By Michael Early
Advice for employees who are contemplating a move to a competitor.
Most California employees are at will and can be fired at any time. Many employees are nevertheless bound by agreements that benefit their employer, and which they are unaware of until they quit or are fired. The following are three agreements that may come back to bite the unsuspecting employee who leaves their job and moves to a competitor.
1. Trade secrets agreements
If you are employed in certain fields, particularly in financial services (banks, insurance companies, brokerage firms, etc.), tech, biotech, or any similar industry, the chances are very good that you signed an agreement not to disclose the company’s trade secret agreements when you were hired. Trade secrets can be almost any information that is not available to people outside the company, and can include customer lists, non-public financial information, designs, formulas, processes and any other non-public information that provides the company with a competitive advantage.
In general, an employer will be given wide latitude in its designation of material that constitutes trade secrets as long as the information is not available outside the company and the company takes reasonable steps to keep the information secret. One “reasonable step” employers take to protect their trade secrets is to have employees sign a non-disclosure of trade secrets agreement when they are hired.
Most employees understand that they are not to disclose trade secret information to others while they are employed; many do not understand that these agreements survive their termination, and require them to refrain from disclosing such information to their new employer. A new employer who learns that an employee has breached a former employer’s trade secret agreement is likely to fire that employee, in part to avoid a conflict with their competitor, and in part because they fear the employee will do the same thing to them. A departing employee needs to be aware of what information they can and cannot disclose, and will need to be up front about this with any new prospective employer.
If you have access to truly sensitive information, you should contact an attorney who is knowledgeable in this area. An hour of counseling will be money well spent. If you are not privy to really sensitive information, the most likely source of problems will be your contacts list. Believe it or not, the list of contacts you developed while you were employed will usually be considered the company’s trade secret, not yours!
In some instances, your former employer will not have a policy of protecting such information. Some brokerage firms, for example, are parties to an agreement by which they have agreed that their employees can take customer lists as long as they take no other information about the customers. Many employers, however, jealously guard their customer lists, and will come after you if you take yours.
If you have signed a trade secret agreement, an employer may be able to get an injunction against you to prevent you from soliciting business from customers on the list (although you will usually be allowed to announce your move to a new job), and may be entitled to damages for any business lost as a result of improper solicitation. If you are unfamiliar with your employer’s policies in this regard, you may need to make some discrete inquiries to figure out where you stand before you quit.
This can be a complex area, so if you are in doubt, contact an attorney who knows this area of the law to help you figure out what you can and can’t take with you when you leave. Whatever you do, do not be the person who prints out or downloads customer lists and other data in their last few days at work and only inquires later whether this conduct is prohibited.
2. Non-competition agreements
With a few exceptions, covenants not to compete (an agreement that you will not compete with your employer for a certain time period and/or in an certain geographic area) are not enforceable in California. While some California employers do still have all employees sign them, they are generally not enforceable unless you are a sole or part owner of the business.
On the other hand, if you worked in a state that does enforce non-competition agreements, and you take a new job in California, there are circumstances in which the non-competition agreement could be used against you and could cost you your new job in California. If you are in a state that does enforce non-competes and are planning to take new employment in California, you should seek legal advice before making the move!
3. Covenants not to solicit
Unlike non-competition agreements, covenants not to solicit your former employer’s employees or customers are generally enforceable in California. Even though any employee is free to quit and join a competitor at any time, your employer can enforce an agreement that says that you will not encourage other employees to leave the company. Of course, those employees are free to quit and join your new company at any time without violating a non-solicitation agreement as long as you did not approach them about leaving first. As a practical matter, it can be difficult for an employer to enforce a non-solicitation agreement unless there is clear evidence that a current or former employee is actively encouraging others to leave and join a competitor. Nevertheless, employers do sometimes seek injunctions to prevent recruitment of their employees in violation of a non-solicitation agreement, and those agreements often provide for an award of attorney’s fees to the prevailing party. In short, you need to be careful with your communications with other employees if you are subject to a non-solicitation agreement.
4. Get advice before you move!
Most employees will not even be aware that they signed a trade secret, non-competition or non-solicitation agreement when they were hired. If you’re unsure what you signed, you will need to make some discrete inquiries before you leave. If you don’t feel you can ask without creating too much suspicion that you have one foot out the door, you should at least take a look at the documentation your employer is using currently for new employees; that will give you a baseline as to what information the company is interested in protecting, and whether they are using non-competition or non-solicitation agreements currently.
Whatever you do, don’t download information in the hope that your employer won’t notice. Almost everything you do on a computer can be traced–the documents you’ve reviewed, what you sent to print, what you downloaded, what you attached to e-mails. Get some advice first before you find yourself in a lawsuit that could cost you current and/or your next job.