©2023 Seyfarth Shaw LLP www.seyfarth.com 2023 Cal-Peculiarities | 343 In the underlying case, Techno Lite, a seller of lighting transformers, employed Scott Drucker, who formed Emcod, LLC to operate as a “backup” for Techno Lite customers. Techno Lite allowed Drucker to operate Emcod because he promised that he would run Emcod on his own time, and that Emcod would not compete with Techno Lite in the lighting industry. When Drucker resigned, Techno Lite sued him, alleging that he used Emcod to siphon off Techno Lite’s accounts and divert its business to Emcod. Discovery revealed that while Drucker was an employee, emails had gone to Techno Lite customers to switch them over to Emcod, representing that Emcod’s owners were in the process of buying out Techno Lite. In affirming judgment for Techno Lite, the Court of Appeal made these observations: 36 Business & Professions Code section 16600 does not prevent an employer from limiting employee during employment. California law does not authorize an employee to transfer his loyalty to a competitor. During employment, employers are entitled to their employees’ undivided loyalty. An employee’s promise not to compete with the employer while the employee remains employed is not void. While an employee may secretly incorporate a competing business before departing, the employee may not use the employer’s time, facilities, or proprietary secrets to build the competing business. Soliciting an employer’s customers may constitute a violation of the employee’s duty of loyalty. The Supreme Court’s decision in Edwards v. Arthur Andersen37 did not address—much less invalidate— an employee’s agreement not to undermine his current employer’s business by surreptitiously competing with it while being paid by the employer. An employer has no duty to monitor employees for non-compliance with their promise not to compete. Rather, those employees have a duty to disclose their intention to compete. 12.4.2 Covenants not to solicit or raid employees During employment, an employee, even in California, owes a duty of loyalty to the employer—which can include a duty not to solicit co-workers to leave employment.38 A 1985 Court of Appeal decision in Loral v. Moyes upheld a limited agreement by an executive not to solicit his former co-workers for a period of time after his employment.39 Whether such an agreement is valid after the California Supreme Court’s 2008 decision in Edwards v. Arthur Andersen is unclear. A federal court case applying California law, however, held that provisions forbidding solicitation of employees would remain enforceable if they were limited in duration and scope.40 (Of course, an anti-raiding provision may be of scant practical comfort to many employers, because former employees—or their new employers—are free to hire people who make unsolicited requests to join the new employer.) A 2018 Court of Appeal decision dealt a blow to employee non-solicitation agreements, however. An employer had its travel nurse recruiters agree that during their employment and for one year thereafter they would not “directly or indirectly solicit or induce, or cause others to solicit or induce, any employee of the Company … to leave the service of the Company.” The employer then sued the former nurse recruiters for breach of contract when they invited their former co-workers to join a competing company. The Court of Appeal, doubting the “continuing viability” of Loral v. Moyes, struck down this non-solicitation provision under section 16600.41 The Court of Appeal reasoned that even if Loral did survive Edwards’s broad interpretation of section 16600, the restriction here was not a reasonably narrow restriction with slight effect, but
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