Can an employee sue her employer for wrongful termination of employment where the employer terminates the employee after receiving a notice from her former employer that she had signed an invalid non-compete agreement?

That was the question in Silguero v. Creteguard, Inc., 187 Cal. App. 4th 60 (2010). The court determined that the answer is "yes". Moreover, because non-compete agreements involve a "fundamental public policy" of the State of California, the court allowed the plaintiff to proceed with her case on a theory of tortious wrongful termination, which would entitle her to recover punitive damages if she prevails at trial.

The plaintiff, Silguero, started working in 2003 as an in-house sales representative at Floor Seal Technology, Inc. ("Floor Seal"). In 2007, Floor Seal required Silguero to sign a non-compete agreement. A few months later she was terminated, and found new employment with Creteguard, Inc. ("Creteguard"). In response to a "shot across the bow" letter from Floor Seal, Creteguard terminated Silguero. In the termination notice, Creteguard told Silguero that although Creteguard understood that the non-compete agreement was invalid under California law, Creteguard was taking the step of terminating Silguero's employment since Creteguard "would like to keep the same respect and understanding with colleagues in the same industry".

After it was sued, Creteguard provided the real reason why it had terminated Silguero--out of an abundance of caution lest it have any liability to Floor Seal with respect to its hiring of Silguero. Creteguard also argued that it should not be liable to Silguero since Floor Seal, rather than it, had required Silguero to sign the unenforceable non-compete agreement.

The court disagreed, finding the interests of the employee as paramount.

Notwithstanding the court's protestations to the contrary, the case seems to expand significantly the liability of employers. Employers cannot take any adverse action against an employee with respect to any unenforceable non-competition agreement or restrictive covenant that the employee might have entered into with a previous employer, even if the employer's motivation is to prevent a lawsuit from the previous employer. To take any such adverse action exposes the employer to potential tort liability to the employee.