Employer Can Be Liable for Honoring Non-Compete Agreement between Employee and Former Employer

Last month, in Silguero v. Creteguard, a California Court of Appeal held that an employer could be liable for wrongful termination in violation of public policy for terminating an employee to honor a non-compete agreement between the employee and a former employer.

In Silguero, plaintiff’s former employer requested “the cooperation and participation” of plaintiff’s current employer in enforcing a non-compete agreement signed by plaintiff. Although it understood that non-compete agreements were unenforceable in California, the subsequent employer fired plaintiff “out of respect and understanding with colleagues in the same industry.”

The Silguero Court explained that the “understanding” between the employee’s former and subsequent employers was void and unenforceable under Business and Professions Code §16600 because it unfairly limited the mobility of the employee, and because the former employer should not be allowed to indirectly accomplish that which it could not accomplish directly.

In finding that plaintiff could state a cause of action against her subsequent employer for wrongful discharge in violation of public policy, the Silguero Court found that Business and Professions Code §16600 was a fundamental public policy favoring open competition and employee mobility. Further, the Silguero Court found the “understanding” between the former and subsequent employers to be tantamount to a no-hire agreement.

While it has long been settled under California law that a former employer can be liable to an employee for attempting to force a subsequent employer to abide by a non-compete agreement, Silguero confirms that the subsequent employer may also be liable to the employee if it succumbs to the former employer’s demands.

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