FOR MORE INFO CONTACT DAVID R. SUGDEN

This book’s perspectives on gray markets (parallel trade) is clear from its subtitle. The author is a partner at Call, Jensen & Ferrell, specializing in IP litigation and brand protection. While acknowledging that he has produced ‘no spy novel,’ he has provided a very readable, black and white review of the unauthorized grey market in the USA. He focuses in particular on the implications of grey markets for brands, especially due to intermingling with counterfeit goods, and outlines the business and legal strategies that can be employed to protect brands from the grey market.

The author commences by reviewing the industries which face counterfeits and grey markets, from airline and automotive parts to cigarettes and alcohol, also encompassing unbranded goods such as steel and timber. He proceeds to survey the changes to distribution and the grey market resulting from globalization, the internet, and other technological change before considering the economic and social consequences of grey markets. Having introduced his topic, the author then divides the rest of the book into his three main subheadings of prevention, detection, and reaction (principally litigation). Under the heading of prevention, the author considers the need to educate those within the company and distribution chain as well as consumers, government, and the media. This sage advice follows numerous case studies of grey markets which have developed where excessive sales targets and/or insufficient scrutiny resulted in significant supplies of low-cost products reaching the marketplace. Accordingly, the author proceeds to outline a range of strategies which can be used to maintain integrity of the supply chain or otherwise limit the risk of grey markets. These practical strategies provide a useful starting point for considering supply chain management. However, European readers should take care, as some of the (implicit) suggestions, such as a licensing restriction ‘that the dolls . . . could only be sold to those who would agree not to use or resell the licensed products outside of Spain’, while doubtless useful before the courts in the USA, would almost certainly breach what is now Article 101 TFEU (ex-Article 81 EC) as a restriction of competition in Europe.

The author then turns to detection, starting with ‘red flags’ which may suggest grey market activity, such as low pricing, unreasonable spikes in orders or unusual delivery requests, and more specific methods of detecting grey market activity, such as audits, internet monitoring, and trap purchases.

Last but not least, the author considers ‘reaction’, including civil and criminal arbitration, ITC proceedings, and arbitration. This part occupies roughly half of the book and takes the reader through jurisdiction, preliminary remedies (including the risks of brand owner liability where seized goods are grey market rather than counterfeit), discovery, and theories of liability (both against contractual partners and against third-party distributors). Alongside the usual suspects of copyright and trade mark law, there is detailed treatment of tortious interference with contract or with prospective economic advantage. Interestingly for the European reader, the author reviews in some detail the approach of the US courts to various issues which continue to trouble the courts in Europe, such as exhaustion of performance rights, software licensing, and changes to the condition of trade marked goods. He also outlines some state-specific laws which restrict the grey market. However, disappointingly, there is no significant discussion of antitrust or interstate commerce restrictions on liability.

The author concludes with a very brief summary of the approach to grey markets in other key jurisdictions around the globe: Canada, Mexico, Europe, Russia, and China.

Overall, this book provides a clear opposition to grey markets and a practical approach to minimizing the danger posed to brands. Although the ethical approach may seem rather one-sided to Europeans, trained in the fierce protection of parallel trade by the European Commission and courts as part of the drive towards a single market, the book avoids becoming a polemic, maintains a steady focus on the reasons for brand owners to be concerned by grey markets, and provides a broad range of strategies which can be adopted against them in the USA.

(Reviewing David R Sugden’s “Gray Markets: Prevention, Detection and Litigation”) By Christopher Stothers

FOR MORE INFO CONTACT DAVID R. SUGDEN

Licensing can be like jumping into cold water at 6 am – you’re hesitant to do it, but once you’re in the water and catch your first wave, you’re fine. Start-up brands and established brands are often unsure about the details and/or benefits of licensing. To some, licensing may help increase business beyond what they ever expected. To others, licensing can be your worst nightmare.

The first rule is to think of licensing as a marriage. Don’t get involved in a licensing deal with someone you hardly know, or with someone you don’t trust. Many licensing agreements fail because the parties did not share the same goals when the relationship was formed. Conflicts can be avoided by choosing the right partner at the outset.

