Nonsolicitation Clauses are Void as a Matter of Law

Nonsolicitation Clauses – Know the Facts

Employers regularly require their employees to sign confidentiality clauses wherein the employee agrees to keep secret the company’s secrets and other proprietary information; e.g., customers’ identities, secret formulas or marketing concepts, financial information.  Less frequently, employers require employees to sign nonsolicitation agreements – whereby the employee agrees that, when leaving employment with the company, he or she will not solicit the company’s customers to do business with the employee’s new business.

Validitity of the Law

In California, nonsolicitation clauses are void as a matter of law.  Thus, even if an employee signs such an agreement, the former employer may not enforce it. Section 16600 of the Business & Professions Code expresses California’s strong public policy of protecting the right of its citizens to pursue any lawful employment and enterprise of their choice.  Advanced Bionics Corp. v. Medtronic, Inc. (2002) 29 Cal.4th 697, 706;  Weber, Lipshie & Co. v. Christian (1997) 52 Cal.App.4th 645, 659 (“section 16600 was adopted for a public reason”].  California courts “have consistently affirmed that Section 16600 evinces a settled legislative policy in favor of open competition and employee mobility.”  Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 946.  “The interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interests of the employers, where neither the employee nor his new employer has committed any illegal act accompanying the employment change.”  Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244, 255; D’Sa v. Playhut, Inc. (2000) 85 Cal.App.4th 927, 933.

Rights of the Employee

Though Section 16600 is most frequently cited as prohibiting noncompetition clauses, nonsolicitation clauses are also void under Section 16600.  Stated simply, a former employee has the right to compete with his or her former employer, even for the business of those who had been customers of the former employer, provided such competition is fairly and legally conducted.  Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1149;  Dowell v. Biosense Webster, Inc. (2009) 179 Cal.App.4th 564, 577 (invalidating covenant not to solicit customers with whom employees had contact during their last 12 months of employment, for a period of 18 months post-employment).

This is an important legal principle for employees and employers to understand.  To protect themselves, owners of small businesses should maintain and develop strong personal relationships with as many of their customers as possible – even though employees are working doing all or the majority of the work for the customer.  On the other hand, employees who move on to start their own businesses or to other companies should not hesitate to fairly and ethically compete for and solicit the customers with whom they worked while at their former employment.

Obviously, this issue creates a tension in the employment relationship.  The best way for an employer to address that tension may be to treat employees in a way that fosters very long term employment for its employees.