The Legal Framework in California: The Land of the Non-Compete Ban

So you decided to take the jump into starting your own business and just as you get your feet under you, you get a cease and desist from your prior employer. Let’s dive into the legal framework and assess your position from a 30,000 foot view but you will need to fill out the contact form below and we will be in touch to dive into your specific case. 

1. Non-Compete Agreements

   • California’s Stance: Non-compete agreements are generally unenforceable here, courtesy of Business and Professions Code § 16600, which ensures employees are free to engage in lawful businesses after leaving their jobs.

   • Translation: Your former employer can’t stop you from starting a business in the same field or working for a competitor, no matter how much they throw a fit. This law is designed to protect innovation and competition.

     
     

2. Non-Solicitation Agreements

   • Clients: The law is trickier here. While non-solicitation clauses related to employees are also typically unenforceable, courts have taken a more nuanced view of client non-solicitation agreements.

   • Trade Secrets Angle: If your contacts list is deemed a trade secret under the California Uniform Trade Secrets Act (CUTSA), the employer might have a leg to stand on. But if the list is public (e.g., widely known or available online), that’s a weak argument.

     
     

3. The Balancing Act:

   • You’re free to announce your new business and compete fairly. What you can’t do is use confidential information (like proprietary pricing strategies or client preferences) or engage in outright poaching if that violates trade secret laws.

Step 1: Evaluate the Letter

Let’s dissect this masterpiece of corporate intimidation:

• Does the Letter Reference a Non-Solicitation Clause?

  • If it does, we’ll scrutinize whether it aligns with California law.

• Are They Claiming Trade Secret Misappropriation?

  • This is the most common tactic employers use to bypass California’s employee-friendly laws.

Step 2: Assess Your Actions

The question is: how close to the line did we get?

• Did You Actively Solicit Clients?

  • If you reached out to former clients and offered them better deals, we’ll need to explore whether this crosses the line into unfair competition or trade secret misappropriation.

  • Example: If you sent out a mass email like, “Hey, remember me? Come to my new business,” that’s fair game. But if you used confidential data to tailor pitches, we might have a problem.

• Is the Contact List Proprietary?

  • If it’s pulled from LinkedIn or other public sources, the employer has no claim. If it’s a password-protected spreadsheet, things get dicier.

Step 3: Response Strategy

1. Draft a Reply

   • We’ll assert your right to compete under B&P Code § 16600, deny the use of trade secrets, and demand specifics if they claim otherwise.

2. Get Your Docs In a Row

   • Document everything: how you built your client list, communication records, and steps taken to avoid using confidential information.

Step 4: Litigation (or Not)

Employers often send these letters as scare tactics. If they escalate:

1. File a Declaratory Judgment Action (If Necessary):

   • In California, you can proactively seek a court ruling that you’re not violating any enforceable agreements.

2. Defend Trade Secret Claims:

   • If they sue under CUTSA, they bear the burden of proving the information qualifies as a trade secret and that you misappropriated it.

Step 5: Safeguard Your Business

While the legal side is essential, let’s also future-proof your operation:

• Avoid Using Former Employer's IP: Ensure your marketing materials, pricing structures, and operations are distinct.

• Create a Clean Room Approach: Develop client lists from public sources and document your methods.

• Be Ready for Noise: Sometimes, just running a better business attracts attention.

Final Thoughts

California loves competition—your former employer might just be screaming into the void but let us assess. Let’s put together a sharp, strategic response that keeps you focused on growing your business while they clutch at legal straws. Fill out the contact form below and we will be in touch right away.