Is noncompete provision legal?

Dear Alex:

I recently left my job at an engineering firm to start my own independent engineering company.

I had been an employee of the old firm, and in my employment agreement there was a non-compete provision in which I was prohibited from performing engineering services in Napa County for a period of two years after my employment terminated for any reason.

Is this enforceable?

In the state of California, any contract that attempts to restrain any person from engaging in any lawful profession, trade, or business, is an unlawful contract.

This protection of employees is created by Section 16600 of the Business and Professions Code. This means that any employment agreement provision that restricts the employee’s ability to work in competition with the employer, is void.

California is unusual among the states, because most other states permit a reasonable non-competition agreement between employer and employee, whereas California prohibits non-compete clauses between employer and employee even when the provision would otherwise be considered reasonable.

Even if the non-competition agreement is only for a limited time or applies only to a limited scope of your skills set, it is void.

Despite the prohibition against non-competition agreements, employers do still have means by which they may protect their interests, to which you as a former employee may be subject.

Most notably is that employers may protect their trade secrets, and use of the employer’s trade secrets without their permission may be prohibited if you signed an agreement that restricted your use of such trade secrets.

The contract will need to clearly define what specifically constitutes “trade secrets,” but that may include the names and contact information of clients, referral sources, and vendors, business practices and procedures.

Therefore, if you as an employee developed a strong relationship with one of your former firm’s clients, and are considering soliciting that client to join you at your new business, it is possible that you may be prohibited from contacting and soliciting that client for your own business purposes.

However, if the information that the contract defines as trade secrets can be obtained elsewhere, or if former clients are persons or businesses with whom you had independent personal relationships outside of your business relationship, to the extent that the information was independently gained, known, or readily knowable to you without use of the former employer’s information, such data would not be subject to the trade secrets protection.

These protections extend only to former employees.

Former business partners, LLC members, or sellers of a business, can be restricted by a noncompete agreement to a limited extent.

However, for former employees, the State of California protects the ability to freely work wherever you choose, even if it is in direct competition with your former employer.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on April 25th, 2017. You can read it on the Register's website here: "Is noncompete provision legal?"

Property taxes on the rise

Dear Alex:

My property taxes last year increased by more than two percent over the year before.

I thought that property tax increases were limited to two percent per year by Proposition 13.

How is this possible?

Property taxes are based on the assessed value of property, so when we discuss property taxes, we are usually discussing the assessed value upon which taxes are calculated.

In 1978, California voters passed Proposition 13 that limited increases to annual assessment property values to two percent per year.

The value of property at the time of acquisition is called the “base year value.” This is the starting point for calculating property tax.

Each year under Prop. 13, the tax assessor applies an annual increase of two percent per year to your assessed value above the prior year. This gradually increasing amount is called the “trended base year value” and is what you are taxed on.

Property values in California typically grow faster than two percent per year, making Prop. 13 a savings for the taxpayer.

One instance in which your property taxes may have increased by more than two percent above the year prior is if there was a “reappraisal event.”

A reappraisal event causes your base year value to increase, and can be caused by the sale of a property, a total remodel, or other actions by the property owner.

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People sometimes disagree with their new base year value after reappraisal, so newly reappraised values can be contested.

Another reason you may have seen an increase in your property tax bill is that your property tax amounts may not have increased, and may have even decreased, during the recession.

While Proposition 13 provides for a limit to your tax increases, another law from 1978 called Proposition 8 can result in decreases.

This is a different law from the Proposition 8 that was in the news in 2008 concerning same-sex marriage.

The 1978-version of Proposition 8 provides for a reduction to your property taxes when the property’s fair market value is less than its trended base year value.

In years of decline, Prop. 8 protects the property owner. Prop. 8 says that if your property value drops beneath the trended base year value, you will only be taxed on the lower fair market value and not on the higher trended base year value.

During the recession, the fair market value of many properties in Napa County dropped below their trended base year value, which may have resulted in a property tax decrease during those years of low value.

