* Co-authored by Kathryn T. McGuigan.
In the recent case of Dowell v. Biosense Webster, Inc., No.B201439, the California Court of Appeal stated in dicta that it doubted the continued viability of the common law trade secret exception to covenants not to compete. The Dowell Court left open the question as to whether or to what extent courts will enforce agreements to protect trade secrets.
On January 29, 2010, in an unpublished opinion, Majestic Marketing, Inc. v. Nay, No. E047085 (Fourth District, Division Two), at least one California Court of Appeal appears to have recognized the viability of the trade secret exception to California Business & Professions Code ¶16600 prohibition of employee non-competition agreements.
The Majestic Marketing employee handbook included a clause which, among other things, identified company trade secrets and prohibited employees from using those trade secrets. Majestic brought suit against two former employees claiming that while they were still employed and after, the employees had misappropriated trade secrets (customer lists), in violation of the clause to form another company. The trial court entered a preliminary injunction prohibiting the defendant employees from using any Majestic customer information and barred them from doing business with about 3,000 Majestic customers for the two-year prohibition period contained in the employee handbook. The employees were also required to return all Majestic information and property. The Court of Appeal affirmed.
The Court agreed with the trial court that Majestic’s customer information was a protectable trade secret as defined under the clause in Majestic’s handbook and stated that “[d]espite California’s broad prohibition against noncompetition agreements, covenants not to compete may be enforced to the extent that enforcement is necessary to protect a company’s trade secrets.”
The Majestic Court decision therefore gives some indication that the trade secret exception may operate where the employer can establish that the information at issue is a trade secret. However, the California Supreme Court has yet to weigh in and for now, the viability of the trade secret exception remains an open issue.