Q: We contracted with an agency that provides virtual staff. One of the persons we worked with left the company, and a few months later approached us to see if we would hire her. We did not see any wrong in doing so, and she has been working with us (remotely) for a month. We just got a letter from her prior employer who said because we hired her, we are breaching the non-solicitation clause in the signed contract, and they will sue us unless we pay them “liquidated damage of $30,000.” Are we liable?
B.J., Redondo Beach
Ron Sokol
A: A non-solicitation agreement typically is one in which an employee agrees that if he or she leaves the company, the employee will not offer employment to the company’s other employees and/or solicit the company’s customers.
Here, on the other hand, you contracted with a company, so the non-solicitation provision likely sets forth that for a period of time you are not permitted to hire someone from that company who has since left its employ, nor are you to “poach” that person from the company during or when the contract ends. Since the damages are uncertain, you probably agreed to a liquidated sum for their time and effort to train that person (I am thinking this is where the $30,000 demand comes from).
In California, however, non-solicitation agreements are disfavored. Business & Professions Code Section 16600 reads: Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void. California wants to encourage employment, not hinder it.
There are some exceptions in which California courts have upheld well-worded employee non-solicitation agreements: (a) There is “no negative impact”, which means the employee was not prevented from getting work, just that the third party (you, the company hiring her) could not contact the employee first; or (b) The non-solicitation clause is necessary to protect the company’s trade secrets and other confidential information (such as identification of customers); or (c) When the non-solicitation provision is part of the sale of the business; or (d) If it involves a partnership which is dissolving, then the partners agree not to solicit the other partners or the partnership’s clients.
Questions arise with the situation you describe. It reads as if you did not solicit the individual, but instead she came to you. However, are there trade secrets from the other company that she is utilizing to your advantage now that she is employed by you? The other two exceptions mentioned above do not appear to be applicable.
Bottom line, consult with qualified counsel to determine how best to address the demand (and threat of litigation). I will repeat: Non-solicitation clauses are not favored in California, but evaluate your options and risks.
Q: I have left employment with one company after being offered a better job with a competitor. I signed a clause when hired by my former company that says I cannot compete with them for 12 months. Will I have a problem now working with the new employer?
J.L., Sherman Oaks
A: The non-solicitation clause referenced in the first question typically seeks to restrict a company’s former employee from hiring the company’s current employees and/or soliciting their customers. A non-compete clause, on the other hand, purports to preclude a company’s former employee from working at a competing company. Both have one thing in common: They usually are not enforceable here in California because each may impede persons from performing their chosen profession (California Business & Professions Code Section 16600).
Often a non-compete agreement sets out a finite time frame during which you are not allowed to work for a competitor. In some instances you are not to work within a designated geographic area. One rationale for a non-compete is that the employer has put time, effort and expense into helping to train the employee, let alone introduce him or her to the company’s clients. Even so, California favors protecting the freedom and mobility to work. As such, there are limited instances only where a non-compete may be upheld: (a) selling of a business, (b) among a partnership, and (c) LLCs.
Employers in California sometimes take pains to create non-compete language that might be upheld, such as by focusing on your not being able to misappropriate trade secrets. Accordingly, it is most prudent to consult with qualified counsel to go over the agreement you were party to, what you are planning to do and if there are any genuine risks in your course of action.
Ron Sokol has been a practicing attorney for over 40 years, and has also served many times as a judge pro tem, mediator, and arbitrator. It is important to keep in mind that this column presents a summary of the law, and is not to be treated or considered legal advice, let alone a substitute for actual consultation with a qualified professional.
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