March 11, 2014

Court of Appeal Holds Customer Non-Solicitation Agreements Only Enforceable If Limited to Prohibiting Former Employees from Using Trade Secret Information to Solicit Customers

California Employment Law Update

In The Retirement Group v. Galante, a California Court of Appeal held that customer non-solicitation agreements are enforceable only to the extent they prohibit former employees from using trade secrets to solicit their former employer’s customers. The defendants in Galante had informed many of The Retirement Group’s (“TRG”) customers that they had left TRG for a new entity and gave them forms to transfer their business. TRG sought and obtained a preliminary injunction, which prohibited numerous categories of conduct, including directly or indirectly soliciting current TRG customers to transfer their business to defendants. The Court of Appeal held that the non-solicitation provision was not enforceable since it was not limited to restraining former employees from using or disclosing trade secret information to solicit TRG’s customers.