California Out of Competition?

November 16, 2015 – In The News
Los Angeles Business Journal

Yesenia M. Gallegos was featured in the Los Angeles Business Journal article “California Out of Competition?” Full text can be found in the November 16, 2015, issue, but a synopsis is below.

A new threat has emerged for California companies who hire out of state employees that hold noncompete agreements from their previous employers.

According to Fox Rothschild’s Yesenia M. Gallegos, companies in other states, where noncompete contracts are enforceable, have started including a “choice of law” provision in their noncompete contracts, which essentially demand the agreements be governed by the laws of their state.

“They’ll even take it a step forward by saying, Should any dispute arise out of this agreement, that dispute must be litigated in this state,” she said. “They think they can enforce an agreement anywhere in the country.”

Gallegos is currently representing a client at an intellectual property management firm in California who left a position in Massachusetts. The Client was sued in Massachusetts for breaching his noncompete contract but prior to the incident, the client sued in California which ended in the clients favor before it was resolved in Massachusettes .

“Once you get a judgment in one state court, if there’s an identical dispute pending in another state, the other state has to give full faith and credit to their sister state’s judgment,” Gallegos said. “The lesson for everyone involved, regardless of whose side you’re on, is get your ducks in a row and file your lawsuit first.”

Gallegos’ case could set a precedent, she said, because no court has published an opinion on choice-of-law regarding noncompete agreements which means that cases from the past may not have bearing on future claims.

“If I was an employer, I would want to know that I could recruit my competitor’s people,” Gallegos said.

Gallegos says it is important for employers in California to remember that noncompete agreements can still be enforced in other states.

“California has always been pro competition,” she said. “It wants to encourage employee mobility and it wants to allow California employers to hire the best talent in the world … but sometimes it’s a race to the courthouse.”