Can I be sued for taking customers from a company that I used to work for.

Asked about 4 years ago - Sacramento, CA

I have opened my own company and in the begining a few customers switched over to me because they were friends or family. That was two years ago and just recently we were going to swap out some more of his customers. He called saying he is going to hire an attorny if we move forward and that I should leave his customers alone.

Additional information

We both deal with the rental of water coolers and his thought is that when I sold the account for him and got payed from him that I have knowledge about his customer list that I could then go "steal". I have made a point to stear clear of his customers but with these current threats I want to take all of his customers.

Attorney answers (3)

  1. Pamela Koslyn

    Contributor Level 20
    Best Answer
    chosen by asker

    Answered . Generally "non-compete" contracts aren't enforcebale in CA, except in cases of business being sold, but what can be enforced are prohibitions against misappropriation of "trade secrets" and solicitation of employees. If you signed a contract limiting what you could do when you left this company, you might have agreed to reasonably scoped time frames and geographic limitations, which a CA court might enforce.

    Reasonableness and fair competition and what courts look for, with the employee's right to compete generally upheld.

    But can you be sued by your former company? Of course, anyone can sue anyone for anything, and whether you'd ultimately be successful or not, defending a lawsuit where you have 0 upside, and maybe not even a prevailing party's legal fee clause in a contract, means that need to really have a firm sense of your rights and you know how to proceed. That means consulting a lawyer so you can fully disclose the details of your situation and get specific advise.

    Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

  2. Dana Howard Shultz

    Contributor Level 20

    Answered . The post at the link below deals with precisely the situation that you are describing.

    The major legal limitation on your actions is that you may not use your former employer's customer list, or other trade secrets, to steal his customers. If you do not use any trade secrets, you still may be sued, but you may have a reasonable defense. If, on the other hand, you do misappropriate trade secrets, you are likely to lose a suit and receive a judgment that obligates you to compensate your former employer for his damages.

    Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

  3. Brad S Hindley

    Contributor Level 13

    Answered . This matter is substantially controlled by the Uniform Trade Secret Act
    (UTSA) at Cal Civ Code §3426 et seq., Unfair Competition at Cal Business and Professions Code §17200 et seq., in conjunction with Code Civ. Proc. §525 et seq.(injunctions generally), and substantial case law.
    “Trade Secret” is defined at Cal Civ Code §3426.1(d) as follows:
    “Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
    (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
    (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
    A business’ “customer list” qualifies as a “trade secret” when the list meets the two
    elements noted just above, American Paper.

    The Uniform Trade Secret Act provides: “Actual or threatened misappropriation may be enjoined.” See Cal Civ Code §3426.2(a). But to be a violation of law, there must be an actual or threatened misappropriation of a trade secret.
    Misappropriation requires “improper means.” Misappropriation and improper means are defined at Cal Civ Code §3426.1 as follows:
    As used in this title, unless the context requires otherwise:
    (a) "Improper means" includes theft, bribery, misrepresentation, breach or
    inducement of a breach of a duty to maintain secrecy, or espionage through
    electronic or other means. Reverse engineering or independent derivation alone
    shall not be considered improper means.
    (b) "Misappropriation" means:
    (1) Acquisition of a trade secret of another by a person who knows or has
    reason to know that the trade secret was acquired by improper means; or
    (2) Disclosure or use of a trade secret of another without express or implied
    consent by a person who:
    (A) Used improper means to acquire knowledge of the trade secret; or
    (B) At the time of disclosure or use, knew or had reason to know or knowledge the trade secret was:
    (i) Derived from or through a person who had utilized improper means to acquire it;
    (ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
    (iii) Derived from or through a person who owed a duty to the person seeking
    relief to maintain its secrecy or limit its use; or
    (C) Before a material change of his or her position, knew or had reason to
    know that it was a trade secret and that knowledge of it had been acquired by
    accident or mistake.

    Analysis: Only the improper use of misappropriated trade secrets to generate a solicitation is unlawful. Certainly, you may solicit clients by running an advertisement in the news paper. If the forner business clients respond to such a solicitation, then you have every right to accept them as clients. And you may buy a mailing list. But you may not copy a client list from fornmer business and use that list to generate clients. But, you may acquire your own list through “independent derivation” per Cal Civ Code §3426.1, and solicit the clients of any business, including former business.
    Additionally and very importantly, clients are free to chose whom they do business with. If a client wishes to locate you on their own and to become a client, you may take these clients too, even knowing they were customers of former business, and that action is not a violation of law.
    Read these: Reeves v. Hanlon, 33 Cal. 4th 1140 (2004), Continental Car-Na-Var Corp. v. Moseley (1944) 24 Cal.2d 104.
    Case link http://www.courtinfo.ca.gov/opinions/continue.htm
    Code link http://www.leginfo.ca.gov/calaw.html

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