It’s open season for poaching talent in Silicon Valley

Nick Saenz & John Frost Contributor

Nick Saenz and John Frost are attorneys at at Lewis & Llewellyn LLP, a boutique litigation firm in San Francisco specializing in complex corporate litigation.

Several recent court decisions have changed the landscape of California’s competition law, concluding that employee non-solicitation provisions are per se invalid. These cases have major implications both for mature companies relying on such provisions to preserve their talent pool, and for startups and other companies looking to attract the best people from their competitors.

California law is well-known for favoring open business competition. A fundamental part of this policy is that, unlike the overwhelming majority of other states, California generally does not allow companies to contractually prevent their employees from leaving to join or start a competing business. Unrestrained by “non-compete” provisions, employees can freely move among competitors, which helps facilitate the formation of disruptive new businesses and fuels the dynamic Silicon Valley economy.

But, while classic non-competes are invalid, companies have long been able to rely on certain other contractual provisions that do not flatly prohibit an employee from working for a competitor. One such provision is an employee non-solicitation clause, which, rather than barring an employee from working for a competitor like a non-compete, prohibits a departing employee from trying to recruit other, current company employees to join the departing employee at his or her new company. California businesses — large and small, early and late-stage — have routinely included such provisions in their employment contracts.

For some time the enforceability of these “employee non-solicit” provisions has been unclear and largely dependent on the facts of individual cases, but several recent decisions have treated employee non-solicit provisions like non-competes and concluded that non-solicits are invalid under California law. These decisions pave the way for new startups to more readily attract talent and increases the potential liability for companies that rely on non-solicit provisions.

In other words, the courts might have declared that it is open season for companies to poach another business’s talent pool.

Here’s a closer look at each case, followed by our analysis of the implications.