California Court Strengthens Public Policy on Employee Mobility (Silgeuro v. Creteguard, Inc.)

Most everyone is aware that non-compete agreements have been void in California since 1872, when the California legislature rejected the common-law rule of reason and banned non-competes except in very limited circumstances. Courts have routinely enforced and upheld California's long-standing, unequivoical public policy, and just a few years ago rejected the so-called "narrow restraint" exception some courts had attempted to graft onto the applicable California statute.

Given California's long public policy in favor of employee mobility, the latest ruling out of the Court of Appeal of California should come as no surprise. Rosemary Silguero signed an 18-month non-compete agreement with a company called Floor Seal Technology, Inc. (FST) in 2007. She was subsequently terminated from that position and found new work with Creteguard, Inc. After learning of Silguero's new job, FST contacted Creteguard and requested "cooperation and participation" in enforcing its agreement with Silguero. Creteguard complied, informing Silguero (in writing) that although it did not believe FST's non-compete was enforceable, it "would like to keep the same respect and understanding with colleagues in the same industry."

Silguero sued Creteguard, alleging her termination contravened public policy under California's long-enforced prohibition on non-compete agreements. The Court of Appeal found that Silguero had a valid claim, noting that the FST/Creteguard pact was tantamount to the very type of employee no-hire arrangement it previously found to violate California law.

It is certainly true that in the vast majority of states an employer can discharge an employee for refusing to sign a non-compete agreement and an employer can make execution of a non-compete a condition to accepting a job or a promotion.

However, these default rules do not necessarily apply in the few states like California that have clear, time-honored public policies against enforcement of non-compete agreements.

--

Court: Court of Appeal of California, Second Appellate District
Opinion Date: 7/30/10
Cite: Silguero v. Creteguard, Inc., 2010 Cal. App. LEXIS 1263 (Cal. Ct. App. 2d Dist. July 30, 2010)
Favors: Employee
Law: California