Insights
Publications

California Court Rejects Non-Competition Agreement As Necessary To Protect Confidential Information

11/24/2009 Articles

On November 19, 2009, a California Court of Appeal published a decision continuing the trend against enforcement of non-competition clauses in California. In Dowell v. Biosense Webster, Inc., 09 C.D.O.S. 13991, the Second Appellate District affirmed a finding that non-compete and non-solicitation agreements not narrowly constructed only to protect trade secrets are void under California law. The court also expressed doubts as to whether even those more narrow non-compete agreements are authorized under California law.

In Dowell, Biosense Webster, Inc., a medical device manufacturer, hired the subject employees to educate physicians about Biosense's devices. As a condition of employment, Biosense had required that the individuals sign agreements that, for 18 months after leaving Biosense, the individuals would not render services to any competitor where such services could "enhance the use or marketability of a [competing product] by application of CONFIDENTIAL INFORMATION" to which the employee "shall have access" during employment." The agreement defined "CONFIDENTIAL INFORMATION" essentially as any information "not generally known to the trade or industry" concerning Biosense's business or products. For the same time period, the agreements also precluded the employee from soliciting any customers with whom the employee had contact for Biosense in the year before termination. The agreement recited as justification for this clause that Biosense had invested time and resources in its customer relations. The agreements provided that, although the individuals were employed in California, the agreements were to be interpreted under New Jersey law.

When the employees left Biosense to work for its competitor, St. Jude Medical, Inc., Biosense sent a "cease and desist" letter insisting that its agreements precluded these former employees from working for St. Jude. In response, St. Jude filed a civil action against Biosense seeking that the court declare the agreements void under California law. The trial court granted summary judgment for St. Jude, finding that the agreements violated California public policy as articulated in California Business and Professions Code §16600, which voids most agreements "by which anyone is restrained from engaging in a lawful profession, trade of business."

The Court of Appeals affirmed summary judgment, rejecting Biosense's argument that these restrictions were justified by a need to protect its trade secret information. The Court acknowledged that some judicial opinions had recognized a common law exception to Section 16600 allowing contractual competition restrictions that were necessary in order to protect the employer's trade secrets. In light of recent case law, including the California Supreme Court's decision in Edwards v. Arthur Andersen LLP, see FBM Employment Law Client Alert dated August 12, 2008, the court stated, "[W]e doubt the continued viability of the common law trade secret exception to convents not to compete."

The court, however, found that it did not need to resolve that doubt because it agreed with the trial court that the Biosense agreements were broader than necessary to protect any Biosense trade secrets. It noted that "CONFIDENTIAL INFORMATION" was broadly defined to cover information well beyond what the customer relations employees could access. The court also held that the non-solicitation clause did not appear to be limited to protecting any confidential information since it precluded performing work even for customers who contacted the former employees.

The Dowell decision confirms that California courts have become more hostile than ever to non-competition and non-solicitation restrictions, and that designating non-California law will not prevent enforcement of Section 16600. Employers should consult with counsel when drafting any such covenants and also when considering enforcement of any agreements that restrict the actions of former employees.

Firm Highlights

Publication

The Election Season Is Upon Us: Guidance for Managing Political Expression in the California Workplace

In a year of extraordinary events, this election has been more divisive and controversial than any other in recent history. Many employers are grappling with how they should manage political expression in the workplace...

Read More
News

Benchmark Litigation 2021 Ranks Farella Among Top Litigation Firms in California

SAN FRANCISCO, October 12, 2020: Farella Braun + Martel continues to be ranked among the top litigation firms in California in the  Benchmark Litigation  2021 guide. Farella was ranked “Highly Recommended” for Dispute Resolution...

Read More
Publication

Employment Law Updates for Nonprofits in the New Normal

Farella's Nonprofit Education Series features Rebecca Stephens and Jaya Bajaj discussing "Employment Law Updates for Nonprofits in the New Normal." Nonprofit organizations are subject to both state and federal employment laws and regulations. The...

Read More
Publication

California Employers Face Various New Laws in January 2021

The California Legislature passed and Governor Newsom signed several new laws covering topics ranging from COVID-19 to leaves of absence to data reporting. Most of these laws take effect January 1, so now is a...

Read More
News

Farella Braun + Martel Elevates Five to Partner

Read More
News

52 Farella Braun + Martel Attorneys Listed in The Best Lawyers in America© 2021

Read More
News

Farella Braun + Martel Ranked Among “Best Law Firms” by U.S. News & World Report and Best Lawyers

SAN FRANCISCO, November 5, 2020: Farella Braun + Martel earned national and regional rankings across a number of practice areas in the U.S. News & World Report and Best Lawyers® release of the “Best...

Read More
Event

Equal Pay Data Reporting, an Asset for the Strategic Employer

Join Holly Sutton and co-speaker, Erin Hastings, in the discussion on "Equal Pay Data Reporting, an Asset for the Strategic Employer." California’s recently passed SB973 requires certain employers to collect and report the number...

Read More
Publication

Guidance on Directive to Defer Payroll Tax Obligations Leaves Unanswered Questions

On August 8, 2020, the President directed the Secretary of the Treasury to authorize the deferment of certain payroll tax withholding, depositing, and payment obligations otherwise incurred on wages and compensation paid between September...

Read More
Publication

California Expands Family and Medical Leave Law to Cover Small Employers

California Governor Gavin Newsom recently signed SB 1383, which expands employees’ leave entitlements under California’s Family Rights Act and New Parent Leave Act. Effective January 1, 2021, these leave provisions will apply to employers with...

Read More