U.S. - California

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

Choice of Law
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.

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").