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I Want to start my own business, but i signed a no compete when i was hired or be accused of using company secrets.

Angwin, CA |

I working for a uniform rental company up until september of last year. I want to start a companies that negotiates the contracts and pricing on behalf of the customer. knowing that the uniform companies out right screw there customers. I think its a great business idea, but i do not want to get sued for my no compete or trade secrets issues. I wanted to contact my former customers and give them the option of signing contracts with other vendors with me as there consultant. Is it really company secrets that id be using against them? if so how long do i have to wait till i can pursue these former customers?

Attorney Answers 3

Posted

In California, a post-employment non-compete provision will not be enforced.

However, as you apparently are aware, your former employer's customer list may be a trade secret that you now have no right to use. (Please see the post at the link below.) To be safe, you should assume that the prohibition against use will last forever, and you should look for an alternative way to identify customers of uniform rental companies.

This information does not constitute legal advice and does not establish an attorney-client relationship.

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Posted

I disagree that your former employer's customer lists are trade secrets. Customer lists are almost never really trade secrets. However, whether they are or not depends heavily on your particular circumstances.

A trade secret is information that (a) is valuable, and gains its value from the fact of being a secret, and (b) is subject to reasonable efforts to maintain its secrecy. Customer lists rarely qualify. Don't assume that your employer's lists don't qualify, however, without examining all the facts.

Noncompetes are illegal in the state of California, except under very limited circumstances.

Even if you do everything right, your former employer could still sue you. That doesn't mean they'll win, but you may be sued because their own attorney doesn't understand this area of the law. Be prepared for the costs of suit no matter how you pursue this, because it could happen regardless.

I hope this information is helpful to you.

Sincerely,
Craig T. Byrnes
www.ctblawfirm.com
310-706-4177

Disclaimer: Please be aware that I am not offering legal advice, nor forming an attorney-client relationship with you. I am not representing you, nor doing anything to protect your legal rights. If you believe that you have suffered a legal wrong, take action before any statute or limitations expires, or your right to do so may be lost forever. Good luck in your legal matter.

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1 comment

Jane Ellen Bednar

Jane Ellen Bednar

Posted

I agree - the threat of costly litigation is reason to proceed very cautiously. Even if you win such a suit, you could be financially devastated.

Posted

While an attorney probably will need to obtain specific facts from you, generally speaking, the non competition agreement would not be enforceable in California.

In California, non-compete agreements are automatically void as a matter of law, except for a small set of specific situations expressly authorized by statute. (California Business and Professions Code Section 16600).

California Business and Professions Code section 16600 provides: "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."

In 2008, the California State Supreme Court ruled that non-compete clauses in employment contracts are not enforceable in California. (Edwards v. Arthur Andersen LLP (2008) 44 Cal. 4th 937.)

There are a few exceptions where a reasonable non-compete agreement may be valid in California:

1) If an owner is selling the goodwill in their business. (Business & Professions Code section 16601).

2) When there is a dissolution or disassociation of a partnership. (Business & Professions Code section 16602).

3) Where there is a dissolution of a limited liability company. (Business & Professions Code section 16602.5).

Related to these exceptions is the protection of trade secrets. Confidentiality agreements (preventing disclose of trade secrets) are still enforceable. A company can prevent the use of its trade secrets, but it cannot prevent fair competition.

In 2009, following the lead of the California Supreme Court’s decision in Edwards v. Arthur Andersen, the Fourth District of the California Court of Appeal held that contracts prohibiting former employees from soliciting customers are not enforceable, unless tied to protecting the employer’s trade secrets. (The Retirement Group v. Galante (2009) 176 Cal. App. 4th 1226.)

Generally, a "trade secret" is information that is closely guarded by the company, and cost the company a considerable amount of effort and expense to develop, and is not generally available to the public.

In short, it all comes down to the method and manner your former employer company takes to protect the customer lists and customer information as "trade secrets". Just calling the customer list a trade secret does not make it so. And simply inserting a contractual provision in your employment agreements is not enough to protect your company's valuable information.

Frank W. Chen has been licensed to practice law in California since 1988. The information presented here is general in nature and is not intended, nor should be construed, as legal advice for a particular case. This Avvo.com posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult with your own attorney.

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