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1952 - 7.5-magnitude Kern County earthquake devastates Tehachapi; damage spread from San Diego to Las Vegas [story]
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Commentary by Carl Kanowsky, Esq.
| Friday, Feb 14, 2014
Carl Kanowsky, Esq.

Carl Kanowsky, Esq.

Craig Murphy, CEO of Propel Inc., a Minnesota company, came in to see me recently. He was thinking of expanding the company’s territory to include California. He had gotten favorable reviews of many of Propel’s products, including Whirl-A-Hurl.

You see, Propel makes this great playground equipment that kids love because they can operate the particular item to until they become violently ill, which kids — as all parents know — think is great. With Whirl-A-Hurl, the darling 9-year-old sits on a circular platform, and by moving his upper body back and forth, he causes the Whirl to go more and more quickly in a circle.

Think of the tea cups at Disneyland on steroids. The final result? Expulsion of lunch. Great, huh? Propel’s got dozens of these queasy-stomach, spinning-head products.

After he described his company to me, I figured Craig must have wanted advice on how many millions of dollars of insurance he would need to cover the deluge of lawsuits he should expect. But I was wrong. Expanding into California meant hiring California employees. He had numerous questions about California’s own brand of labor laws and regulations.

After I answered most of his questions, Craig seemed satisfied that he could maneuver through the Golden State’s murky employment-law depths. As a final item, he showed me an agreement he requires all of his current employees to sign, entitled, “Confidentiality, Nonsolicitation Agreement.” Among other things, it prohibited Propel’s employees from soliciting its customers or employees for one year after the employee left Propel.

I asked Craig what happens if someone refused to sign the so-called agreement or tried to negotiate parts of it.

“Why, I don’t hire the rascal, or I fire him if he already works for me,” Craig told me.

I explained to Craig that he might actually have more liability exposure forcing current or prospective employees to sign this agreement than he would have with his vomit-inducing toys.

Craig didn’t care for what I then explained was California’s law on such agreements.

First, Business and Professions Code section 16600 provides: “Every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.” The California courts have been clear — any type of agreement like this is against public policy, and the courts will not enforce them.

“But the employee can waive that protection, can’t he?” asked Craig. Sadly, no. As the Court of Appeal said in Weber, Lipshie & Co. v. Christian: “We are mindful of the admonition of the provision of Civil Code section 3513 that ‘a law established for a public reason cannot be contravened by a private agreement.’

“Also, we do not quarrel with the assertion that Business and Professions Code section 16600 was adopted for a public reason. It follows that (an employee) could not by agreement waive the benefit afforded under California law.”

Craig thought he had the solution when he said, “But it’s not a noncompetition agreement. It’s just a nonsolicitation agreement.”

Again, I had to be the bearer of bad news.

“Similarly, the broadly worded nonsolicitation clause prevents the employees for a period of 18 months post-employment from soliciting any business from, selling to or rendering any service directly or indirectly to any of the accounts, customers or clients with whom they had contact during their last 12 months of employment.”

“Ultimately, these provisions restrain employees from practicing their chosen profession. Indeed, these clauses are similar to those found to be void under section 16600.” Thus spake the Court of Appeal in Dowell v. Biosense Webster Inc.

His last argument was that since Propel is a Minnesota company, and Minnesota allows noncompete agreements (as discovered to its dismay by the Santa Clarita-based Advanced Bionics in 2002), then Minnesota law should apply.

Unfortunately, California courts have ruled that since the freedom to work is such a fundamental public policy, it will likely apply California law in cases involving California residents.

Craig’s reaction to California law? He hurled.

 

The company, business owner and product in this column are fictional for purposes of illustrating California state employment laws. Carl Kanowsky of Kanowsky & Associates is an attorney in the Santa Clarita Valley. He may be reached by email at cjk@kanowskylaw.com. Nothing contained herein shall be or is intended to be construed as providing legal advice.

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