Non-compete Enforced to Protect Trade Secrets
California is well-known for enforcing post-employment non-compete provisions only under narrowly-defined circumstances. A recent case in the United States District Court for the Northern District of California (Richmond Technologies v. Aumtech Business Solutions) saw a non-compete enforced for the protection of trade secrets.
Jennifer Polito, a former employee of plaintiff Richmond Technologies (which does business as ePayware), started working for defendant Aumtech. ePayware brought suit, alleging that Ms. Polito misappropriated ePayware’s source code, license keys and customer list to help Aumtech compete against ePayware. (more…)
Non-compete Snares Conspiring Employer
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.
California doesn’t *always* prohibit non-compete provisions
California is well-known for refusing to enforce non-compete provisions, especially in the post-employment context (see Choice-of-Law and Non-Compete Provisions), so individuals will not be deprived of gainful employment. But provisions limiting competition aren’t always taboo. (more…)
Employee Proprietary Rights Agreements – Be Careful
Some companies force employees to sign proprietary rights agreements under which the employee automatically assigns to the company any patent applications that the employee files within one year following separation from the company. I have always considered these provisions unjustifiable. California law apparently has reached the same conclusion.
Applied Materials Made a Mistake
In Applied Materials, Inc. v. Advanced Micro-Fabrication Equipment (Shanghai) Co., et al., 630 F.Supp.2d 1084 (2009), the U.S. District Court for the Northern District of California held that such a provision is unlawful. (more…)
Choice of Law and Non-Compete Provisions
This post describes the fascinating interaction between a contract’s choice of law and non-compete provisions in a matter that I worked on.
A longtime client received an acquisition offer from a large, publicly-held company (“Acquirer”). Once the acquisition closed, the client’s founder (“Founder”) would become a management-level employee of Acquirer.
Concern about Non-compete Provision
Although Acquirer’s proposed employment agreement generally was acceptable, Founder was concerned about its non-compete provision. That provision stated that for one year following termination of his employment, Founder would not “engage in any business activities that are competitive with the business activities of [Acquirer] or those of its subsidiary or parent companies”.
The problem was that the business of Acquirer and its affiliates was vast, and Founder’s expertise was industry-specific. In effect, Founder would not be able to work elsewhere. (more…)