California Court of Appeal Decision Throws Specific Performance to the Wind for California Businesses Intending To Use Trade Secrets as a Basis to Enforce Covenants Not To Compete

On August 20, 2009, the California Court of Appeal for the Fourth Appellate District issued an order certifying publication of its decision in The Retirement Group v. Galante, No. D054207, 2009 WL 2332008 (Cal. App. 4th July 30, 2009). In Galante, the Court analyzed the tension between California’s strong public policy favoring competition, as embodied in Business and Professions Code section 16600, and the longstanding body of law recognizing an employer’s right to guard against misappropriation of its trade secrets. 

Under the facts presented, the Court concluded that an employer who seeks to prohibit a former employee from soliciting former customers to transfer their business away from the former employer to the employee’s new business, cannot specifically enforce a covenant not to compete without showing a tort. The employer must show more than that the former employee had access to customer lists that qualified as trade secrets while employed, and solicited customers once he left. Instead, the former employer must show that the former employee actually used the trade secret list to identify or facilitate the solicitation of existing customers.

To read this blog post click here