Contract Prohibiting Solicitation of Customers Post-Employment Unenforceable

By April 5, 2004Articles

In the recent case of Thompson v. Impaxx, Inc., the California Court of Appeal held that the firing of an employee for refusing to sign an agreement prohibiting him from soliciting customers for one-year post employment gives rise to a claim for wrongful termination.  Impaxx Inc demanded that Daniel Thompson sign a covenant which read: “For a period of one (1) year following the termination of employment, I will not call on, solicit, or take away any of [employer’s] customers with whom I have had any dealings as a result of my employment.”  Thompson refused and was fired for that reason.

The Court observed that in California anti-solicitation covenants are void as unlawful restraints on business, except where enforcement is necessary to protect information that is confidential, proprietary or a trade secret.  Courts are reluctant to protect customer lists to the extent that they embody information which is readily ascertainable through public sources, such as business directories, telephone books or the internet.   But where the employer has expended time and energy identifying customers with particular needs or characteristics, former employees will be prohibited from using this information to capture a share of the market.

As a general principle, the more difficult the information is to obtain, and the more time, money and resources expended by an employer in collecting it, the more likely a court will find that such information constitutes a protected trade secret.

Unfortunately for Impaxx, it did not establish that the customer information it sought to protect through its covenant not to solicit met these requirements.  The company’s customer lists were available to employees and the general public on their website.   Absent a protectable trade secret the right to compete outweighs the employer’s right to protect clients against competition from their former employees.  For this reason, the Court held that Thompson could sue Impaxx for wrongful termination.

Employers requiring employees to sign anti-solicitation agreements should be careful to narrowly draft such agreements to be sure that the information to be protected is confidential, proprietary or a trade secret.

For any questions or comments regarding this Labor Law Update please contact attorney Michael Daly of the Daly Law Firm at (619) 525-7000 or

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