Cal-Peculiarities: How California Employment Law is Different 2022 Edition

334 | 2022 Cal-Peculiarities ©2022 Seyfarth Shaw LLP  www.seyfarth.com 12.5 Protection of Trade Secrets Virtually every state, including California, has enacted the Uniform Trade Secrets Act . 41 T he UTSA could forbid a former employee from using the former employer’s trade secrets, such as confidential client lists, to solicit client s. 42 12.5.1 Application to customer lists Some, but not all, customer lists qualify for protection as trade secrets. Important factors to consider are whether the names are generally known or readily ascertainable to others in the same business, and how much effort one would need to compile the lis t. 43 12.5.2 Application to employee identities A 2018 Court of Appeal decision rejected an employer’s effort to sue its former employees (certain traveling nurses) for raiding the employer’s employees; the employer claimed that the traveling nurses’ names and contact information were trade secrets. This information was not a trade secret, the Court of Appeal held, because the traveling nurses at issue had applied for employment elsewhere before they were recruited by the former- employee-defendants, and their identities were widely known within the industr y. 44 12.5.3 Inapplicability of “inevitable disclosure” doctrine In many jurisdictions, courts help employers victimized by disloyal departing employees by applying the “inevitable disclosure” doctrine, which holds that an employer can enjoin a former employee from working for a competitor where the employee’s duties with the competing employer are such that the employee would inevitably disclose the former employer’s trade secrets. In California it’s different. The Court of Appeal has rejected the inevitable disclosure doctrin e. 45 Employers concerned about theft of trade secrets can, however, use California’s version of the Uniform Trade Secrets Act, which authorizes injunctions against threatened misappropriation of trade secrets . 46 12.5.4 Preemption of common law claims premised on trade secret misappropriation theory? Employers once clearly could pursue tort claims for employee theft or misuse of company information, even if the misappropriated information was not a trade secre t. 47 But California courts have held that the California Uniform Trade Secrets Act (CUTSA) preempts tort claims—such as conversion, breach of loyalty, and tortious interference—that rely on the same nucleus of facts as a trade secret misappropriation claim . 48 Some federal court decisions have been more kind to employers, holding that the CUTSA does not preempt a tort claim when the claim relies on different facts or theories of liability than those supporting a trade secret claim , 49 and that a CUTSA defendant’s motion to dismiss on the basis of CUTSA preemption “cannot be addressed until it is determined whether the allegedly misappropriated information constitutes a trade secret. ” 50 But a federal district court has held that the trade secret status of allegedly misappropriated information can be determined on a motion to dismiss, and that the CUTSA preempts an employer’s claims for misappropriation of proprietary non-trade secret information unless (1) the information was “made property by some provision of positive law;” or (2) the non-trade secret claims allege “wrongdoing that is materiall[y] distinct [from] the wrongdoing alleged in a [C]UTSA claim. ” 51 The Court of Appeal has provided a narrower interpretation of the CUTSA’s preemptive effect, by finding that claims for breach of fiduciary duty, unfair competition, interference with business relations and conversion were not preempted by the CUTSA . 52