Court Ruling Carries Caution for Calif. Employers on Noncompetition Clauses

A recent California Court of Appeal ruling shows the continuing peril that employers in California face in taking action on noncompetition clauses.

In Silguero v. Creteguard, Inc., ___ Cal. App. 4th ____ (B215179, July 30, 2010), a sales representative alleged that she had been forced to sign a confidentiality agreement including a noncompetition clause prohibiting all sales activities for 18 months following her departure or termination. She was thereafter terminated and went to work for defendant Creteguard.

The plaintiff's former employer then contacted Creteguard seeking cooperation in enforcing the noncompetition clause. Creteguard subsequently terminated the plaintiff even though it acknowledged that the noncompetition clause was not legally enforceable in California.

The plaintiff sued Creteguard for, among other things, termination in violation of public policy. The trial court granted Creteguard's motion to dismiss, but the Court of Appeal reversed, holding that the general invalidity of noncompetition clauses was a well-established public policy of California and that permitting a claim of termination in violation of public policy would further the interest of employees in their own mobility and betterment.

Caution should be exercised in addressing the issue of noncompetition clauses in California, as this decision illustrates. If you have any questions or concerns about this decision or noncompetition clauses in general, please contact any member of the Labor and Employment Group.