June 26, 2022

Volume XII, Number 177

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June 24, 2022

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California Resident May Rely Upon Labor Code § 925 To Challenge Non-Compete

LGCY Power, LLC v. Superior Court, 75 Cal. App. 5th 844 (2022)

California resident Michael Jed Sewell worked as a sales representative and sales manager for LGCY Power, which is headquartered in Salt Lake County, Utah. In 2015, Sewell signed a “Solar Representative Agreement,” which included noncompetition, nonsolicitation and confidentiality provisions as well as Utah choice of law and forum provisions. In 2019, Sewell and several other executives and managers left LGCY to form a competing solar sales company. Shortly thereafter, LGCY sued Sewell and the other former employees in Salt Lake County for breach of their employment agreements, breach of fiduciary duty, misappropriation of trade secrets and related claims. Four of the defendants (not including Sewell) filed a joint cross-complaint against LGCY in the Utah court proceeding and then unsuccessfully sought dismissal of LGYC’s action against them.

Meanwhile, Sewell filed a complaint against LGCY in California Superior Court, asserting breach of contract, unjust enrichment, and California wage claims and sought declaratory relief; after LGCY was unsuccessful in having the California action dismissed, it filed this writ proceeding in the Court of Appeal. In this opinion, the Court of Appeal denied LGCY’s writ petition, holding that Cal. Lab. Code § 925 (Section 925 generally prohibits non-California choice of law/forum provisions) is an exception to Cal. Code Civ. Proc. § 426.30(a), the compulsory cross-complaint rule that would otherwise have required Sewell to file his cross claims against LGCY in the Utah action. The Court held that Sewell had implicitly satisfied the requirement of Section 925 that he request the trial court to void the contract under the statute (Sewell could not void the contract without a judicial determination). Further the Court determined that the change in Sewell’s work duties, title and compensation since Section 925 became effective was sufficient to bring the contract within the purview of the statute. Finally, the Court rejected LGCY’s assertion that the full faith and credit clause of the United States Constitution required California to recognize Utah’s compulsory cross-complaint statute because “different [i.e., less] credit is owed to [another state’s] statutes versus judgments under full faith and credit precedent.” See also DePuy Synthes Sales, Inc. v. Howmedica Osteonics Corp., 28 F.4th 956 (9th Cir. 2022) (Section 925 voided non-California forum-selection clause, and “traditional factors” favored denial of transfer of action to New Jersey).

© 2022 Proskauer Rose LLP. National Law Review, Volume XII, Number 145
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About this Author

Anthony J Oncidi, Employment Attorney, Proskauer Rose Law Firm
Partner

Anthony J. Oncidi heads the Labor & Employment Law Group in the Los Angeles office. Tony represents employers and management in all aspects of labor relations and employment law, including litigation and preventive counseling, wage and hour matters, including class actions, wrongful termination, employee discipline, Title VII and the California Fair Employment and Housing Act, executive employment contract disputes, sexual harassment training and investigations, workplace violence, drug testing and privacy issues, Sarbanes-Oxley claims and employee raiding and trade secret protection....

310-284-5690
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