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What does California law say about non-competition agreements when a high-level executive from one company moves over to the competition?
If you're in the Silicon Valley, you know where this conversation is going. Yahoo finally named a new CEO.
And here's the kicker-- they snatched up a high-level executive from the company that was driving them into the ground: Google.
Yahoo announced that the new CEO will be Marissa Mayer, formerly Employee Number 20 and a Vice President at Google, reports The New York Times' Dealbook. Those in Silicon Valley certainly know Mayer as one of the movers-and-shakers around here. She was responsible for many key products at Google and was privy to all sorts of trade secrets and inside information.
Now, she's taking that brain full of secrets to Yahoo, along with her Rolodex of contacts and her inside knowledge on what made Google crush Yahoo.
But how will Google react?
Google is notorious for their non-compete agreements and their non-disclosure agreements. So how's that going to work out, now that Yahoo is placing a member of the Google camp at its helm?
Luckily, California courts have seen this scenario play out before. In a nutshell, California law does not allow outright prohibitions on competition. This was addressed by the California Court of Appeals in Kolani v. Gluska in 1998. There are a few situations (namely, during the sale of a business or its shares) where a non-compete won't face such prohibition.
Another case, Edwards v. Arthur Andersen, eventually made it to the California Supreme Court in 2008. In that case, the Supreme Court of California addressed the validity of non-compete agreements in a scenario involving a former Arthur Andersen employee who went to work for a client.
The Supreme Court of California concluded that section 16600 of the Business and Professions Code prohibits employee noncompetition agreements unless there is a statutory exception. Generally, these statutory exceptions are seen in cases of corporate or partnership dissolution.
Also, some California courts will say that non-compete agreements may be upheld if they are narrowly-tailored to protect trade secrets.
Nevertheless, Google has a team of powerful lawyers. It's hard to say what Marissa Mayer has up her sleeve but if a team of Googlers follow her to Yahoo, Google might turn to other restrictive covenants that aren't as easily invalidated under California law, such as covenants not to solicit former employees.