Unfair Competition & Non-Compete Agreements in California
June 23, 2022
If you operate a business, you’re no doubt aware that someone could come along and offer the same product or service at a better price—or they could use unfair competition practices to try to put you out of business. You’re understandably anxious to keep your trade secrets to yourself and not let them be usurped by competitors, or even by departing employees.
In California, to what extent can a business owner protect their enterprise against unfair competition and potential employee theft of internal documents and processes, including customer lists and trade secrets? Can you force workers into non-compete agreements so that they cannot start a copycat business like yours, or share your internal information with a competitor for whom they go to work?
If you’re operating a business in or around Santa Ana, California, and want to understand unfair competition laws and non-compete agreements, contact me at the Martinez Law Office, Inc. I have more than four decades of experience in helping businesses of all sizes protect themselves and understand all the laws governing their business operations.
In addition to Santa Ana, I proudly serve clients throughout Southern California, including Orange, Los Angeles, and San Diego counties.
Unfair Competition Laws in California
California law states that “unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” This is known as California’s Unfair Competition Law, or UCL for short.
Consumers, as well as businesses, are protected by the UCL. Consumers, for instance, can bring a lawsuit against a business for practices that are unfair, fraudulent, or unlawful, or for engaging in false advertising. For instance, a store may offer a toy for sale at an advertised price, but when the consumer goes there, the price is higher. Or perhaps the seller engages in “bait and switch” to a higher-priced product.
A business can likewise bring suit against a competing business for virtually the same reasons—practices or advertising that gives that business an unfair competitive advantage. For both consumers and businesses, the standard for bringing a lawsuit is that they were financially harmed by the unlawful act or false advertising.
Businesses that have suffered from unfair competition or false advertising can make claims based on business conspiracy, fraud, breach of fiduciary duty, tortious interference with contracts, or misappropriation of trade secrets and other proprietary information. Some examples of unfair competitive practices by businesses against other businesses include:
Trying to hurt one business by conspiring with other businesses to fix prices
Conspiring to isolate or boycott a business by joining with other businesses
Engaging in deceptive trade practices
Monopolizing markets or territories
Using one’s dominant industry position to obtain favorable but unfair prices to shut out others
Libeling or slandering a competitor through false advertising
& Employees Who Depart
California law is pretty clear that, in almost every instance, a non-compete agreement is unenforceable in the Golden State. A non-compete prohibits departing employees from starting a competing business or joining a competing firm, usually for a specified time period. Non-compete language is often included in employment agreements that may not be thoroughly parsed by employees when they join the company.
In March of 2022, in fact, the Attorney General of California, Rob Bonta, found the topic to be so misused and misunderstood that he issued a statement, saying:
“California law prohibits employers, including those who operate out of state but employ California residents, from enforcing non-compete agreements. Even when invalid, these agreements can discourage workers from seeking new opportunities, causing workers in a variety of professions to mistakenly believe that they cannot pursue or accept a competitor’s offer of better pay or working conditions in fear of facing legal repercussions.”
The Attorney General further noted that the non-compete language particularly hurts non-salaried, lower-wage workers, who comprise 53 percent of employees working under such clauses.
Though departing employees are thus free to seek employment in a similar position or industry, or even start their own similar enterprise, customer lists are protected trade secrets. Under California law, departing employees cannot use customer lists from their previous employer for at least one year. One way of seeking to protect trade secrets is to have employees sign non-disclosure agreements, which are generally enforceable in California provided that they are not too broadly worded. They must specify which information is covered by the agreement. It’s important to reach out to a business attorney to help you grasp your particular situation and your options moving forward.
Advertising Injury Insurance
A business’s general liability insurance will usually contain something known as advertising injury insurance. Advertising injury insurance is an important safeguard because it insures against offenses associated with the insured’s advertising of its goods and services, including acts of libel, slander, invasion of privacy, copyright infringement, and misappropriation of advertising ideas.
This insurance will generally cover legal fees, settlement or judgment costs, and other court expenses, including witness fees, up to the limit of the commercial policy purchased. For example, suppose you run an ad using advertising slogans or images from a competitor, and the competitor sues you. Your advertising injury insurance will help cover your liability.
How Skilled Legal Advocacy Can Help
Though non-compete agreements in California are not enforceable, non-disclosure agreements can help protect your business against employees who try to take your trade secrets with them when they depart. To protect your business as fully as possible, seek the advice and counsel of experienced employment law attorneys to create documents and policies that are enforceable.
As an attorney helping businesses with all their issues, I stand ready to help you with any issues you have in fighting off unfair competition, or in keeping in compliance with the Golden State’s codes and laws regulating your business. Reach out today to the Martinez Law Office, Inc. Located in Santa Ana, my office proudly represents clients throughout the surrounding counties of Orange, Los Angeles, San Diego, and the rest of Southern California.