Now that property values have bounced back, if the fair market value of your property has increased above the trended base year value, your taxes may again be assessed based upon your trended base year value.

This change from being taxed upon the previously lower fair market value, to the higher trended base year value, can be more than two percent year-over-year.

Just remember that the tax on your trended base year value is still less than being taxed upon fair market value.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on April 11th, 2017. You can read it on the Register's website here: "Property taxes on the rise"

Does koi pond cut into easement?

Dear Alex:

I own a vineyard and the most direct means of access is by using a 50-foot wide driveway easement which crosses my neighbor’s property. The driveway itself is only 20 feet wide.

The easement is recorded with the county and was granted 50 years ago.

Recently, the neighbors told me that they will be renovating their landscaping and they intend to build a koi pond, which extends 10 feet into the driveway easement.

Can they do this?

An easement can be described the right to enter someone else’s land. Easements can be tricky because although an easement is not an ownership interests in land, an easement can dramatically impact the ability to access and use a property.

Easements can be created in a number of ways, including by express grant or by necessity. The restrictions on how an easement can be changed depends upon how the easement was created.

In this case, you have an easement which was created by grant. This means that your easement, and your neighbors’ right to enter into and encroach upon the recorded easement area, will be subject to the rules written in the recorded easement document.

This type of easement problem is very common, particularly in rural areas. As larger ranches and estates have been subdivided over the decades, easements were commonly used to grant access to landlocked parcels which did not otherwise have access to a main road.

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In more modern times, many more roads have been built, which has improved access to most parcels of land, which means that frequently the old easements are more of a convenience than a necessity.

These old easements are further complicated because in the early 1900s, the documents were not drafted with as many specifics as would be used today, which can lead to ambiguities about the easement such as who can use an easement and for what purposes.

In your case, although the easement granted was 50 feet wide, if the driveway has been 30 feet wide for a long time, or if the neighbor has previously encroached into that 50-foot area without impeding your use of the driveway, it is very possible that this encroachment may be permissible. 

An easement is usually a nonexclusive right to use the easement area, which means that although you are all permitted to enter and use the easement, so is your neighbor, as long as the neighbor doesn’t impede your use.

Additionally, easements are typically created for a specific purpose. If the purpose of this easement is for driveway access, and a 30-foot wide driveway has been historically adequate, so the neighbor’s encroachment may not actually violate your easement rights.

On the other hand, if you had intentions to extend the driveway width, or if the language granting the easement is expressly clear and prohibits the neighbor’s entry into the easement, their intended encroachment may not be permitted.

Amicable resolution can frequently be achieved in easement disputes if the parties are willing to work together and communicate.

Sometimes, that may mean that one party will agree to pay money to the other party to change the easement, but often the actual dollar-value of the desired changes are nominal.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on March 28th, 2017. You can read it on the Register's website here: "Does koi pond cut into easement?"

What makes contracts so long?

Dear Alex:

It seems like most agreements could be as short as a few sentences or a paragraph, but contracts are never that short.

Why can’t contracts be simple one page documents?

Business lawyers know this question very well.

While the desire for a short contract makes a lot of sense, it is difficult to adequately protect the interests of the client within such a short framework. One of the primary reasons for the length of contracts is the boilerplate language that is often found at the end of contracts.

Some might call boilerplate “the fine print” at the end of a contract, although it is typically written in the same size and style of text as the rest of the document.

Boilerplate language is frequently very similar in appearance among different contracts, and can be boring to read because the language appears to have little or no relation to the actual terms of the deal for which the contract was drafted.

It is often in the boilerplate, however, that some of the most influential language in the agreement is located.

Imagine that you purchased a house, the seller was from Arizona and you the buyer are in Napa. After you buy the house and move in, you discover that the house has dry rot in the roof.

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You believe the seller knew of the dry rot and didn’t disclose it to you, so you want to sue the seller for costs of repair, which are $20,000.

The boilerplate language will dictate many important issues of this dispute. Boilerplate language is not mandatory, but there are typical provisions that you will frequently find.

