The California Court of Appeal, Second Appellate District, recently addressed the issue of whether a trial court erred in dismissing an employee's lawsuit for wrongful termination where he was terminated for his refusal to sign a covenant promising not to solicit or take any of his employer's customers for one year following the end of his employment. Thompson v. Impaxx, Inc. (2003 Daily Journal D.A.R. 13,261, Cal. App. 2nd District, December 8, 2003)
Daniel Thompson was terminated from his employment with Impaxx, Inc. (Employer) for refusing to sign a covenant which provided that he would not call on, solicit, or take away any of Employer's customers or potential customers for one year following his termination from employment. He brought a lawsuit for wrongful termination alleging that his termination violated public policy because he was fired for refusing to sign an unenforceable covenant not to compete. The trial court dismissed the lawsuit.
Appellate Court Decision
The Court of Appeal held that the trial court erred in dismissing Mr. Thompson's lawsuit. California Business and Professions code section 16600 provides that, except for very limited circumstances, a contract to restrain anyone from "from engaging in a lawful profession, trade, or business of any kind is to that extent void." Employer argued that section 16600 was not applicable because the covenant it asked Mr. Thompson to sign was a covenant not to solicit instead of a covenant not to compete. The Court concluded that anti-solicitation covenants are anti-competitive and are void as unlawful business restraints, except where enforcement of a covenant is necessary to protect an employer's trade secrets.
The Court determined that the question of whether Employer's client information constitutes a trade secret is a question of fact. Although Employer asserted that its customer lists are confidential and protected as a trade secret, the Court concluded that Employer's mere assertion that the information is a trade secret or confidential information "does not conclusively establish that the information fits this description." Mr. Thompson alleged in his complaint that the identity of Employer's customers and potential customers was not a trade secret and Employer had not attempted to keep the identity of its clients a secret, as evidenced by the fact that it provided the names of a number of customers on its website. The Court sent the case back to the trial court to allow Mr. Thompson the opportunity to present evidence that the information Employer sought to protect is not confidential information and does not constitute a trade secret.
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