Employers May be Liable for Honoring An Unenforceable Non-Competition Agreement With Prior Employer

When an employee leaves for a competitor the former employer will sometimes send a  letter to the new one advising it of non-competition agreement signed by the employee, and asking the company to respect it.  Such a letter carrys risks for the former employer–namely a potential claim for intentional interference with contract.  But the recent Second District Court of Appeal decision in Silguero v. Creteguard illustrates that the new employer may also be exposed to liability if it responds to the threat by terminating the employee.

In the Silguero case, Rosemary Silguero signed a non-competition/confidentiality agreement with her employer, Floor Seal Technology, after having been threatened with termination of her employment. The agreement prohibited Silguero from all sales activities for 18 months following Silguero’s departure or termination from FST. After two months, FST fired Silguero.

Shortly after her termination, Silguero obtained new employment with Creteguard. FST Creteguard of Silguero’s non-competition/confidentiality agreement. Creteguard immediately terminated Silguero’s employment. Silguero sued Creteguard alleging that the non-compete agreement enforced by Creteguard was void pursuant to state law and that Creteguard’s enforcement and ratification of the agreement violated public policy of the state of California.

The Court in Silguero said “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 public policy the Court determined that any explicit no-hire agreement between the two companies would have been illegal and unenforceable. The Court then said 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 her allegations, her new employer would be liable for the common law tort of Wrongful Termination in Violation of Public Policy.

Lesson for Business Owners: Don’t Honor Non-Competition Agreements In California.

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