Covenants Not to Compete Are Only Enforceable to Protect Trade Secrets

A recent California court decision has narrowed the scope of enforceable “covenants not to compete.” California, unlike many other states, severely limits the ability of an employer to prevent former employees from taking a position in with a competing business. California Business & Professions Code § 16600 prohibits any contract which restrains a person from engaging in a lawful profession, trade, or business.

In Edwards v. Arthur Andersen LLP, Mr. Edwards, a former employee, agreed not to solicit Arthur Andersen’s clients after his departure. In seeking new employment, Mr. Edwards’ new firm (HSBC) required that he obtain a waiver from Arthur Andersen as a condition of employment. Arthur Andersen demanded that Mr. Edwards sign a general release in exchange for waiving the covenant. Edwards declined to sign the general release and sued Arthur Andersen for interference with his potential new job.

The court decided in California covenants not to compete will only be enforced if necessary to protect a company’s trade secrets or if signed as part of the sale of business. The court rejected a line of cases, mostly decided by federal courts interpreting California law, which had allowed covenants not to compete so long as a “substantial portion of the market” was still available to the employee.

For employees, this means that any employee non-disclosure or confidentiality agreement that attempts to restrain the employee from soliciting customers, competing against the former employer, or otherwise seeking new employment are void and unenforceable unless necessary to protect a trade secret. Trade secrets are a very narrow subset of information and much employer information does not meet the definition of trade secrets. Further, if the employer attempts to enforce an invalid non-disclosure or confidentiality agreement, then the employer may be liable for tortious interference with the employment relationship.

Read more

gender discrimination lawyer

Can California Employees Be Legally Fired For Not Conforming to Gender Stereotypes?

Your employer cannot fire you because they believe you do not fit within what they consider to be an acceptable stereotype. However, that does not necessarily stop employers. According to the National…

READ ARTICLE
wrongful termination attorney

Nurse Sues Hospital For Wrongful Termination After Complaining About COVID-19 Safety

A registered nurse filed a wrongful termination lawsuit against his employer, saying he was fired last spring after expressing concerns about the hospital’s neglect of COVID-19 safety protocols. Firing an employee in…

READ ARTICLE
unpaid overtime lawyer

Wage Lawsuit Accuses Mortgage Company Of Unlawful Pay Practices

A common myth is that all commissioned employees can work unlimited hours without being paid overtime. While employees may not fully understand when they are entitled to overtime, sometimes employers themselves are…

READ ARTICLE
racial discrimination lawyer

San Francisco Transit Worker Claims Racial Harassment by Purported KKK Members

An Afro-Mexican man alleged that three of his coworkers on a San Francisco transit job site harassed him and refused to work with non-white employees. He was fired after complaining to his…

READ ARTICLE
SEEN ON
Fox40-bw
KPIX-bw
SFGate-bw
marin-ij
Abc10-bw