Myra F. from Mountain View asks this week’s question:
Q: “I work for a high-tech company in Silicon Valley that has just been acquired by another, bigger high-tech company. They are offering some of us who worked for the old company jobs in the new company. There is a rumor that they will hire us, make us sign noncompete agreements and then fire us. Can they do this? Can I refuse to sign the agreement?”
A: California is a state that values an individual’s right to work. Business and Professions Code Section 16600 states that, aside from limited exceptions, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” California courts have repeatedly identified this provision as an expression of public policy to promote people’s right to pursue and obtain gainful employment utilizing the skills and abilities that they possess, and which they may have developed through prior employment (Edwards v. Arthur Andersen LLP, 2008).
This section invalidates provisions in employment contracts prohibiting an employee from working for a competitor after completion of his or her employment or imposing a penalty if he or she does so unless any such restrictions are necessary to protect the employer’s trade secrets.
While the state wishes to protect an employee’s right to work, it too wishes to protect an employer’s right to maintain a competitive advantage through the protection of its trade secrets. Labor Code Section 2860 provides: “Everything which an employee acquires by virtue of his employment, except the compensation which is due to him from his employer, belongs to the employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.
“In a given case, the knowledge gained by an employee is secret and confidential. If it is, its use by a former employee will be enjoined. If it is not, its use by a former employee will not be enjoined. Some knowledge gained by an employee is of such a general character that equity will not restrict its later use. An employee has a right, after cessation of employment, to use anything that is not the property of his employer.
“Trade and business secrets and confidential information are the property of the employer and cannot be used by the employee for his own benefit. A list of subscribers of a service, built up by ingenuity, time, labor and expense of the owner over a period of many years is property of the employer, a part of the good will of his business and, in some instances, his entire business. Knowledge of such a list, acquired by an employee by reason of his employment, may not be used by the employee as his own property or to his employer’s prejudice.”
Therefore, a covenant not to take and/or use an employer’s confidential customer list to solicit its client base is enforceable. Downloading such a list and using it to market yourself for another job, or for the benefit of another employer, likely will be found to be an unlawful appropriation of a valuable trade secret. While appropriation of a list may be illegal, a covenant in an employment contract not to solicit an employee’s prior contacts and the employer’s customers is considered an unlawful covenant not to compete. A former employee has the right to compete with his or her former employer, even for the business of those who had been customers of the former employer, provided such competition is fairly and legally conducted.
As to your question pertaining to whether your employer can fire you for refusing to sign an invalid contract not to compete, the appellate courts have held that an employee who is fired for refusing to sign a covenant not to compete may be able to claim a wrongful discharge in violation of public policy based on the employer’s violation of Section 16600 (D’sa v. Playhut Inc., 2000).
Myra, I hope this information helps you in making your employment transition. Hopefully everything will go smoothly, but if it doesn’t, feel free to provide your human resources department with this article. For anyone who is fired because they refused to sign a noncompete agreement, find a good trial lawyer familiar with this area of law to fight for your rights.
Christopher B. Dolan is owner of the Dolan Law Firm. Email questions to email@example.com.