A “mediation” provision might require mediation before lawsuit, so your options for recovery could be limited.

A “choice of laws” provision will dictate which state’s laws will apply to the interpretation of the contract. If this choice of laws provision was in favor of the seller of your property, you might have to apply Arizona law to your dispute, which could be a challenge.

There might also be a “venue” provision that determines where the suit must be conducted. The venue might require your lawsuit to be filed in San Francisco or Phoenix or anywhere else, which could obstruct your ability to readily conduct a lawsuit from here in Napa.

You will hope that there is an “attorneys’ fees” provision which awards the costs of attorneys’ fees to the winner in your lawsuit, because the cost of attorney’s fees in a dispute like this could quickly exceed the costs of the repair that were the basis of the problem in the first place.

These are only a few of the most common boilerplate provisions, and each of them can have a substantial impact on your options if a dispute surrounding the contract arises.

The next time you see a one-page contract, consider whether it really should have more substance to give you the protection you expect.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on February 28th, 2017. You can read it on the Register's website here: "What makes contracts so long?"

What is a business partnership and how is it formed?

Dear Alex:

My best friend and I have started social media marketing business together and would like to form a partnership.

We already have two clients and a business plan.

What do we need to do to create a partnership?

What you probably did not know is that any time two or more people act together and hold themselves out as co-owners of a business, they are automatically and by default doing business as a partnership.

In your case, since you already have clients and, therefore, have held yourselves out as doing business together, you are already a partnership.

An exception to this partnership-by-default rule is when the parties have formed a business association other than a partnership (such as a limited liability company or corporation), in which case the business owners operate under the rules of the business association, which they have chosen.

Now that you are partners in business, it is important that you understand the rules that come with partnership activities.

Business partners have what is called “mutual agency” to act on behalf of the partnership. This means that one partner, independent of the other partners, may create legal obligations of the partnership within the scope of the ordinary course of business – even if the other partners did not specifically know or approve of those activities.

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This is useful because it enables business partners to conduct business activities without all partners being present. This is also somewhat risky, because it means that your business partners can create binding obligations on your behalf, which you will be held accountable for.

In addition to the mutual agency authority to enter contracts and make agreements on behalf of one another, business partners are jointly and severally liable for partnership debts and the actions of their business partners.

This means that each partner can be held to be proportionately liable for the debts of the business, or individually wholly liable for the debts of the business.

For example, in the case of two business partners offering a service, if one business partner signs a lease for the partnership to rent an office for five years, the other business partner could be obligated to make those rent payments for the next five years.

Partnerships offer what is called “pass through taxation,” which means that the tax burden of the business is directly passed through to the business owners, which is generally preferable to taxation at the business level and the personal level.

Partnerships do not, however, offer limited liability. Some other entities types can create a layer of protection from business liabilities by restricting the debts and obligations of the business to the business itself. Partnerships do not offer this protection.

There are many factors accompanying partnership and the choice of business entity, and only a few are described in this column.

Business entity choice is an important decision that should be given thorough consideration.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on February 14th, 2017. You can read it on the Register's website here: "What is a business partnership and how is it formed?"

Mediation and arbitration

Dear Alex:

In one of my business’s contracts, there is a “Mediation and Arbitration” provision, which says that in the event of a dispute, the parties will attend mediation or arbitration instead of going to court.

Are those options faster or less expensive than a lawsuit?

Mediation and arbitration fall into the category of “alternative dispute resolution,” or ADR.

ADR encompasses a variety of methods that can be used by parties to resolve disputes without the need to have a trial.

Mediation and arbitration are two of the most popular methods of ADR, and they are not the same. Parties may prefer ADR for a variety of reasons, not the least of which is cost savings.

Although a significant amount of preparation is required in anticipation of a mediation or arbitration, the overall cost and time commitment of ADR is usually much less than the cost of taking a lawsuit all the way through a trial.

ADR is voluntary, and at virtually any point in a dispute – from the time that the dispute arises through preparation for court trial – the parties can agree to attend an ADR proceeding. In the case of your contract, the parties preemptively agree to submit themselves to ADR if a future dispute arises between them.