Another critical aspect of licensing that is often overlooked is the plan. You need to have a licensing strategy. Too many companies go down the wrong path by not defining their core objectives through licensing. For example, allowing a licensee to mass produce certain products in the wrong markets with promises of substantial royalties may sound appealing at first, but it could ruin the brand’s core image and value in the long run.

Also, as with any agreement—know the terms; monitor performance; and diligently enforce your rights. It’s your brand and you need to protect it. You need to ensure that your intellectual property rights remain valid and protectable, which usually means completing proper registrations and establishing a portfolio. In addition, in the event of unforeseen risk or potential damage to your brand and/or your rights, you will need to know the potential triggers for termination of the relationship. Hopefully, the relationship is successful, but if not, you need to cancel and move on. In this respect, your licensing agreement should be thought of as your prenuptial agreement in a marriage.

Finally, licensing deals can be complex, sometimes overwhelming, and may take weeks or months to negotiate. For this process, you’ll want to consult a lawyer with experience in negotiating licensing agreements.

FOR MORE INFO CONTACT SCOTT P. SHAW

Privacy has become one of the most controversial and debated issues of the internet age. Neither Congress nor the Courts have entirely kept pace with the subject—making it difficult for businesses to know precisely how to deal with the issue. Adding to the complexity is the fact that privacy may be protected under state constitutions, state privacy acts, insurance record laws, unfair and deceptive trade practices acts and state common law. Plaintiffs have been casting wide nets in privacy cases, alleging a myriad of wrongs including misrepresentation, failure to disclose, breach of contract, state advertising violations, trespass to chattels, basic invasion of privacy, and more.  Given this backdrop, companies must take care when developing on-line privacy policies and practices, and must also take care not to do anything contrary to their adopted policies. To avoid liability, companies should be familiar with the potential triggers for FTC investigations and personal causes of action.

Congress has passed various privacy laws directly affecting businesses that collect customer information.  The Federal Trade Commission (“FTC”) plays an important role in policing privacy on behalf of the government.  It has taken a pro-consumer approach to internet privacy—stating that its role is to “work for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them.”  FTC File No. 042-3047. Under the Federal Trade Commission Act (“FTCA”), the FTC can initiate enforcement actions against companies for alleged online consumer privacy violations of section 5 of the FTCA. Section 5 states that “unfair or deceptive acts or practices in or affecting commerce are declared unlawful.” 15 U.S.C.A. § 45(a)(1). The use or dissemination of personal information in a manner contrary to a posted privacy policy constitutes a deceptive practice under the FTCA. 15 U.S.C. § 45.

Thus, it is not enough to have a privacy policy in place: The Company must not use or disseminate information in a manner contrary to the privacy policy. Consider the following key areas that may trigger an FTC investigation:

• Inadequate Security: Promising security, but then failing to provide adequate security. This can be true even if a data breach does not occur. See In the Matter of Microsoft Corp. (2002); In re Guess.com, Inc. (2003).
• Security Issues and Failure to Train: Suffering a data security breach due to negligence or failure to properly train employees about adequate security practices. FTC v. Eli Lilly(2002).
• Broken Promises: Failing to adhere to promises made in a privacy policy.  In re Liberty Financial Cos. (1999); Selling customer data when privacy policy states data will not be shared with third-parties. In re Toysmart.com, LLC (2004).
• Retroactive Privacy Policy Changes: Altering a privacy policy to allow more disclosure of personal information without acquiring people’s consent to the change. In re Gateway Learning Corp. (2004).
• Deceptive Data Collection: Collecting data deceptively even if the individual is not visiting the company’s website. FTC v. ReverseAuction.com, Inc. (2000).
• Inadequate Disclosure of Extent of Data Gathering: Failing to clearly and conspicuously inform users about the extensiveness of internet browsing tracking software. In re Sears Holdings Management Corp. (2009).

