restricting your subscribers from hiring your employees October 4, 2018

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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restricting your subscribers from hiring your employees
October 4, 2018
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restricting your subscribers from hiring your employees
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    As an employer you don't want to train employees or entrust them with your proprietary and confidential business information only to have a competitor or subscriber hire them away from you.  Restricting unfair competition from competitors is covered in the Employment Agreement.  Prohibiting your subscribers, or providing for monetary compensation, when the subscriber hires your employee is covered by in the All in One agreements.
    Enforcement of these provisions differs state to state.  Certainly the restrictive provision will only be enforced to the extent necessary to protect your business interests while not unnecessarily restricting the employee from earning a living.  At least one state has a law that severely restricts the use of this kind of provision in an agreement.  I had one of our attorneys research the issue for California and here is his report follows.  Based on his opinion we will no longer include the restrictive covenant in the All in One agreements, the Handbook or the Employment Agreement in California.
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    California has a strong public policy against agreements that prohibit customers from working for a competing company or starting up a competing business themselves. All blanket non-competes are automatically void under state law. Courts have also held agreements that prevent former customers from soliciting the company’s employees generally are not enforceable, unless they are limited to protecting the company's intellectual property rights and trade secrets.
    The California Supreme Court interpreted Section 16600 of the Business and Professions Code to prohibit non-solicitation clauses, based on this language in the statute: “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.”
    In addition, the court held that "non-solicitation covenants are void as unlawful business restraints except where their enforcement is necessary to protect trade secrets."  Thompson v. Impaxx, Inc., 113 Cal. App. 4th 1425, 1429, 7 Cal. Rptr. 3d 427, 429 (2003).
    Despite the near blanket prohibition on non-solicitation, Cal. Bus. & Prof. Code §§ 16601 and 16602 do permit covenants not to compete in two narrow situations: where a person sells the goodwill of a business, and where a partner agrees not to compete in anticipation of dissolving a partnership. These exemptions are so specific, that California courts have interpreted the legislation to reinforce the conclusion that “covenants not to compete in contracts other than for sale of goodwill or dissolution of partnership are void.” Id.
    As a result, the non-solicitation provision should be removed from the California agreement.
Jonathan Rogoff, Esq.
Kirschenbaum & Kirschenbaum PC
200 Garden City Plaza, Suite 315
Garden City, NY  11530
Office: (516) 747-6700, ext. 307
Email: jrogoff@kirschenbaumesq.com
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
516 747 6700
www.KirschenbaumEsq.com