Wednesday, February 15, 2012

"Stealing" ex-employer’s customers

SAN DIEGO. What if a good employee leaves a company and takes some of its customers to start a competing business? Non-competition agreements are invalid in California as a matter of law. Therefore, an employee may start a competing business after quitting working for the current employer at any time. Taking clients over to the new business, however, is potentially problematic, but not expressly forbidden either.

Trade secret?

California law prohibits former employees from using a customer list if it is a trade secret. An employer cannot, however, prevent an employee from using or disclosing non-trade secret information simply by defining the information as a trade secret in the employee's non-disclosure agreement. Generally, the more details the customer list contains and the more effort the company invested into it, the more likely the court will find it to be a trade secret, especially if it contains things not available from independent sources, such as customers’ personal/pricing/buying/peculiar preferences. If the customer list simply contains biographical details and data available from other sources, it is less likely to be a trade secret. 

California law voids broad non-solicitation agreements but generally does not allow former employees to directly solicit former employer’s clients either. A non-solicitation agreement does not violate Section 16600 of California’s Business and Professions Code (which bans broad restrictions on the right to pursue a profession) if it imposes a limited restriction and “leaves a substantial portion of the market available to the employee.” Edwards v. Arthur Andersen LLP, No. B178246 (Cal. Ct. App. Aug. 30, 2006).

An employee may announce that he is now working for himself or somewhere else, but the more he does after that, the closer he is getting to impermissible solicitation. What constitutes impermissible solicitation is determined on a case-by-case basis, there is no clear definition in California law. Nonetheless, some guidelines have emerged regarding the types of conduct that may and may not be enjoined by a non-solicitation agreement. First, an employee may passively accept business from the former employer's clients despite a non-solicitation agreement. See, e.g., Golden State Linen Serv., Inc. v. Vidalin, 69 Cal. App. 3d 1, 8 (Cal. Ct. App. 1977). Second, “merely informing customers of one's former employer of a change of employment, without more, is not solicitation.” Aetna Bldg. Maint. Co. v. West, 39 Cal. 2d 198, 204 (Cal. 1952).
An employee cannot tell the clients in the departure announcement letter to contact him to learn more about his own services. Am. Credit Indem. Co. v. Sacks, 213 Cal. App. 3d 622, 636 (Cal. Ct. App. 1989). Visiting a customer’s place of business “from memory” would be getting close, if not over the line, to impermissible solicitation. Stumbling upon his or her business place randomly would be fine once or twice but if the company sees that the ex-employee just happens to run into the company’s clients all the time, the employee will have a problem based on the weight of circumstantial evidence.

Bottom line being, departing employees must be careful not to appear that they are reaching out to California company’s clients. However, if clients find an ex-employee themselves and want to switch over to his or her business, this is fine. There is a large gray area in between; consult a competent employment law attorney.