Termination and Employment Agreements: What You Need to Know to Protect Your Interests

Posted by: kevensteinberg
Category: Blog, Employment Law

Under California Labor Code § 2922, California is an at-will employment state with employment that has no specified term being terminated at the will of either party on notice to the other. Things change when an employer has a contract with an employee, however.

Whether you are discussing an employment contract, a non-competition agreement, or non-solicitation agreement, there can be a multitude of issues at play. When you have any kind of employment law issue you need help resolving, do not wait to contact an experienced Los Angeles small business attorney.

Important Contractual Concerns

California Labor Code § 2924 provides that employment for a specified term can be terminated at any time by an employer for any willful breach of duty by an employee in the course of their employment, or in case of their habitual neglect of their duty or continued incapacity to perform it. California Labor Code § 2925 establishes that employment for a specified term can also be terminated by an employee at any time in case of any wilful or permanent breach of the obligations of their employer to them as an employee.

Employment contracts, non-competition agreements, and non-solicitation agreements may be challenged under California Business and Professions Code § 16600, which provides a rule voiding any contract limiting an employee’s ability to engage in their profession. This means that every contract under which any person is restrained from engaging in their lawful profession, trade, or business will be void.

In General Commercial Packaging, Inc. v. TPS Package Engineering, Inc., 126 F.3d 1131, 114 F.3d 888 (9th Cir. 1997), the Ninth Circuit United States Court of Appeals held that “a contract does not have to impair a party’s access to every potential customer to contravene section 16600.” In Diodes, Inc. v. Franzen (1968) 260 Cal. App.2d 244 [67 Cal. Rptr. 19], the second district division five of the California Court of Appeals held that the “interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interests of the employers, where neither the employee nor his new employer has committed any illegal act accompanying the employment change.”

Metro Traffic Control, Inc. v. Shadow Traffic Network, 22 Cal.App.4th 853, 27 Cal. Rptr. 2d 573 (Cal. Ct. App. 1994) was a second district division four Court of Appeals of California case in which the court held that Section 16600 has been held to invalidate employment contracts which prohibit employees from working for competitors when employment has terminated, unless necessary to protect an employer’s trade secrets. There is an exception for restrictions that are carefully limited and an agreement that protects a proprietary or property right of an employer recognized as entitled to protection under the general principles of unfair competition.

It is important to note that information identified as a trade secret must actually be a trade secret, as Gordon v. Landau, 49 Cal.2d 690, 321 P.2d 456 (Cal. 1958) was a Supreme Court of California case in which the court held that an agreement restricting a door-to-door salesman from using his former employer’s confidential customer list was valid under California Business and Professions Code § 16600. In Latona v. Aetna United States Healthcare Inc., 82 F. Supp. 2d 1089 (C.D. Cal. 1999), however, the United States District Court ruled that an employer’s attempt to protect information it regarded as a trade secret did not qualify since the information was publicly available on Aetna’s own website.

Types of Employment Contracts

As the California Employment Development Department (EDD) states, contracts may be written, oral, express, or implied. While the California Civil Code specifically prohibits some contracts from being oral, people need to understand that oral contracts often remain just as enforceable as written ones.

While oral contracts can indeed be legally binding, they can also be more difficult to prove in court. California Civil Code § 1624 is the state Statute of Frauds, meaning that certain contracts will be required to be in writing, such as:

  • An agreement that by its terms is not to be performed within a year from the making thereof.
  • A special promise to answer for the debt, default, or miscarriage of another, except in the cases provided for in California Civil Code § 2794.
  • An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein; such an agreement, if made by an agent of the party sought to be charged, is invalid, unless the authority of the agent is in writing, subscribed by the party sought to be charged.
  • An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate, or to lease real estate for a longer period than one year, or to procure, introduce, or find a purchaser or seller of real estate or a lessee or lessor of real estate where the lease is for a longer period than one year, for compensation or a commission.
  • An agreement that by its terms is not to be performed during the lifetime of the promisor.
  • An agreement by a purchaser of real property to pay an indebtedness secured by a mortgage or deed of trust upon the property purchased, unless assumption of the indebtedness by the purchaser is specifically provided for in the conveyance of the property.
  • A contract, promise, undertaking, or commitment to loan money or to grant or extend credit, in an amount greater than $100,000, not primarily for personal, family, or household purposes, made by a person engaged in the business of lending or arranging for the lending of money or extending credit. For purposes of this section, a contract, promise, undertaking, or commitment to loan money secured solely by residential property consisting of one to four dwelling units shall be deemed to be for personal, family, or household purposes.

Express contracts are contracts that have been either memorialized on paper or otherwise agreed to for the benefit of both parties. The only requirement of an express contract is that the terms and conditions are stated and that the parties expressly agree to them.

Implied contracts will be enforceable agreements in which promises are not expressed in words, as they are instead based on party actions, conduct, and circumstances in which there is mutual consent between the parties to be bound to certain obligations. When there is a legally enforceable agreement between parties, there can be an implied-in-fact contract.

Contact Our Los Angeles Small Business Attorney

Are you struggling to deal with a contractual issue relating to your job? Make sure you speak to Steinberg Law about what can be done in your case and get the legal help you need. 

Our firm understands how complicated these kinds of issues can be for most people, but we will take the time to explain all of your options to you and help you achieve the most favorable outcome to your case. Call (818) 855-1103 or contact our Los Angeles small business attorney online to schedule a free consultation.

Author: kevensteinberg