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Non-compete Snares Conspiring Employer

Document titled "Termination of Employment"

California courts are known for not enforcing non-compete provisions except under narrowly-defined circumstances (see “California doesn’t *always* prohibit non-compete provisions”). In a case last year (Silguero v. Creteguard, Inc.), the Court of Appeal for the Second District held that an employer may not terminate an employee because of another company’s unenforceable non-compete agreement.

In 2003, Rosemary Silguero began working for Floor Seal Technology, Inc. (“FST”). In 2007, FST threatened Silguero with termination if she did not sign a confidentiality agreement that included an 18-month post-employment non-compete provision. Two months later, FST fired her.

Soon thereafter, Silguero started working for Creteguard. However, when FST asked Creteguard to respect the non-compete provision, Creteguard terminated her employment. In a letter, Creteguard’s CEO wrote that “although we believe that non-compete clauses are not legally enforceable here in California, [Creteguard] would like to keep the same respect and understanding with colleagues in the same industry.”

Silguero brought suit alleging wrongful termination in that, while at-will employment can be terminated for almost any reason, it cannot be terminated for a reason that is against public policy, and her non-compete clause was against public policy. The court held that Silguero’s position concerning California law is correct.

This case raises at least two important issues for California employers:

  • First, except in situations where California law expressly authorizes non-compete provisions, employees should not be forced to agree to such provisions. In forcing Silguero to to agree to such a provision only two months before terminating her employment, FST’s behavior was particularly egregious.
  • Second, an employer should not enforce another company’s non-compete provision unless the employer is sure that the provision is enforceable – and even then, the employer should tread carefully. In firing Silguero for violating a provision that it knew was unenforceable, Creteguard’s behavior was particularly imprudent.

Photo credit: iStockphoto

Dana H. Shultz, Attorney at Law  +1 510-547-0545  dana [at] danashultz [dot] com
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