Broad Confidentiality Restriction Void As Illegal Non-Compete Provision
Section 16600 of the California Business & Professions Code declares "every contract" that restrains "anyone . . . from engaging in a lawful profession, trade, or business of any kind is to that extent void". There are only three statutory exceptions to this ban.
Often, non-compete provisions are explicit, providing that a party may not engage in a specified activity. In those cases, the question will be whether the provision falls within a statutory exception. A recent decision by the California Court of Appeal, however, demonstrates that sometimes the question will be whether a provision is in fact a covenant not to compete.
Brown v. TGS Management Co., LLC, 2020 Cal. App. LEXIS 1074, is an appeal from a judgment confirming an arbitration award in favor a the plaintiff's former employer. The plaintiff contended that the arbitration award should be vacated because it exceeded the arbitrator's powers. Specifically, the plaintiff claimed that the arbitrator should have declared the non-compete provisions of his employment agreement void under Section 16600.
Pigs get fed, hogs get slaughtered
The Court of Appeal agreed, finding that the overly broad confidentiality provisions in the plaintiff's agreement operate as a de facto noncompete provision, plainly barring the plaintiff in perpetuity from doing any work in his field, much less his chosen niche. The Court noted that its holding will not strip the employer of its ability to enforce a properly drafted confidentiality agreement. The Court further noted that the employer can stop former employees from disclosing trade secrets by pursuing injunctive and tort remedies under the Uniform Trade Secrets Act (Cal. Civ. Code § 3426 et seq.) and the Unfair Competition Law (Cal. Bus. & Prof. Code § 17200 et seq.).