Why a Non-Solicitation Agreement and Confidentiality Agreement are Good Alternatives to a Non-Compete Agreement

Non-compete agreements are a great tool for employers. They prohibit a former employee from working in a related field of business for a specified time and within a particular geographic area.  This of course prevents former employees from working for, and benefiting the business of, a competitor.

Unfortunately for employers, non-competition agreements have been found to be unenforceable in the State of California and restricted in some other states. In August of 2008, in a unanimous decision, the State Supreme Court ruled that non-compete clauses are unenforceable in California in most circumstances (there are exceptions in connection with the sale of a business and the dissolution of a partnership).  The court stated that this finding “advances the strong California policy favoring open competition and employee freedom.”  This policy against prohibiting restraint of trade is codified in Business and Professions Code Section 16600.

So how do you as an employer protect your business interests when an employee leaves?  By addressing these issues at hire.  A good alternative to the non-compete agreement in California and some other states with restrictions on noncompetes is a narrowly defined non-solicitation agreement and employee confidentiality agreement restricting former employees’ use of trade secrets in soliciting company customers.

After implementation of a properly drafted non-solicitation agreement, the employee may not solicit your customers while they are still with your company.  After they leave, they are restricted from soliciting your customers using trade secrets of your company, as defined by state law.  Note that California courts have held that a non-solicitation agreement that is not limited to protecting trade secrets is to be treated the same as a non-compete agreement and is therefore unenforceable.  The enforceability of non-solicitation agreements thus depends on whether they are tied to protecting trade secrets or not.

A non-solicitation agreement is an excellent alternative to a non-compete agreement for protecting the interests of business owners in California and some other states.  They can help the business owner safeguard their business customers while not excessively restricting an employee’s right-to-work in their chosen profession.

Use an Employee Confidentiality Agreement to Protect Your Business

Most business owners are familiar with employee confidentiality agreements.  However, many do not fully understand how effectively it can protect your business in similar fashion as would a non-compete.  For states like California where non-competes are unenforceable, an employee confidentiality agreement by itself or combined with a non-solicitation agreement are excellent business protection document alternatives.

The provision directly below shown in bold lettering was taken from an employee confidentiality agreement that I use.

That, during the course of my employment, there may be disclosed to me or I may otherwise be exposed to certain trade secrets and confidential information of the Company; said trade secrets and confidential information consisting of:

a)  Technical information, including methods, processors, formulae, compositions, inventions, machines, computer programs, and research projects.

b)  Business information, including customer lists, pricing data, sales and financial information, sources of supply, and marketing, production, merchandising systems or plans, and business plans; client lists; intellectual property holdings; correspondence, both internal and external in nature, email, computer files, software,  data, research, techniques, and licensing and other legal agreements.

2.  I shall not during, or at any time after the termination of my employment with the Company, use for myself, divulge to others, or permit or allow to be used for my benefit or to be divulged to others, any trade secrets, confidential information, or any other data of the Company in violation of this agreement.

Consider for a moment how difficult it would be for a former employee to compete against you in business without violating this agreement.  Sure it could be done, but clearly if adhered to, it prevents a former employee from legally using your most important information and customer base against you.  Further, confidentiality agreements are generally enforceable in California and other states.