As outlined previously in this series, employee non-competition agreements in California are generally unenforceable and against public policy under Business and Professions Code section 16600. Nevertheless, employers (especially out-of-state employers) frequently include such provisions in employment contracts. Such employers usually apply the following rationale: “it can't hurt" to have them as a deterrent and a potential source of leverage.
The result of these provisions is usually a strongly-worded “cease and desist” letter from a previous employer to a new employer. What employers may not know is that such letters can carry certain risks for the employer seeking to enforce the non-compete provision, such as a claim for intentional interference with contract. However, a recent Court of Appeal decision, Silguero v. Creteguard, held that the new employer may be liable if it responds to the threat by terminating the employee.
In reaching its decision, the court began with the theory that in California, "the interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interests of the employers." Based on this strong public policy the Court determined that any explicit no-hire agreement between the two companies would have been illegal and unenforceable. The Court further concluded that terminating Silguero "out of respect for" the non-compete agreement with his prior employer was merely achieving the same result in an indirect manner. As a result, the Court found that if Silguero could prove his allegations, his new employer would be liable for the tort of Wrongful Termination in Violation of Public Policy.
What should you do if you receive an aggressive cease-and-desist letter from a prior employer seeking to enforce a non-competition agreement? Do not automatically terminate a new employee in such situations. First, the underlying agreement is almost certainly unenforceable anyway. Second, you could face a wrongful termination claim if you do.
