Founder and Managing Partner
What options do California employers have when departing employees try to take clients and valued co-workers with them? More than you might think.
As most employers know, non-compete agreements are generally void as against public policy in California under Business and Professions Code section 16600. But that doesn’t mean employers are helpless to prevent the pilfering of their employees and customers or take legal action when it occurs. First, not all employees will be so scrupulous as to wait for their actual separation to begin competing against their former employer. An employee that solicits employees and customers during their employment may breach their duty of loyalty, particularly if they use confidential, proprietary, or trade secret information to do so. While an employee may make some preparations for their post-employment future, they owe their employer undivided loyalty until that employment ends. An employee who prematurely competes with their employer may be liable for breach of fiduciary duty and breach of contract.
Second, the use of trade secret information against one’s former employer is unlawful even after separation. The use of a company’s customer list, or even intangible information such as a manager’s confidential knowledge of his/her former reports’ compensation can run afoul of California’s Uniform Trade Secrets Act. While this statute forbids the misappropriation of trade secrets whether or not an employee has a contract that does so, the existence of such an agreement can further deter employees from engaging in such activity. Moreover, a trade secret agreement can impose liquidated damages for employee breaches, relieving employers of the need to prove damages and strengthening the agreement’s deterrent effect.
Third, some employees still do not understand that their activities on company computer systems and devices are not private and are subject to employer monitoring and retention, and because of this they can leave behind crucial evidence of improper activity before their departure. Talk to your IT professionals to make sure your systems retain information like emails that cannot be deleted by employees prior to their departure. Evidence of improper competitive activity is usually necessary to obtain an injunction against further misconduct, so possessing such evidence can be the most effective way to stop the damage in such an event.
Finally, while customer non-solicitation agreements are generally considered unlawful non-competes, limited and tailored agreements not to solicit employees may be enforceable. However, employers should make sure they consult with counsel before adding such provisions to their employment agreements because of the risk that an overbroad provision can void other parts of the agreement.
Employers can take steps now to reduce the risk of their business being hurt by departing employees. And if they have already suffered such harm, they should talk to their employment counsel to see what remedies they may possess.