The federal government created multiple statutes to address the technology age and privacy, such as, The Computer Fraud and Abuse Act of 1986 (“CFAA”), 18 U.S.C.A. § 1030 (enacted to make it a criminal offense to damage or steal data by accessing a computer without authorization or by exceeding any authorized access); The Children’s Online Privacy Protection Act (“COPPA”) U.S.C.A. §§ 6501 et seq., (enacted to addresses children’s privacy on the Internet); and The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN SPAM”), (enacted to regulating unsolicited commercial e-mail, and others), to name a few. States have also taken action by creating laws similar to those we see on the federal level and by adopting relevant language in insurance codes, consumer protection statutes, and industry specific regulations. The wireless industry has created an onslaught of privacy concerns. The Electronic Privacy Information Center (“EPIC”) has taken action against violators of privacy policies and is quickly demonstrating its dedication to protecting consumer privacy. More recently, the Obama administration created new regulations referred to as a “Privacy Bill of Rights.”  This has not yet been signed into law, but would require companies to increase protection of consumers’ online information, maintain reasonable expectations of security, collect of only necessary information, and hold companies accountable for lost data.

Ultimately, companies must keep up with the regulations governing how they use and store consumer information. Companies should evaluate their current privacy policies for any potential issues that could trigger an FTC investigation or private claim. A simple change in current business practices or changes in the use of stored data may lead to a significant FTC inquiry and/or private cause of action.  Broken promises and/or retroactive privacy policy changes can create grounds for liability and investigation.  Companies are encouraged to seek legal advice when assessing, creating and changing their privacy statements and related privacy policies.

FOR MORE INFO CONTACT DEBORAH A. GUBERNICK

What’s more risky than dropping in on a 50-foot wave at Mavericks? Legally speaking, it could be acting as the athlete agent for the guy who’s doing it. California’s law governing athlete agents, the Miller-Ayala Athlete Agents Act, or AAA, is an important, and frequently misunderstood piece of legislation with serious consequences. In fact, it is quite possible for a person to act as an athlete agent – and risk the serious consequences that go along with it – without even knowing they have responsibilities under the act. For industry players, it is important to know what kind of deals is covered by the AAA, and whether they need to be concerned about an agent’s compliance with the act.

The AAA was enacted in 1997 in large part to address the growing problem of predatory sports agents. One of the bill’s sponsors, USC alumni and sports enthusiast Senator Ruben Ayala, was quoted as saying, “I’ve had enough of these unscrupulous agents who offer kids money to sign with them. Under current law, they can get a university on probation or make a kid ineligible to play and nothing happens to the agent. They just move on to the next kid.” The AAA addressed these perceived problems by imposing strict requirements on athlete agents. For instance, the law requires athlete agents to file certain background information with the Secretary of State for public disclosure and to notify potential clients the information is available. While these requirements are primarily designed to protect athletes, they also protect companies considering working with an athlete.

The AAA is filled with pitfalls and its penalties are harsh. For example, the act requires every athlete agent to carry insurance of at least $100,000 for claims that might be brought against them, yet insurance policies or bonds for this kind of liability may be difficult to procure. Also, athlete agents are required to update their disclosures with the Secretary of State within seven days of any change in their disclosure information — such as taking on a new client or revising a fee schedule. Violation of any provision can result in criminal prosecution, civil liability, and forfeiture of any money earned as an athlete agent.

Given the high stakes for athlete agents and the people they deal with, it is extremely important to know whether the act applies to a given contract. Simply put, the AAA applies in two situations: (l) where an agent negotiates directly with an athlete; and (2) where an agent acts on behalf of an athlete to negotiate a deal with a sponsor, team, or other organization for money.

To determine whether a contract is governed by the AAA, the first question to ask is whether an athlete is involved in the transaction. If the deal will require the contracting party to pay some kind of compensation to an athlete, it is likely covered by the AAA and the parties should make sure all athlete agents participating in the deal are in compliance. Another common situation that could raise concerns is when a company sponsors an athletic team rather than the athletes on the team. If the company were to sponsor individual athletes, then the AAA would apply to those athletes’ agents. On the other hand, if the company were to sponsor the team itself, the contract would be enforceable even if the agent acting on behalf of the team had not satisfied the requirements of the AAA. Furthermore, the company’s agents who, for example, assist in obtaining opportunities to sponsor events, or connect with a drink sponsor, or find other marketing opportunities, would not be considered athlete agents under the act. In these situations, where no athlete is involved, the agents who negotiate the deal are not “athlete agents,” as defined in the AAA.