Mediation is typically a collaborative mutual effort to achieve a resolution, with a mediator facilitating the conversation, and helping the parties continue to progress toward a resolution that the parties themselves collaborate to reach.

The mediator does not usually render a decision, and instead assists the parties to come together in agreement upon a mutually agreeable solution. Mediation can be binding or non-binding.

Sometimes the parties just need a push in the right direction, other times if the parties agree to be bound to the resolution reached in mediation, they may reduce that resolution to a written and binding agreement.

Arbitration is more similar than mediation to the traditional trial format.

In arbitration, there is an individual who serves in a similar function to the judge or jury in a court of law. That person is the arbitrator. During the arbitration, the parties present evidence, make their arguments, and ultimately the arbitrator renders a decision, just as if a judge had heard the case.

Arbitration is not required to follow the rules of evidence that a court is bound to follow, and it may be less formal and less intimidating of an environment. In some instances, due to the amount of evidence and preparation for complex cases, arbitration may not result in a significant savings over a court trial.

In cases of both mediation and arbitration, the mediator or arbitrator is a neutral third-party, which is selected by the mutual agreement of the parties in the dispute.

Retired judges will often go into business as private mediators or arbitrators. Practicing and retired attorneys may also provide ADR services.

For parties who wish to reduce costs, save time, or are intimidated by the trial process, ADR can be a suitable alternative for resolving disputes.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on January 31st, 2017. You can read it on the Register's website here: "Mediation and arbitration"

Is neighbor being reasonable?

Dear Alex: In the recent storm, my neighbor dug a small trench that diverts rain water from his yard and into mine, and is flooding my back yard!

Can he do that?

The recent rain storms have dumped more water than we have seen in many years. Of course, this water is welcomed and desperately needed, but the high volume of rain in such a short period of time has also resulted in a flood of questions being sent to my email inbox. One of the common themes among these questions surrounds obligations between neighbors for water runoff.

During the recent dry years, changes to the physical landscape of yards and real estate have changed the way water flows over property. In many cases, the recent storms have been the first revelation of the true impact of these surface water diversions. Similarly, some property owners have taken steps during the storm to prevent damage to their property, flooding, or other undesirable effects of so much water raining down.

In its natural flow, the flow that would result from the effect the natural landscape and the tendency of water to travel downhill, it is not the obligation of the uphill neighbor to prevent surface water runoff from flowing onto the property of his or her downhill neighbors. However, when the neighbor has created an unnatural diversion or flow of surface water onto his neighbor’s property, the rules change.

The law provides that harmful surface water may be diverted where such a diversion is reasonable, in light of the surrounding circumstances, including the amount of harm caused, the foreseeability of that harm, and balancing of the utility of the diversion and the harm it causes.

Whether an owner’s conduct is legal is based on the “reasonableness” of his actions, determined by the facts and circumstances of each situation. Determining “reasonableness” makes it difficult to predict the outcome of these disputes and can lead to litigation.

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Courts have laid out concrete rules when one or both parties act reasonably.

An uphill neighbor taking reasonable steps to divert surface water from his land is not liable for damages caused to the downhill neighbor.

If the downstream neighbor diverts surface water to reasonably protect against foreseeable water damage, then the upstream owner cannot alter the natural drainage of surface water in a way that harms the downstream property, even if the alteration is reasonable.

If both owners are acting reasonably, the upstream landowner is liable to the downstream landowner if he changed the natural system of drainage and harmed the downstream landowner.

Some methods to protect your property can include sandbagging areas vulnerable to water accumulation, or building a wall to restrict the flow of water onto the property. Before taking these steps, neighbors are encouraged to consult professionals such as civil engineers, or general contractors to help reduce the burden a chosen diversion method may pose on a neighbor.

Neighbors are encouraged to communicate with one another to find agreeable ways to protect one another’s land.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on January 17th, 2017. You can read it on the Register's website here: "Is neighbor being reasonable?"