Magazine article Workforce

Unlawful Noncompete Pact Challenged

Magazine article Workforce

Unlawful Noncompete Pact Challenged

Article excerpt

Aafter being hired by Playhut in California, Richard D'Sa was asked to sign an employee confidentiality agreement that contained a covenant not to compete following his discharge. When he refused to sign, USa was terminated.

He sued Playhut, claiming that his discharge violated California public policy embodied in its Business and Professions Code Section 16600, which provides that "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 trial court dismissed the case, holding that the noncompete clause of the agreement offered to D'Sa was "within a broader employ ment contract including 'choice of law' and 'severability' provisions" that allowed Playhut to enforce other parts of the agreement. D'Sa appealed and a California court of appeals reversed. It found that Playhut could not discharge D'Sa for refusing to sign the confidentiality agreement that contained an illegal noncompete covenant, even if the agreement contained choice of law and severability provisions. Thus, the termination was a wrongful discharge that violated California public policy.

D'Sa v. Playhut Inc., Cal. Ct. App., No. B 139673 (12/21/00).

Impact: Employers should be aware that a former employee's right to compete is governed by state laws that usually of are concerned that the restraint does not last too long or extend too far. In California, not only are most noncompete covenants Unl 1-fill, but thev also expose an employer to expensive wrongful-discharge claim. conversations illegal, an employer's announced policy of monitoring telephone conversations for business purposes might be sufficient to establish employee consent if the employee remained employed following adoption of the policy. …

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