Anti-Solicitation Agreements Under Fire

Employment lawyers, transactional lawyers and high-tech lawyers, take heed: The Court of Appeal for the Second District has just made doing business in California even more of a trap for the unwary. The decision, Thompson v. Impaxx, Inc. (2003), concerns the legitimacy of anti-solicitation agreements.

Pursuant to such agreements, employees promise that upon termination of employment, they will temporarily refrain from soliciting their former employer's customers. The Court held that conditioning an offer of employment upon such an agreement exposes an employer to liability for tortious wrongful termination.

California's courts have long recognized that terminating an employee for refusing to commit a crime or for protesting violations of law may be tortious. The tort is grounded in the notion that employers should not punish employees who are attempting to uphold laws that protect the public interest. However, until Thompson, the courts have carefully restricted the scope of the wrongful termination tort to circumstances in which the laws at issue meet a strict two-part test: (1) they must inure to the public interest; and (2) they must be well settled.

In Thompson, however, the Court has indicated that the tort should apply not only to well-established laws, but permutations of those laws that are difficult to detect and subject to the discretion of judge or jury. The Court noted that anti-solicitation agreements may constitute an unlawful restraint of trade under Business and Professions Code section 16600 – but not always – and that the issue will turn on the unique circumstances of each case. The Court further noted that such circumstances may require extensive factual investigation, with consideration of innumerable factors, including the employer's legitimate attempts to maintain its client list as a secret, and the efforts required to secure clients in the first place.

In other words, absent prior court adjudication of a particular employer's anti-solicitation agreement, and its application to a particular set of facts, employers cannot know whether such agreements will subject them to lawsuits and legal fees. Ironically, in the same breath, the Court notes that certain employers may implement such anti-solicitation agreements to protect the employer's trade secrets.

Such ambiguity is entirely inconsistent with the Supreme Court's earlier pronouncement that an essential element of a tortious wrongful termination is the employer's disregard of a public policy that is “well settled.” Gantt v. Sentry Insurance (1992), citing to Foley v. Interactive Data Corp. (1988). Such ambiguity is also inconsistent with the principle, also articulated by the Supreme Court, that employers should only be exposed to tort liability where they are “bound to know” the policies and laws allegedly violated by their actions.

Perhaps the Second District went too far. Or perhaps it only meant to warn employers that unrestrained use of anti-solicitation agreements is oppressive and a potential restraint of trade. Subsequent decisions on this issue are likely to clarify this area of law. In the meantime, however, be advised: Anti-solicitation agreements pose a trap for the unwary.

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