Termination for Refusal to Sign Non-Compete Leads to Million Dollar Verdict

On December 20, 1999, a jury in San Francisco awarded $180,000 in compensatory damages and $1,080,000 in punitive damages to a former employee who was terminated by reason of her refusal to sign a non-compete agreement. Walia v. Aetna Inc., Cal. Super. Ct., No. 992768.

Although non-compete agreements are common elsewhere in the United States, including in New York, section 16600 of the California Business & Professions Code voids any contract “by which anyone is restrained from engaging in a lawful profession, trade or business of any kind.” The plaintiff, who was with the company for only 19 months, alleged that her termination violated the “public policy” embodied in section 16600. The judge and the jury both rejected the employer’s contention that the statute’s policy is violated only when a party seeks to enforce a non-compete.

Apparently, the employer was attempting to unify its operations by requiring that its West Coast employees sign the same agreement used by its East Coast employees. As the Walia verdict demonstrates, however, while internal consistency may be desirable for a business, it is imperative for employers to remember that state law does not necessarily permit such consistency. Not only is the employer in that case faced with a verdict in excess of $1.2 million, but still pending is the plaintiff’s application for an injunction to prohibit the use of non-compete agreements as an unfair business practice, as well as her request for attorneys’ fees under the private attorney general statute.