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The Court also found that the non-solicitation provision was invalid because TRG did not dispute that the names and contact information for existing customers were readily available to defendants from independent third party sources, thus negating that the names and contact information of existing customers constituted protectable trade secret information. Futher, because a non-disclosure provision contained in the injunction already protected against the use of TRG’s trade secrets, the non-solicitation provision could not have any additional effect, except to bar solicitations not involving the use of trade secret information. Finally, the Court found that the non-solicitation provision was not enforceable as a mere “narrow restraint” because the “narrow-restraint” exception was rejected in Edwards. Similarly in Dowell v. Biosense Webster, Inc., the Court found a broadly worded non-solicitation of customers clause was a facially void restriction on the employees’ practice of their chosen profession, where the clause prohibited employees for a period of 18 months post- employment from soliciting any business from, selling to, or rendering any service directly or indirectly to any of the accounts, customers or clients with whom they had contact during their last 12 months of employment. The Court held that even if there was a trade secret exception to the rule against covenants not to compete (which the Court doubted), the clause was not narrowly tailored to protect trade secrets, but was broadly worded as to restrain competition.
Specifically, the Court found that the clause was overbroad because it went well beyond prohibiting active solicitation by prohibiting departing employees from selling or rendering any services to customers or directly or indirectly assisting others to do so-even if it is the customer who solicits the former employee. Lastly, the Court rejected the employer’s argument that the Court should have interpreted the clauses in such a way as to make them lawful, stating “[a]ny attempt to construe the noncompete and nonsolicitation clauses in such a manner as to make them lawful would not be reforming the contract to correct a mistake of the parties but rather to save a statutorily proscribed and void provision.”
Additionally, in Silguero v. Creteguard, Inc., a California Court of Appeal found that a terminated sales employee stated a viable claim for wrongful termination against her new employer where the employer terminated the employee in response to her former employer’s demand that it honor her non-competition provision. The employee’s former employer contacted the employee’s new employer and informed it that the employee had signed an agreement with the former employer which prohibited the employee “from all sales activities for 18
What is a California employer to do in light of these recent case developments? California does not enforce non-competition agreements in the typical employee- employer scenario. Do not ask your California employees to sign such agreements, do not threaten to enforce such agreements, and do not honor other employers’ non-compete agreements with California employees by terminating employees subject to such purported agreements. The general rule of thumb is that while non-disclosure of trade secret/confidential information and non-solicit of employee provisions may
March 2011 CA Employer 21
months following either departure or termination.” In response, the new employer terminated the employee’s employment out of “respect and understanding with colleagues in the same industry,” notwithstanding its belief that “non-compete clauses are not legally enforceable here in California.”
The Court found that the two employers had effectively reached an unlawful no-hire arrangement that violated section 16600’s legislative declaration of California’s “settled legislative policy in favor of open competition and employee mobility.”
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