Former Employees May Use Client Lists to Solicit Customers Unless the List Is a Trade Secret

In the latest installment of California’s fair competition law, an appellate court provided additional guidance about the scope and extent that employees can solicit clients of their former employer.

In the case of The Retirement Group v. Galante, a group of former employees for the Retirement Group (TRG) joined a competing firm and began contacting their former clients some of whom transferred their brokerage accounts. TRG sued the former employees and received an injunction prohibiting the former employees from “directly or indirectly soliciting any current customers to transfer any securities account or relationship . . .” However, a second clause in the injunction stated that the former employees could not use any information which was found “solely and exclusively” on TRG databases. The former employees appealed the injunction as unfairly limiting their right to compete with TRG because in essence they could not contact any brokerage clients without running afoul of the injunction.

Previous cases have established that customer lists could qualify as a trade secret if the employer took appropriate action to meet the trade secret qualification (i.e. the list has independent economic value providing a substantial business advantage, is not generally known to the public, and reasonable steps are taken to protect its confidentiality). However, if the information on the customer list was available from public sources (e.g. business directories) or if the employer had not taken sufficient steps to protect the list (e.g. lists were in employees personal possession), then the customer list was not likely to be considered a trade secret.

Further, a line of cases had found that an employer could prohibit former employees from soliciting clients either through a contractual relationship (e.g. pre-employment non-compete agreements or a severance agreements). Well settled law had held that former employees could announce the opening of a new business or the joining of a new employer, and that it was within fair competition if the clients jumped ship.

Now, under a series of decisions (most notably Arthur Anderson v. Edwards and the current decision) courts seem to be leaning towards a view that former employees can freely contact and even “solicit” clients of their previous employer as long as the source of information is not a trade secret. As the decision noted, “[I]t is not the solicitation of the former employer’s customers, but is instead the misuse of trade secret information, that may be enjoined.”

Thus, a word of caution for employers and employees – merely asserting that a customer list is “confidential” or “proprietary” is no longer good enough to prohibit former employees from contacting clients if the employees go on to a competitor. For employers, a careful review of any confidentiality or non-compete agreements is required to ensure that any clauses do not violate the new unfair competition landscape. And for employees, so long as the customer list is not a trade secret, it appears that openly contacting clients is permitted.

Read more

wage theft lawyer

Wage Theft Is A Big Problem in the Fast-Food Industry, A Survey Finds

Wage theft can occur in any workplace, but it tends to happen more frequently in specific industries compared to others. A survey published in May 2022 revealed that wage theft is a…

READ ARTICLE
worker misclassification lawyer

Matco Tools To Pay 15.8 Million Dollars in a Misclassification Lawsuit

Disclaimer: This article is for information purposes only. McCormack Law Firm is not involved in this class action. Worker misclassification remains a serious issue in California. When employers misclassify employees as independent…

READ ARTICLE
wage theft lawyer

Google Contractors Blame Recruiting Firm For Systemic Wage Theft

Silicon Valley tech companies have been in the news lately over accusations of gender discrimination, harassment, and toxic work environments. This time, Google is facing allegations that its contractors are subjected to…

READ ARTICLE
employee misclassification lawyer

Red Robin Assistant Manager Files Class Action Over Unpaid Overtime and Missed Breaks

Disclaimer: This article is for information purposes only. McCormack Law Firm is not involved in this class action. California employees can be classified as exempt or non-exempt, and there are important differences…

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