U.S. - California

  >>> Applicable Statute:CA Bus. & Prof. Code Section 16600 et seq. 

Choice of Law
2019.10.15  Delaware Choice-of-Law Provisions in Restrictive Covenant Agreements.  This excellent, substantive blog entry which explains why this is the current interplay between Delaware Courts and California law: 

  • "The bottom-line takeaways from these decisions is as follows: When California has the most significant relationship with a dispute, Delaware courts will apply California law to void noncompetition and nonsolicitation provisions within an agreement between a California-based company and one of its employees, even when the company is incorporated in Delaware, the employee does not primarily live or work physically in California, and the contract in question contains a Delaware choice-of-law provision, unless one of the following conditions is met . . ."

2019.06.06  Enforce Non-Compete Forfeiture Provisions through ERISA Top Hat Plans.  Here is an excerpt from Seyforth's alert, which cites and aptly discusses long-standing California authority:

  • Just last year, the Southern District of California applied ERISA preemption and dismissed a former employee’s claim for denial of benefits under an ERISA plan where he had violated the plan’s non-compete provision. Elbling v. Crawford & Co., No. 16cv2951-L(KSC), 2018 WL 1536717 (S.D. Cal. Mar. 29, 2018).
  • In Elbling, the plaintiff entered into the defendant’s deferred compensation plan and when he retired had earned over $76,000 worth of long-term incentive credits. Immediately after retiring, plaintiff began working for defendant’s competitor. Shortly thereafter, defendant notified plaintiff that his benefits were forfeited because he violated a non-compete provision included in the plan. Plaintiff unsuccessfully appealed to the plan administrator and then filed an action in California federal court alleging claims for denial of benefits under ERISA, declaratory relief that the non-compete violated California law, breach of contract, tortious breach of implied covenant, and unfair competition in violation of Business Professions Code Section 17200.

2018.12  Litigation Proceeds re Non-Solicitation Provision. See Barker v Insight Global, in which a N.D.CA court rejected an employer's motion to dismiss, and based that on an amended complaint alleging --

  • that his career trajectory was altered by inclusion of the non-solicitation of customers provision in his employment agreement—that the provision "prevented [him] from . . . seeking employment with a competitor' and that certain in-state jobs in his industry were unavailable to him due to Insight[] [Global's] restrictive covenants." 4AC ¶ 42. He alleges that he sought jobs in California in other industries, but they paid less, and applied for jobs with competitors but was only offered jobs out of state due to the non-solicitation provision. See id.; see also Spanish Broadcasting System, Inc. v. Grupo Radio Centro LA, LLC, 2016 WL 9049646 , at *5 (C.D. Cal. Sept. 22, 2016) (suggesting that an employee suffers economic harm in the context of UCL standing when prevented "from engaging in their lawful occupation [*6] with competitors") (internal quotation and citation omitted).

2012.Feb.8  California Law Rules ... in Choice-of-Law Dispute involving Employee Classification (9th Circuit).  For employers outside California, the 9th Circuit's decision in this worker classification case provides a heads-up for the governing law to expect in choice of law disputes involving California-based employees. Here are two quotes from unrelated parts of Ruiz v. Affinity Logistics: 

  • “Georgia law directly conflicts with a fundamental California policy that seeks to protect its workers.”
  • “California also has a materially greater interest than Georgia in the outcome of this case. ... Here, the drivers entered into the contract with Affinity in California. The drivers completed the work for Affinity in California.  The subject matter of the contract deals with completing deliveries in California. Finally, the domicile of the drivers is California. The only connection with Georgia is that Georgia is where Affinity is incorporated. Accordingly, California has a materially greater interest than Georgia in determining whether the drivers are independent contractors or employees of Affinity.

”Duty of Loyalty

2011.Mar.28   No Claim for Employee's Breach of Loyalty.  An employer may not sue its former employees solely for breach of loyalty, but is limited to claims asserting breach of fiduciary duty. See Mattel v MGA Entertainment, C.D. CA (case # 2:04-cv-09049), holding that "non-fiduciary employees owe no duty of loyalty to their employers," and explaining that --

  • "To ensure that the principal recovers the profits generated by misuse of its own property or authority, the common law imposed a duty upon fiduciaries, the violation of which is a tort, remedied by punitive damages and disgorgement. ... No good reason exists to extend these principles to all aspects of the employment relationship. Some employees may owe an extra-contractual duty to their employer, but only because they have been entrusted with meaningful authority or property, and therefore stand as fiduciaries." [authorities omitted but many discussed]

ERISA Preemption of CA Non-compete Law (16600) exists when an ERISA plan provides for benefit forfeitures for violation of non-compete: Clark v Lauren Young Tire, 9th Cir.1987. 

M&A - CA Law re Non-competes

Non-Solicitation Agreements

  • 2015 Article: "The Future of Loral and Employee Non-Solicits" - reviewing CA law focused on no-hire and other covenants aimed at not soliciting employees of the former employer.
  • 2008.Aug.07   Edwards v Arthur Andersen ("We conclude that section 16600 prohibits employee noncompetition agreements [involving post-employment non-solicitation covenants] unless the agreement falls within a statutory exception").