Has a competitor ever demanded that you not hire its former employee? Did you know that honoring a non-compete agreement could subject your company to liability? Nowadays in California, both former and prospective employers must be well versed in the law of non-compete agreements or risk facing legal action.

It has been settled for some time that non-compete agreements are generally unenforceable under California law. Regardless, many employees are still forced to sign them, leading to an abundance of litigation. In the past, lawsuits concerning non-compete agreements were directed at former employers only (i.e. the employer implementing the non-compete agreement). However, following the court's decision in Silguero v. Creteguard, Inc., (2010) 187 Cal.App.4th 60, employees have begun to take aim at subsequent or prospective employers as well.

The facts of Silguero are as follows: Ms. Silguero worked for Floor Seal Technology ("FST") as an in-house sales representative. While employed at FST, she signed a non-compete agreement prohibiting her from "all sales activities for 18 months following departure or termination." Eventually, Silguero was terminated by FST and obtained employment with a competing company, Creteguard. Upon learning of Silguero's new position, FST contacted Creteguard and requested "cooperation" in enforcing its non-compete with Silguero. Although Creteguard believed the non-compete to be unenforceable, it acceded to FST's request and fired Silguero, as it wanted to "keep the same respect and understanding with colleagues in the same industry."

Following her termination, Silguero filed suit. The novel aspect to Silguero's lawsuit was that she targeted Creteguard for firing her, rather than FST for attempting to enforce the non-compete agreement. The trial court terminated the lawsuit early on, not recognizing a claim against the second employer. However, the Appellate Court reversed, allowing Silguero's claim to proceed against the new (former) employer. The court found the situation akin to an invalid "no hire" agreement (i.e., "I won't hire your employees if you won't hire mine"). In effect, the court created a new tort claim against an employer that either refuses to hire or terminates an individual subject to an invalid non-compete agreement.

California has a well settled legislative policy in favor of open competition and employee mobility. The Silguero decision is consistent with this policy and should serve as a cautionary tale for businesses that are considering entering into "no hire" or "no recruit" agreements or refusing to offer a job to a candidate because of a non-compete with a former employer. If your company has any questions concerning non-compete agreements, or other employment matters, the attorneys at Navigato & Battin are available to assist you.