California lawmakers—and courts—don’t like noncompete agreements because they limit employee mobility and career growth. In fact, California has some of the strictest protections in the nation for employees who leave their jobs for another position.
Most employers understand that they can’t enforce such agreements if an employee leaves.
But what about an informal “gentlemen’s agreement” between competitors to refrain from hiring employees who signed agreements? That won’t work either, as the following case shows.
Recent case: Rosemary Silguero began working for Floor Seal Technology as an in-house sales representative where she took telephone orders. The company threatened Silguero with termination unless she signed a confidentiality and noncompete agreement. Silguero did sign the agreement, which prohibited her “from all sales activities for 18 months following either departure or termination.”
Later, the company fired Silguero. She soon found a job with a new company, Creteguard. When Floor Seal learned that its competitor had hired Silguero, it contacted Creteguard and asked the company to help it enforce the agreement, including the provisions prohibiting Silguero from all sales activities for 18 months.
Silguero learned that her job offer had been rescinded when the Creteguard chief executive officer wrote to her that “it has been brought to my attention ... that you have signed a confidentiality/noncompete agreement with your past employer. We regret to inform you that Creteguard is unable to continue your employment effective today.” The CEO went on to tell her that although he didn’t believe that noncompete agreements are legally enforceable in California, he would honor the agreement by terminating her.
She sued, alleging that Creteguard was breaking California law by restricting her ability to work. She essentially argued that this was a “no-hire” agreement between the former employer and the new one.
The court said her lawsuit could go forward, based on the apparent attempt to circumvent California’s public policy that noncompete agreements are not permitted because they prevent employees from moving to other jobs. (Silguero v. Creteguard, No. B215179, Court of Appeal of California, 2nd Appellate District, 2010)
Advice: Consult your lawyer to help develop a comprehensive approach for protecting trade secrets. Also talk to your lawyer before acting against an applicant or employee who has signed a noncompete agreement.