By: Roger J. Buffington, Esq.
Buffington Law Firm’s business litigation attorneys have often dealt with lawsuits involving Unfair Competition claims against former employees. These lawsuits are common and can represent an unpleasant surprise to a former employee. Generally the scenario involves one or more employees resigning from employment and either accepting new positions with a competitor or starting their own competing firm. These actions are of course perfectly legal in our free market economy. However, typically the employer will bring a lawsuit in which it alleges, among other things: misappropriation of trade secrets and/or proprietary confidential information, breach of the duty of loyalty, and the general catch-all claim of “unfair competition.” Let’s discuss this.
Often in these cases the core allegation by the employer is that the departing employee or group of employees misappropriated trade secrets or confidential proprietary information of the employer. This can be many things. The most common claim is probably the allegation that the departing employees misappropriated the employer’s customer list and information. The employer will allege (as it must) that the customer list was secret and safeguarded, and that it contains information that was expensive to compile and not readily available to the public. Essentially, a claim of misappropriation of this type is an allegation of civil theft. Obviously these claims can be murky because often the employees are well-versed in their fields and know many or most of the important customers personally and professionally and do not need recourse to a formal list. Other trade secrets or proprietary information that often turns up in these lawsuits are allegations about things such as vendors, vendor pricing and sourcing, manufacturing processes, and many other things.
In California, the misappropriation of proprietary confidential information, including trade secrets, is primarily governed by the California Uniform Trade Secrets Act (UTSA), codified in California Civil Code Sections 3426, 3426.11. Misappropriation under the UTSA includes the improper acquisition, use, or disclosure of trade secrets without consent, and remedies include injunctive relief, damages for actual loss and unjust enrichment, reasonable royalties, and exemplary damages for willful and malicious misappropriation. [CytoDyn of New Mexico, Inc. v. Amerimmune Pharmaceuticals, Inc. (2008) 160 Cal. App. 4th 288; Civil Code § 3426].
Courts have addressed various scenarios involving misappropriation. For example, in ReadyLink Healthcare v. Cotton [(2005) 126 Cal. App. 4th 1006] the court upheld a preliminary injunction against a former employee who misappropriated proprietary information, including customer and employee lists, to solicit employees and customers for a competing business. The court found that such conduct constituted misappropriation of trade secrets and justified injunctive relief to prevent further harm. [ReadyLink Healthcare v. Cotton, (2005) 126 Cal. App. 4th 1006]. This authority shows that these allegations can, on occasion, have teeth and should be taken seriously. Other times, of course, the employer’s allegations are flimsy and courts have ruled accordingly.
California’s Unfair Competition Statute is codified by California Business and Professions Code Section 17200. This is essentially a “catch all” statute that plaintiffs will invariably include in a lawsuit of this type. This statute, also known as the Unfair Competition Law (UCL), broadly defines “unfair competition” to include any unlawful, unfair, or fraudulent business act or practice, as well as unfair, deceptive, untrue, or misleading advertising. The statute’s language is intentionally broad, allowing it to encompass a wide range of business practices that may harm consumers or competitors, even if those practices are not explicitly prohibited by other laws. [Cal Bus & Prof Code § 17200, Ticconi v. Blue Shield of California Life & Health Ins. Co., 160 Cal. App. 4th 528].
Some employers bring these suits “strategically” — in other words, to intimidate employees or even their competitors. It is far from unusual for employers to bring these lawsuits with little actual justification. Buffington Law Firm’s business litigation team has closed cases in which it became clear that the employer as a matter of practice sued all senior employees who resigned to work for competitors. Every case is different, and requires careful, skilled litigation. Normally the defending former employees simply want to be left alone. In such cases it is the Firm’s objective to end and close the case as efficiently and as economically as possible.
If you are involved in a case of this type, or are contemplating one, Buffington Law Firm’s business litigation attorneys invite you to contact us for a free legal consultation. All consultations are with an experienced business litigation attorney, and are completely confidential and protected by attorney-client privilege. And there is never any obligation. Call us today!