Employers had until February 14, 2024 under the newly enacted AB 1076 to provide written notices to employees who were subject to a noncompetition agreement that these agreements were void (unless an exception applied).  With California passing this and other laws, prohibiting noncompetition agreements, what measures do employers have to protect their confidential information, and prevent employees from using hard earned information and client relationships, for their own benefit after they leave employment? 

The California Labor Code, as well as other aspects of California law, still provide many protections to employers.  While noncompetition agreements are not enforceable under California law, employers still have many resources to protect their information, client lists, and confidential data, and employees still have many obligations towards their employers:

1. Labor Code section 2856: Employees must comply with employer’s directions.

Labor Code section 2856 provides, “An employee shall substantially comply with all the directions of his employer concerning the service on which he is engaged, except where such obedience is impossible or unlawful, or would impose new and unreasonable burdens upon the employee.” 

2. Labor Code sections 2858 and 2859: Employees must exercise a reasonable degree of skill.

Labor Code section 2858 provides, “An employee is bound to exercise a reasonable degree of skill, unless his employer has notice, before employing him, of his want of skill.

Labor Code section 2859:

An employee is always bound to use such skill as he possesses, so far as the same is required, for the service specified.

3. Labor Code sections 2860 and 2863: Employee’s owe a duty of loyalty.

California codified an employee’s duty of loyalty to their employers in Labor Codes section 2860 and 2863.  Labor Code section 2860 provides that, “Everything which an employee acquires by virtue of his employment, except the compensation which is due to him from his employer, belongs to the employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.”

In addition, Labor Code section 2863 provides, “An employee who has any business to transact on his own account, similar to that intrusted to him by his employer, shall always give the preference to the business of the employer.”

Under this duty of loyalty, employees may not compete with their employer while still employed, take confidential information and share it with others for their own benefit, or use the employer’s confidential information after leaving employment. 

4. Employers may also assert a conversion claim against employee’s who misappropriate company items.

A claim for conversion may also be available under Civil Code section 1712.  This section provides that anyone obtaining a thing (such as a document, plans, equipment, or customer list) without the consent of the owner, or if consent is later rescinded, must restore the property to the owner. 

5. Other potential claims.

Employers may also utilize many other theories, such as unfair business practices in violation of Business and Professions Code section 17200, intentional interference with prospective economic advantage, intentional misrepresentation and fraudulent concealment, as well as misappropriation of trade secrets under the Uniform Trade Secrets Act. 

So while noncompetition agreements are generally not enforceable under California law, employers are not without recourse to protect their propriety information.