Non-Compete and Non-Solicitation Agreements

When you started your most recent job, you were probably asked to sign all sorts of agreements. For the most part, your employer may condition your employment on terms and conditions that your employer chooses unilaterally. If you don’t like the uniform they ask you to wear, or the hours they ask you to work, they can show you the door. Because California presumes “at-will” employment, your employer has considerably more power than you to set its policies and expectations.

When the employment relationship ends, however, your employer is not so powerful. Just as your former employer cannot dictate what you wear or what hours you are awake, they also cannot dictate who you work for or do business with. This is because California law strongly encourages the freedom to compete, and strongly disfavors any restraints on trade. If an employer requires you to sign a promise limiting your freedom to work once the employment relationship ends, they are probably breaking the law. Even if you voluntarily sign such an agreement, it is almost certainly not enforceable.

A “non-compete” agreement is an agreement not to do business in the same field as your employer. It may state that you cannot accept employment with a rival employer. It may say that you can’t open your own business in the same field. It may state a geographical area or a period of time where these restrictions apply. It may say you can work in the same field, but not with your employer’s current or former clients. To the extent these restrictions extend beyond the length of your employment, they are almost always unenforceable.

On the other hand, an employer may reasonably demand loyalty from its current employees. If you advertise your own business to your current employer’s clients while continuing to accept a paycheck, your employer has cause to terminate you. An agreement not to compete during the term of your employment is likely enforceable. But many agreements also attempt to regulate your conduct after the term of your employment. If you have signed such a hybrid agreement, parts of it may be enforceable while other parts are not.

A “non-solicitation” agreement places similar restrictions on employees. Instead of restricting your interactions with clients, these agreements restrict your interactions with other employees. Such agreements may prohibit you from asking your former coworkers to come work for you or some other competitor. Again, these are largely unenforceable. California’s policy is to promote freedom of movement within and between occupations. Employees are not the property of their employers. They are allowed to pursue more attractive opportunities. Employers are allowed to compete with each other for the best employees.

You are free to solicit your former employer’s clients and employees for your own business. However, you may not use your former employer’s confidential or proprietary information to gain an advantage in competition. If you learned a “trade secret” while you were employed, you may face legal consequences if you exploit that secret after your employment has ended.

Example 1: Otis signed an agreement when he began working at Oakland Oats Company. The agreement states “During the term of your employment, and for 1 year thereafter, you shall not advise or induce any client of Oakland Oats Company to purchase oats from any other source.” While still employed, Otis encourages a client to purchase oats from rival Contra Costa Cereals. Oakland Oats learns he did this and fires Otis. Otis then starts his own cereal company and advertises it widely. Several Oakland clients switch their business to Otis’s company based on the advertisements. Otis may have violated the non-compete agreement by promoting the rival while he was employed. After his employment ended, he is not violating any agreement because the 1-year restriction is not enforceable. He did not rely on any trade secrets to win the business of Oakland Oats Company’s clients.

Example 2: Maxina works for AdRight, an advertising firm. She has signed an agreement stating, “At no point during or after the term of your employment may you use AdRight’s confidential trade secrets in soliciting AdRight’s current or former clients.” Maxina quits and starts her own advertising firm. She contacts AdRight’s two biggest clients. The first client she cold-calls from the phone book. The second client she sends a detailed letter which refers in detail to information the client provided AdRight about its needs. The agreement is likely enforceable. While it does restrict Maxina’s post-employment activities, it only does so to the extent she relies on trade secrets. Maxina’s outreach to the first client does not rely on any confidential, valuable information belonging to AdRight. However, her outreach to the second client might expose her to legal consequences since the client’s information may be a trade secret.

It is not always clear what is or is not a trade secret. If you are competing with a former employer and are not sure if you are crossing the line, contact a business and employment attorney at Spencer Young Law today for a free consultation.