Under California law, an employment contract is a contract by which an employer engages an employee to do something for the benefit of the employer or a third person. Employment contracts can be either express or implied. An express contract is one the terms of which are set forth in words, which can be either written or oral. An implied contract is one the terms of which are manifested by conduct.

An employment contract can be used to address the term or time period of the employment, and other important aspects of the employment relationship: job duties, compensation, performance incentives, benefit plans and programs, property rights with respect to inventions and patents, etc. Three types of provisions which are frequently included are non-competition clauses, confidentiality/trade secret clauses, and arbitration clauses.

Non-Compete Clauses and Agreements

During the course of employment an employee has the duty not to compete with the employer’s business, in any way whatsoever. After termination of employment, an employee, like anyone else, cannot compete with the former employer “unfairly.” In the context of an employment contract, or termination of employment agreement, employers frequently seek to obtain the employee’s agreement not to do specific things which the employer contends would constitute unfair competition. At the present time, and outside the context of the sale of a business or the dissolution of a partnership, the enforceability of such clauses or agreements in California is unknown. What is known is that any contract, clause or covenant by which anyone is restrained from engaging in a lawful profession, trade or business is to that extent void; and that the list of things which an employee cannot legally be required to agree to refrain from doing is ever-increasing.

The enforceability of any specific non-compete clause, covenant or agreement must be addressed on a case-by-case basis. The likelihood with respect to any non-compete clause drafted more than two years ago is that it is unenforceable.

Confidentiality/Trade Secret Clauses

Confidentiality and trade secret clauses and agreements are siblings of and overlap with non-compete clauses and agreements. Again, during employment, the employee cannot use or disclose the employer’s confidential information or trade secrets for any purpose whatsoever, other than in the furtherance of the employer’s business. After termination, the employee cannot use or disclose the employer’s confidential information or trade secrets for improper purposes or unfairly. And again, and in California, any contract, clause or covenant by which anyone is restrained from engaging in a lawful profession, trade or business is to that extent void.

What we know is that an employer’s legitimate trade secrets will be protected from any improper use or disclosure by a former employee and by anyone else under a vast body of statutory and case law outside of and other than the employment context. Whether an employer can legitimately seek to protect any other contended “confidential” information, or impose any other restrictions upon a former employee’s use or disclosure of the same is unknown, and is doubtful.

Arbitration

Employment agreements to arbitrate disputes, and arbitration clauses within employment contracts are now commonplace. When a dispute arises between the parties, whether or not such arbitration agreements or clauses will be enforced by a court depends upon a number of factors developed by California case law. The agreement or clause must not be either “procedurally” or “substantively” “unconscionable.” Some of the specific provisions which must be included are: the employer’s agreement to pay all of the costs of arbitration; the allowance of discovery; the requirement of a written decision by the arbitrator; and the employee’s right to appeal the decision to a judge of the California Superior Court.

If you have entered into an employment contract, and if you have questions about the effectiveness or enforceability of any of its clauses or provisions, contact the California Employment Law offices of Virginia H. Gaburo & Associates to have your employment contract reviewed, and to get suggestions as to how it might be revised.

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