Non-compete agreements are generally void in California. California Business and Professions Code section 16600 (Section 16600) states, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” However, some major players in the tech and engineering fields try to force non-compete and other anti-competitive provisions with their employees. In April of 2014, tech giants Apple, Google, Adobe and Intel settled a lawsuit with Silicon Valley employees for approximately $324 million regarding their anti-competitive practices. Howard Mintz, Apple, Google, Adobe and Intel Settle Silicon Valley Poaching Case, MERCURY NEWS (2016), http://www.mercurynews.com/News/ci_25630192/Apple-Google-Adobe-and-Intel-settle.
Companies often attempt to intimidate competitors and suppliers from hiring their former employees. For example, an employee may sign a severance agreement to keep the former employer’s information confidential as a condition of the payment of a severance agreement. This should not restrict the ability of an employee to work for competitors. Moreover, because non-compete agreements are invalid in California, the employee may decide to work for a competitor or a major supplier of the former employer.
Once the former employer learns of the new hire, the former employer may try to intimidate the new employer by claiming the new employer is in violation of a non-compete agreement. Further, the former employer may also threaten to stop all business with the new employer. If the new employer is a supplier who relies on the former employer’s business, such a threat could force the new employer to fire the employee. Fortunately, if this occurs, the employee has several causes of action against the former employer.
One path of recourse is exemplified in Hilderman v. Enea TekSci, Inc., 551 F. Supp. 2d 1183, 1195 (S.D. Cal. 2008). There, the Plaintiff, Hilderman, was a former employee of Enea TekSci, Inc. Hilderman signed a severance agreement with a confidentiality provision. Then, Hilderman formed a new company, HighRely, which did business in the same field as his former employer Enea TekSci. While HighRely was in negotiations with Enea TekSci’s former customers, Enea TekSci called the former customers and falsely claimed Hilderman was “violating the terms of the Severance Agreement and was subject to a non-compete agreement.” Id. at 1192.
Hilderman successfully raised the following claims against Enea TekSci: 1) Violation of Bus. & Professions Code 17200; 2) Breach of Contract; and 3) Interference with Contractual Relations and Prospective Economic Advantage. Hilderman v. Enea TekSci, Inc., No. 05CV1049BTM(AJB), 2008 WL 2263058, at *1 (S.D. Cal. June 2, 2008). Interference with Prospective Economic Advantage can be pled as both negligent and intentional. Judicial Council of California Civil Jury Instruction 2204; Judicial Council of California Civil Jury Instruction 2205.
Negligent Interference with Prospective Economic Advantage and/or Relations involves a third party interfering with the economic relationship between the two contracting parties. The third party must know or should have known about the economic relationship, and the third party must fail to act with reasonable care. Judicial Council of California Civil Jury Instruction 2204.
The low standard of negligence in comparison to the high threshold for intentional acts allows an employee to hold his or her former employer accountable, even if there is a lack of evidentiary support for an intentional act. Furthermore, because Interference with Prospective Economic Advantage is a tort, the corporate executives who tried to enforce an illegal non-compete agreement can be held individually liable.
A former employee can also raise a claim of defamation against the former employer and the individuals who participated in the defamation. A former employer may not tell a new employer that Plaintiff is in violation of a non-compete agreement pursuant to a severance agreement. To do so would be falsely stating Plaintiff’s employment is restricted. Furthermore, the former employer is falsely implying that the Plaintiff violates rules and/or contracts and is untrustworthy. To the rest of the business community, these false implications convey that the Plaintiff cannot be hired.
Defamation also provides remedies not available in claims for Interference with Contractual Relations and Negligent and/or Intentional Interference with Prospective Economic Advantage. Additionally, defamation allows for damages for emotional distress. An employee may often experience emotional distress when his or her reputation is discredited and employment opportunities are limited because of these false accusations.
About the Author: Steve Rubin represents California employees with claims for discrimination, state and federal whistleblower, retaliation, wage and hour violations, sexual harassment, violations of the Family and Medical Leave Act, wrongful termination, and defamation, as well as contract breaches. You may call us at 310 385 0777.