Employee Has Viable Tameny Claim Against New Employer for Wrongful Termination in Violation of Public Policy When Terminated by New Employer, Who Cites Alleged “Understanding” Between Old and New Employer to Honor Old Employer’s Noncompetition Agreement

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While this next case doesn’t deal directly with trade secrets, it addresses a common fact pattern in the employee mobility arena.  The Second District Court of Appeal in Silguero v. Creteguard, Inc., — Cal. Rptr. 3d —-, 2010 WL 2978222, *1 (Cal. Ct. App. 2d Dist. July 30, 2010) decided the issue of whether a terminated employee working in the area of sales has a viable claim for wrongful termination in violation of public policy under Tameny v. Atlantic Richfield Co., 27 Cal. 3d 167 (1980), against her subsequent employer when the employee’s former employer contacts the employee’s subsequent employer and informs it that the employee had signed an agreement with the former employer which prohibited the employee “from all sales activities for 18 months following either departure or termination,” and the subsequent employer terminated the employee’s employment out of “respect and understanding with colleagues in the same industry,” notwithstanding its belief that “non-compete clauses are not legally enforceable here in California .”  Silguero, 2010 WL 2978222, *1.

Citing California Business and Professions Code section 16600′s legislative declaration of California’s “settled legislative policy in favor of open competition and employee mobility” (Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 946 ( Edwards )), we conclude that the employee has a viable Tameny claim.”  Silguero, 2010 WL 2978222, *1.
The Court cited the alleged “understanding” between the old employer and the new employer to honor the old employers noncompetition agreement.  The new employer Creteguard admitted in writing that it entered into this understanding with the old employer, “although [the new employer] believe[d] that non-compete clauses are not legally enforceable here in California,” because the new employer “would like to keep the same respect and understanding with colleagues in the same industry.”

The Court reasoned that this alleged understanding is “tantamount to a no-hire agreement.” Silguero, 2010 WL 2978222, *6.  The Court concluded that such an “understanding” between the new and old employer “would be void and unenforceable under section 16600 because it ‘unfairly limit[s] the mobility of an employee’ and because [the old employer] ‘should not be ‘allowed to accomplish by indirection that which it cannot accomplish directly.’” Silguero, 2010 WL 2978222, *1 (citing VL Systems, Inc. v. Unisen, Inc., 152 Cal. App. 4th 708, 716-17 (2007).

[P]ermitting a Tameny claim against Creteguard under the circumstances of this case furthers the interest of employees in their own mobility and betterment, “‘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.’” (Dowell v. Biosense Webster, Inc. (2009) 179 Cal.App.4th 564, 575, quoting Diodes, Inc. v. Franzen, supra, 260 Cal.App.2d at p. 255 [in Dowell, both employees and their current employers sued a former employer to invalidate a noncompetition agreement].)  For all of the foregoing reasons, we conclude that Silguero has pleaded a viable Tameny claim against Creteguard predicated on the public policy in section 16600.

Id. *6.

The Court created a new avenue of liability for employers, who must now carefully decide how to respond to cease and desist letters from old employers.   Creteguard would almost certainly have fared better had it avoided the unnecessary editorializing in its termination letter.

By CHARLES H. JUNG

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