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Covenants Not To Compete – Fourth District of CA Considers A New Fine Question (Or Two)

I’ve written many times about Section 16600 of California’s Business & Professions Code which, with limited exceptions, voids covenants not to compete.  See TRO Issued Enjoining Breach Of Non-Compete Agreement ClausesNo Surprises Here – California Court Won’t Enforce Non-CompeteCourt Says “No Way” To No-Hire, and California’s Hostility To Non-Compete Agreements Does Not Vitiate Forum Selection Clause.  Now, we have a new wrinkle – what is the effect, if any, of Section 16600 on an employee or officer’s conduct and duty while employed?

Angelica Textile Services, Inc. v. Park, 2013 Cal. App. LEXIS 818 (Cal. App. 4th Dist. Oct. 15, 2013) involved a suit by a laundry business against a new competitor and one of its former employees, alleging, among other things, violation of the Uniform Trade Secrets Act, Cal. Civ. Code § 3426 et seq.  In addition to the UTSA claim, the plaintiff asserted claims for unfair competition, interference with business relationships, breach of contract, conversion and breach of fiduciary duty.  The trial court ruled that all of the non-UTSA claims were displaced by the UTSA.  Then, a jury ruled that no trade secrets had been misappropriated.

On appeal, the plaintiff did not challenge the jury’s verdict, but did argue that its non-UTSA claims should not have been dismissed.  In an opinion by Justice Patricia D. Benke, the Fourth District Court of Appeal reversed.  In particular, the Court found that Section 16600 does not affect the conduct and duties of an employee or officer while employed.  The Court also found that even though documents taken by an employee contained no trade secrets, the employee might still be liable for conversion.

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume III, Number 296
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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