Don’t Steal Your Former Employer’s Customers (Unless You’re Confident…)
Many people know that, when one leaves a job in California, the former employer typically cannot stop the former employee from working for a competitor. However, some people mistakenly believe that the right to compete includes the right to steal the former employer’s customers!
According to Civil Code Section 3426.1(d), a trade secret is “information…that [d]erives independent economic value…from not being generally known to the public…and [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” For many employers, a customer list is an important trade secret.
Subsection (c) of that Section specifies a variety of circumstances that constitute misappropriation of a trade secret, including those involving “[d]isclosure or use of a trade secret of another without express or implied consent”. Use of a former employer’s customer list to solicit business from those customers, thus, might constitute misappropriation, irrespective of whether the solicitations ultimately are successful.
Threatened or actual misappropriation is subject to injunctive relief (Section 3426.2(a)). Section 3426.3 provides that one who misappropriates a trade secret may be liable for damages equal to the amount of the trade secret owner’s losses; the amount of any unjust enrichment gained; payment of a reasonable royalty; or twice any of the foregoing amounts in the event of willful and malicious misappropriation.
Whether the identity of a company’s customers is a trade secret is a matter for factual inquiry in any given case. For example, in The Retirement Group v. Galante, the California Court of Appeal for the Fourth District concluded that former employees should not be enjoined from soliciting the former employer’s customers where the identities of those customers, and their contact information, were readily available from other sources.
Bottom line: Once you leave a company’s employ, don’t use your former employer’s customer list unless you’re confident that the list does not constitute a trade secret.
Related post: Non-compete Enforced to Protect Trade Secrets
Photo credit: Bartlomiej Stroinski via stock.xchng
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.