Restrictive covenants in employment contracts affect three parties ? the employer, the employee, and a future employer. If your business is looking to hire, it is important to understand your legal position in relation non-compete agreements that applicant may have entered into with their previous employer. In this blog, we consider this issue in the light of the ruling in Silguero v. Creteguard, Inc.
What happened in Silguero?
Rosemary Silguero had signed a restrictive covenant with her previous employer, FST, which prevented her from working for a competitor for 18 months after her departure from the company. FST contacted Ms. Silguero’s new employer, Creteguard, to request that Creteguard honor the non-compete provision in Ms. Silguero’s contract, its unenforceability under Section 16600 notwithstanding. Creteguard agreed to honor the non-compete clause, and terminated Ms. Silguero’s employment. Ms. Silguero filed suit for wrongful termination.
How did the court rule?
The California Court of Appeals agreed with Ms. Silguero’s complaint, ruling that by terminating her employment based on an understanding with FST, Creteguard had effectively entered into a no-hire agreement with FST. Such an agreement violates California public policy. Furthermore, Creteguard’s actions allowed FST to achieve indirectly that which the law prevents it from achieving directly, namely a restriction on Ms. Silguero’s right to employee mobility.
What are the implications for businesses?
In light of the Silguero ruling, it is clear that businesses need to consider the issue of non-compete clauses very carefully when hiring new employees. On the one hand, businesses need to be aware of the risk of being held accountable for non-compete clauses drafted by other businesses. On the other hand, they cannot bind new employees by such clauses. However, employers that flagrantly and routinely ignore any restrictive covenants when hiring new employees run the risk of breaching valid clauses that protect trade secrets.