Does the California Uniform Trade Secrets Act Preempt a Common Law Breach of Loyalty Claim?

by William J. Brutocao

Excerpt:

When an employee decides to quit his job and go into competition with his employer, either by setting up a new enterprise or by working for a competitor, what part of his employer's information can he take with him? Turning that question around, what information can the employer protect from disclosure or use by a departing employee?

If there is a written employment contract, that document will of course have a substantial impact on the inquiry. Employers seek to prevent competition by departing employees. An employment contract might restrict competition, but in some jurisdictions, notably California, a post employment non-competition covenant is unenforceable. Cal. Business & Professions Code §16600; Dowell v. Biosense Webster, Inc., 179 Cal.App.4th 564 (2009). The employment contract might, however, include a nondisclosure clause whereby the departing employee is precluded from using or disclosing the employer's trade secrets and other proprietary or confidential information.

When there is no written contract, the question is controlled by common law rules. Until recently, the rules were straightforward. An employee has the right to seek alternative employment and to make preparations while still employed to compete with his employer after his employment terminates. The general rule used to be, however, that a departing employee could not use or disclose trade secrets, or other confidential information in his new venture.

The case of Bancroft-Whitney v. Glen, 64 Cal.2d 327 (1966), illustrates the point. The President of Bancroft-Whitney decided to go to work for its competitor Matthew Bender. The decision to leave his employment and prepare to work for a competitor did not violate any duty to his employer. The court noted: "The mere fact that the officer makes preparations to compete before he resigns his office is not sufficient to constitute a breach of duty. It is the nature of his preparations which is significant." 64 Cal.2d at 346.

Lexis.com subscribers can access enhanced versions of the opinions cited in this article:

Dowell v. Biosense Webster, Inc., 179 Cal.App.4th 564 (2009)

Bancroft-Whitney v. Glen, 64 Cal.2d 327 (1966)

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William J. Brutocao is a partner in the intellectual property firm Sheldon Mak Rose & Anderson in Pasadena, California, and heads the firm's litigation department. Mr. Brutocao is the chief consulting editor of California Intellectual Property Laws published annually by Lexis Nexis. Mr. Brutocao is also an adjunct professor of intellectual property law at the University of La Verne College of Law in Ontario, California.