EMPLOYMENT LAW BULLETIN
Vol. 04, No. 04
Courtesy of Eskridge Law, Attorneys at Law

In California, non-compete agreements between employers and employees are virtually always illegal and unenforceable. California Business and Professions Code § 16600 provides: "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void." Also, since non-compete agreements are generally not legal, if you terminate an employee because the employee refused to sign a non-compete agreement, you could be liable for wrongful termination in violation of public policy. (The California Court of Appeal recently reviewed this issue in Thompson v. Impaxx, Inc., and sided with the terminated employee.) Some employers have attempted to sidestep the law by having so-called "non-solicitation" agreements prohibiting former employees from soliciting the company's customers. Unfortunately, these are also illegal and unenforceable in California. (A "non-solicitation" agreement prohibiting former employees from soliciting current employees is enforceable, however, if narrowly drafted.)

The only protection California employers have against employees who leave and then try to take their former employers' customers is found in the California Uniform Trade Secrets Act (Civil Code § 3426, et seq.), Under the Uniform Trade Secrets Act, California courts will provide injunctive relief against misappropriation of trade secrets when convinced that: (1) There is an actual trade secret involved; and (2) Misappropriation of the trade secret is occurring or is clearly threatened.

A trade secret is "information, including a formula, pattern, compilation, program, device, method, technique or process, that: "(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Therefore, in order to be a trade secret, the information must not be generally known and you must be treating it like a secret. How do you treat information like a secret sufficient to satisfy the Uniform Trade Secrets Act? Although it depends on the circumstances, there are numerous things you can do such as:

• Disclose the secret only to people who have a true need to know.
  
  
• Structure work to limit the number of employees who need to know, or break the work into parts so that very few people know the whole secret.
  
  
• If the secret is embodied in a document, stamp the document with a trade secrets legend saying something like, "This is a trade secret of XYZ Corporation. Disclosure of the information contained herein is strictly prohibited." If the secret information is on computer, put the trade secrets legend at the beginning and end of the document, or better yet, on every page of the document.
  
  
• Have employees sign a nondisclosure agreement.
  
  
• If you have to disclose your trade secrets to parties such as suppliers, etc., have the parties sign non-disclosure agreements.
  
  
• Keep your trade secrets locked up when not in use. If you have drawings or customer lists laying around in plain view, there is a good argument that they are not being treated like secrets.
  
  
• Use passwords to prevent access to information stored on computers.
  
  
• Restrict access to your facility. Make visitors sign in and out, and require them to be escorted.

Eskridge Law, Attorneys at Law, may be contacted by phone (310/792-7021), by fax (310/792-7022) or by e-mail (geskridge@ealaw.net). Please visit our web site at www.ealaw.net or www.employmentattorneys.net.