The AAA’s definition of an athlete agent is narrowly tailored to only include persons who negotiate deals on behalf of athletes, but it is broad in the sense that it covers a wide array of deals involving athletes. Unlike acts in other states, which are designed only to protect student athletes, the AAA also extends protection to professional athletes and defines “employment as a professional athlete” broadly to include employment through endorsements in addition to employment in the more traditional “player on the team” sense.

As a practical matter, action sports athletes are often represented by agents who are not familiar with their responsibilities under the AAA. Unfortunately, the AAA is harsh, and failure to know the law is not a defense. Unlike other industries, where sports agents must be “certified,” agents in the action sports industry are not “certified,” so they need to educate themselves. If they fail to comply with the AAA, both the athletes they represent and the companies involved in the deals they negotiate may have recourse against them for significant sums of money.

FOR MORE INFO CONTACT SCOTT P. SHAW

In a case that will undoubtedly affect thousands of workers statewide, the California Supreme Court issued its ruling today in Brinker v. Superior Court, a wage and hour class action filed by employees of Brinker International, Inc., the parent company of Chili’s restaurant. This is the first in a series of articles by Call & Jensen discussing the Brinker decision and its impact on employers.

MEAL PERIODS – No Duty To “Ensure” Employees Take Meal Periods

The lawsuit largely centered on the language of Labor Code section 512 that states: “An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes.”

Before today, the unresolved issue before the California Supreme Court was the meaning of the word “providing.” Does an employer have to ensure that an employee has to take a meal period? Or does the employer meet its obligation if the employer makes the meal period available to the employee?

The California Supreme Court concluded that “an employer must relieve the employee of all duty for the designated period, but need not ensure that the employee does no work.” The Supreme Court reversed and remanded for consideration of whether class certification is appropriate.

REST BREAKS – Common Questions Predominate If Employer Has A Uniform Policy That Fails To Authorize All Permitted Rest Breaks

The Supreme Court held that the trial court did not abuse its discretion in certifying a rest period subclass because Plaintiffs had presented substantial evidence of “a uniform rest break policy authorizing breaks only for each full four hours worked.”

Brinker’s uniform policy did not authorize and permit a second rest break for employees working shifts longer than six, but shorter than eight hours. The Supreme Court rejected the reasoning of the Court of Appeal that because rest breaks may be waived proof of violations must be based on individualized proof. The Supreme Court held that: “No issue of waiver ever arises for a rest break that was required by law but never authorized; if a break is not authorized, an employee has no opportunity to decline to take it.”

Per the Supreme Court, “employees are entitled to 10 minutes’ rest for shifts from three and one-half to six hours in length, 20 minutes for shifts of more than six hours up to 10 hours, 30 minutes for shifts of more than 10 hours up to 14 hours, and so on.”

TIMING – No Rolling 5-Hour Rule

Another critical issue before the Supreme Court was the timing of meal periods, specifically whether the wage orders require that a meal period be provided after five consecutive hours of work. In other words, does the statute prohibit the practice of “early lunches” – that is, requiring an employee to take his or her lunch break early in the shift and/or start the clock running on a second 5 hour period? With regard to these issues, the California Supreme Court ruled as follows:

• A first meal period must start no later than after 5 hours of work.
• A second meal period must be provided after no more than 10 hours of work in a day, i.e., no later than what would be the start of the 11th hour of work, absent waiver.
• There is no “rolling 5 hour rule.” Other than the above requirements set forth in Labor Code section 512 and the wage orders, there are no additional timing requirements.

OFF-THE-CLOCK – No Substantial Evidence That Common Questions Predominated

Finally, the Supreme Court held certification was not proper for an off-the-clock subclass. Plaintiffs had contended Brinker required employees to perform work while clocked out, or that their work periods were interrupted. Unlike the rest break claims, however, Plaintiffs did not proffer a common policy alleged to be inconsistent with the Labor Code. In fact, the only policy at Brinker expressly prohibited off-the-clock work – as do most company policies. Moreover, there was no evidence of a systemic policy to pressure employees to work off-the-clock. Notably, the Supreme Court also stated that when employees are clocked out “there is a presumption they are doing no work.”

Please look for further updates from Call & Jensen on the impact of the Brinker decision.FOR MORE INFO CONTACT GINA MILLER