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Non-Competition Issues in Business Litigation — Part 2

On Behalf of | Aug 14, 2015 | Business Litigation

Buffington Law Firm’s Orange County business litigation trial lawyers have handled many cases involving unfair competition and misappropriation of trade secrets.  In last week’s Blog we discussed basic issues concerning a departing employee’s legal right to compete against a former employer.  In this week’s article we will discuss practical issues concerning business litigation in these situations, including some of the ways to avoid this type of lawsuit, or at least minimize one’s liability.

As we discussed in last week’s Blog, while non-competition clauses are generally unenforceable in California outside of the context of business sales, former employers can sue a departed employee for misappropriation of their customer list and other proprietary confidential information.  Examples of the latter may include market surveys, database information concerning suppliers’ and customer preferences or information, and the like.

The all-too common scenario is that a salesperson or sales executive departs a company to work for a competitor.  This executive may know that he or she cannot legally bring along his Roladex file (or, more likely in the 21st Century, the computer database file on a thumb drive).  The executive nonetheless has a lot of valuable information in his or her head that the former employer regards as proprietary.  Upon being hired by a competitor, the executive immediately begins making or directing sales calls targeted at the customers with which the executive is most familiar — those of his or her former employer.  Word quickly gets back to the former employer, who files a lawsuit for violation of trade secrets, misappropriation of confidential information, unfair competition, and often breach of contract if the executive had an agreement not to take or utilize the employer’s “confidential information or trade secrets.”

California law is very contradictory in this context.  While California is very strong on the executive’s right to compete in his or her industry against a former employer, it also recognizes the former employer’s right to its confidential information and/or trade secrets.  The tension between these two rights often results in protracted litigation.  Frankly, some companies file lawsuits against departed employees who compete against them as a strategic measure — they want their current employees to know that if they depart and compete that they may be looking at a lawsuit.  In other words, they are seeking to deter this.  

These types of lawsuits tend to be complex and fact-driven.  However, if an executive or employee intends to depart to a competitor and compete, there are certain steps he or she can and should take to minimize exposure in a lawsuit of this type.  Among these are:

  • Do not disclose or announce your plans to depart your company for a competitor to customers (or anyone) until you have actually done so.
  • Do not actually take any sales literature, customer database, supplier database, market studies, or the like.  In a lawsuit if an employer can prove that the former employee actually took such materials this can be powerful evidence of misappropriation and unfair competition.
  • Once employed by the competitor, be prepared to thoroughly document how the new company came to know of a customer being called upon.  For example, there may be a commercially available list of the types of businesses that buy the products/services of the new employer.  Buying and using such a list can be cheap insurance.

If you are involved in a lawsuit of this type, we invite you to call Buffington Law Firm to speak to one of our experienced business trial lawyers in a free legal consultation