On July 30, a California appellate court reaffirmed this policy in an opinion that has serious implications for whether employers that learn of new employees non-competition agreements with their prior employers can terminate the employees.
According to the complaint in the case, Rosemary Silguero began working for Floor Seal Technology, Inc. (FST as an in-house sales rep where she placed telephone orders for FST's products. In August 2007, FST required her to sign a confidentiality agreement that included non-competition provisions prohibiting her from "all sales activities for 18 months following either departure or termination." She was threatened with termination if she did not sign.
She left the company in October of that year and subsequently found a position with Creteguard, Inc. (which apparently was in the same industry). FST learned of her new position and contacted Creteguard. FST requested Creteguard's "cooperation and participation in enforcing" the non-competition agreement. Creteguard's CEO, Thomas Nucum, terminated her, in writing.
Nucum advised Silguero that he was aware of the non-compete agreement she signed. He acknowledged that he did not belive non-compete clauses are legally enforceable in California, but that Creteguard nevertheless "would like to keep the same respect and understanding with colleagues in the same industry." Silguero's termination took effect immediately.
Silguero sued Creteguard, Nucum and others (collectively "Creteguard"), alleging that (1) she had been wrongfully terminated, and (2) the conduct constituted an illegal trade restriction in violation of the Cartwright Act, a California law that prohibits agreements that restrain trade.
Creteguard demurred to the complaint, arguing that the case should be dismissed and that there is no clearly delineated public policy prohibiting subsequent employers from honoring "putatively valid" noncompetition agreements with prior employers. The trial court sustained the demurrer, essentially dismissing the case, without leave to amend. The court found Creteguard to be a prevailing party and awarded it $23,532 in attorneys fees and costs.
The court of appeal reversed the dismissal of the wrongful termination claim, but not the Cartwright Act claim. The court first reiterated the principle articulated by the California Supreme Court in Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167: "although employers have the power to terminate employees at will, they may not terminate an employee for a reason that is contrary to public policy."
The Court went on to explaine why Section 16600 constitutes a clear legislative declaration of policy forbidding the sort of termination that occurred in this case. Thus, although Silguero's allegations did not support her Cartwright Act claim, Silguero will be permitted to pursue her wrongful termination claim against Creteguard.
The case, Silguero v. Creteguard, Inc., California Court of Appeal Case No. B215179 (2nd District, July 30, 2010), is available here.
- NOTE: In my post last week about an executive with the company that manufactures and distributes Thomas' English Muffins, I discussed a federal court of appeals opinion that upheld the issuance of a preliminary injunction prohibiting the executive from going to work for a competitor. In that post, I pointed out that the executive is California citizen who resides in California, and that the new employer hired him to work in Texas. In that case, the executive did not have a non-compete agreement but had agreed to maintain the company's trade secrets confidentially. The case was filed in Pennsylvania under Pennsylvania law. The Silguero case addressed in today's post reaffirms the strength of California public policy in favor of employee mobility, and reinforces the suggestion that this was one of the reasons the English muffin manufacturer insisted on sued in Pennsylvania rather than in California.
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