Are non-compete agreements truly a thing of the past in California? It seems that the California Supreme Court would like employers to think so. After all, in 2008 the Court brought down the hammer on these covenants not to compete (a clause under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer)), holding that California Business Code §16600 prohibits all restraints on trade, including non-solicitation provisions (Edwards v. Arthur Anderson, 44 Cal. 4th 937(2008)).
Trade Secrets
Clauses disallowing the solicitation of customers have generally been looked upon as non-competition provisions by California courts. At the same time, there is liberal California federal and state court authority supporting a trade-secret exception to section 16600 and allowing enforcement of related non-solicitation agreements. First, companies seeking to invoke the trade-secrets exception to section 16600 must show that the information they seek to protect is, in fact, a bona fide trade secret. Second, they will also need to demonstrate that the scope, duration, and geographical restrictions of the purported non-solicitation covenant are narrowly tailored and necessary to protect those trade secrets (as outlined in Asset Mktg. Sys., Inc. v. Gagnon, 542 F.3d 748, 758 (9th Cir. 2008)).
Choice of Law Rules
State and federal courts apply the choice of law rules of the forum state in which they sit. However, and not surprisingly, California courts have determined that the Golden State has a dominant interest in the application of its law to non-compete disputes involving California-based employees, and that applying another state’s law to enforce a restrictive covenant would be contrary to California’s fundamental policies as outlined in §16600. In other words, if an employer files a non-compete case in California, it is almost certain to lose.
For more information on how to protect your confidential information or the likelihood of your ability to enforce an out of state non-compete agreement in California, contact experienced business attorney Drew E. Pomerance today.
