Five Major Points to Remember When You Compete Against Your Former Employer in California

If you are a California employee, you should consider the following points if your former employer threatens you with a lawsuit for using confidential information acquired from the former employer.Point No. 1: You have the right to compete by opening a competing business, or working for a competing employer. You may freely solicit the former employer’s customers unless you reach those customers by taking the former employer’s trade secrets, such as a detailed customer list compiled by the employer. Business and Professions Code Section 16600 states a basic public policy in California protecting an employee’s right to compete. This right is deemed so important that an agreement between you and your former employer that has a term (“covenant” or “promise”) by you not to compete will not be enforced to stop you from competing. What if you are presented a long employment agreement during your employment that has in it a “covenant not to compete” and you refuse to sign the agreement? A California court has held it is illegal to fire you because you do not sign such an agreement even if the only “unenforceable” part of the agreement is the “non-compete” provision. [Of course, you could also elect to sign the agreement, and then proceed to ignore the "non-compete" provision knowing it could not be enforced against you]. See generally D’Sa v. Playhut, Inc. (2000) 85 Cal.App.4th 927.Point No. 2: What if you sign a “non-compete”agreement while in another State, then leave that State to work for a competing company in California? Now matters get tricky. The employer, knowing how difficult or even impossible it is to enforce a non-compete agreement in California, may elect to sue in the State where you first worked. Other states often have laws that will uphold non-compete covenants. The problem arises when your former employer gets a restraining order or preliminary injunction in that other State stopping your work before you can get a restraining order or injunction in California stopping your former employer from interfering with your new work. California courts will honor the judgment that is first entered. The reason is the “full faith and credit” clause of the Constitution. See Baker by Thomas v. General Motors Corp. (1998) 522 US 222, 223. The tactical point is obvious: you may want to make a pre-emptive filing in California.Point No. 3: If you have signed a “non-compete” agreement that states the agreement will be interpreted according to the laws of another State (usually a State that has laws that uphold non-compete agreements), California courts will ignore the “choice of law” provision, and will apply California law to invalidate the non-compete covenant. Application Group, Inc. v. Hunter Group Inc. (1998) 61 Cal.App.4th 881, 902.Point No. 4: Employers may know they can’t ultimately win by enforcing their illegal covenant not to compete, but they will use economic duress and bully tactics by filing for a Temporary Restraining Order and for a Preliminary Injunction. While this battle is expensive, it is not necessarily as protracted or costly as a full trial. Often your new employer will aid you with providing a lawyer on your behalf, especially if you bring real value to the employment. There may be a provision in the agreement allowing for recovery of attorney’s fees if you win. You have an excellent chance of defeating an attempt to enforce a non-compete agreement in California, and you should fight back. Also, you could file a counter-suit for intentional interference with existing contractual relations with your new employer on the theory that the former employer knew it had no reasonable basis to seek an injunction, and made false charges against you to cause your new employer to fire you. (Should that misfortune occur).Point No. 5: Usually, a “non-compete” agreement is found in a larger agreement that requires confidentiality about employer business, and protection of proprietary trade secrets. Confidentiality and trade secret provisions are generally enforceable. Not all competition in California is protected by Business and Professions Code Section 16600, but rather only “fair competition”. Courts have held that an employee cannot compete by taking and using trade secret information, or by taking the employer’s property or confidential information. An important point is that you cannot be stopped from working for a competing employer simply because you possess knowledge of the employer’s confidential or proprietary processes, products, or strategies. To get a preliminary injunction, the former employer must show that you actually have expressed a clear intent to disclose the trade secret to your new employer. Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1460.Conclusion: You may one day be the recipient of a letter from your former employer’s attorney demanding that you “cease and desist” from violating a confidentiality and trade secret agreement. Remember that you have the right to use your basic knowledge of the industry and customers gained while working for your former employer. You can use that knowledge in pursuing your livelihood in California. You may freely solicit the business of your ex-employer’s customers as long as you do not identify those customers based on proprietary databases or lists developed by your employer and taken by you at the time you left your employment.More information is available from Frank Pray at 2009 Frank Pray

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